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In 2023, Indian company Noise became the world’s third-largest smartwatch maker. It was only behind Apple and Samsung on this list. But what’s impressive about Noise is that it was started only seven years ago, as against other decades-old companies in this list. And what’s even more impressive is that it was a completely bootstrapped company at the time. Today, Noise is the market leader in its segment in India and is building future tech products from India for the world.
So how did two cousin brothers, who grew up in the tier-two town of Bikaner in Rajasthan, build one of the largest hardware companies in the world? And what are some lessons that they have learnt from past failures like Micromax and other companies? Let’s understand all of this, in this video of Backstage With Millionaires.
Noise didn’t start as a smart-wearable company as we know it today. It was started as a phone-cover company. One of the co-founders Gaurav Khatri was a tech buff in his younger days. In 2007, when Apple launched its first iPhone, Gaurav asked his cousin brother Amit to get it for him. Amit was 10 years older than Gaurav and was working in Hong Kong at the time. This was Gaurav’s first smartphone and when he received it, he was elated. Next, he started looking for an iPhone cover and found one on eBay. But the issue was, it wasn’t available in India. He again turned to Amit, to get it from Hong Kong. And when he finally got it, people around him appreciated it so much that Gaurav realised there was a business opportunity here. At this time, he was only 17 years old, and so starting a business wasn’t something he thought was feasible.
Over the next few years, Gaurav got his business degree but his love for gadgets remained. And by 2014, India was seeing a smartphone revolution. New companies were forming and the smartphone adoption among Indians was rising rapidly. People flaunted their new phones and more than the phones, it was the stylish covers, that people talked about with their friends. Gaurav understood this shift in the market and during one of Amit’s trips to Hong Kong, he asked him to get 50 phone covers for a newly launched Xiaomi phone. When Gaurav listed these products on e-commerce marketplaces, they were sold out within 15 minutes. The brothers realised they were on to something, and that’s how Noise 1.0 was born in 2014. In the same year, they set up a factory in India to manufacture these phone covers locally, and by the end of the first year, they did 7-8 crores in sales. Next year in 2015, the sales increased to 24 crore Rs and they became the market leader for phone covers in India.
Although their sales were growing rapidly during this time, Gaurav and Amit were worried about their business. The first thing they realised was that their business was a ‘commodity business’ which meant that they didn’t have any differentiation. All they were playing on, was price, and anyone with a cheaper price, could beat them. There was no brand in this business. Secondly, phone covers had a very low barrier to entry, and with the rise of e-commerce platforms like Amazon and Flipkart, their business had no defensibility or a real moat.
And so in 2017, Gaurav and Amit started looking for the next product they could sell. And like the first time, Apple showed them the way. You see, Apple launched their first smartwatch in 2015, and then in 2016, they launched their first wireless Airpod. These two products created a new industry in the tech world ‘smart-wearables’. By the end of 2017, Apple had sold more than 18 million smartwatches and around 15 million Airpods. The wearables market was growing like crazy but here in India, this market was almost non-existent - in fact, this article puts the number of smartwatches sold in India back in 2014 at just 1 lakh units and this number were to grow to 5 lakhs by 2015.
Both Amit and Gaurav placed their bet on smartwatches and their growth potential in India, and that’s how Noise 2.0 was born in 2016. See, at the time, there was a market for fitness bands in India, companies like Xiaomi and GOQii had a stronghold on this market, but there were some issues with these bands. Firstly, the quality ones were really expensive. Amit for eg. tried to buy a Fitbit in India but was surprised by its price of around 25,000 Rs. He realised that it wasn’t affordable for most Indians. And the next issue with these bands was their utility. These bands mainly allowed you to track only your health indicators, which if you compare with the Apple Watch at the time, was too little. And Noise wanted to solve this, by offering more utility but at a price that an average Indian could afford.
And once they decided that they would sell smartwatches, the next issue was to figure out its supply chain and manufacturing. See, in 2016, manufacturing a smartwatch in India was unthinkable. You had to figure out an operating system, put sensors and algorithms into it and finally manufacture it on scale. Because of this, Gaurav and Amit sought help from tech partners in Taiwan and China. The idea was to import raw materials and tech from these countries and then assemble them here in India. This was one of the first smartwatches made by Noise. Their U8 smartwatch. And if you go to Amazon, you can still find this watch and if you look at the dates, it was launched in 2015. And if you check the manufacturer it’s not Noise, it’s some company called “Salon Technologies” - which must be one of their manufacturers in Taiwan or China from where they sourced their first smartwatch. And this first watch wasn’t really a success - just look at the rating - they got 3.2 stars from 198 ratings and some of the reviews are really bad. Here’s what their first review on Amazon said “Zero stars. It's not switching on at all.” Another user said that the watch had no branding or logo of Noise and it didn’t look like it was shown in the pictures.
But despite these early hiccups, Noise kept making their smartwatches better by listening to their customer's feedback and in 2018 launched their flagship smartwatches ColorFit and ColorFit Pro. These became a hit among users because of their affordability and exciting features. Same year, Noise launched their first wireless earbuds. Their positioning of offering aspirational, high-engagement utilities at an affordable price was striking a chord among customers, and this reflected in their revenue. In Financial Year of 2018, which was their first full year of doing business since their pivot, they earned a revenue of 24 Crore Rs, which jumped up to 42 Crores in FY19 and 156 Crore Rs in FY20.
2020 was bad news for most businesses, as the COVID-19 shutdown had disrupted most supply chains, but one good thing COVID did was, it made people more conscious of their health. People now wanted to track how many calories they burnt, or what’s the oxygen level in their blood. And because of this, smartwatches, which were up until now a fad, became a must-have product. This spiked the demand for smartwatches in India. Remember I told you that India only bought 5 lakh smartwatches in 2015? That number increased to 26.6 Lakh in 2020 and grew to 1.2 Crores in 2021. And Noise was in the perfect position to capture this demand. They were making smartwatches since 2016, and by now, were a well-oiled machine. According to this report from early-2020, Noise was selling four products every minute at the time, and by the end of next year, it became the market leader in this industry with a 27% market share. They even became the world’s third largest smartwatch brand in 2022 - behind only Apple and Samsung. Not a small feat for a 6-year old bootstrapped startup. And in terms of revenue, it increased to 370 Crore Rs in FY21 and almost 800 Crore Rs in FY22.
So, does this mean everything is going well for Noise? Not really. They are now facing the same issue what Gaurav and Amit faced with phone cover business in 2016. They are facing huge competition and their product is getting commoditised. You see, when Noise started, they were one of the few smartwatch makers in the country but as of now, there are now more than 80 companies making smartwatches. Companies like Boat and Fire Boltt - which earlier weren’t focused on smartwatches are now getting into this category. Boat for eg. had just 2.8% market share, in smartwatches category in 2020, and this increased to 25% by the end of 2021. This is because of aggressive marketing by Boat and the marketing power that came with Aman Gupta coming on Shark Tank. Noise on the other hand, which is bootstrapped company didn’t have any of these.
The next issue is, over-dependece on smartwatches. You see, more than 80% of Noise’s revenue comes from smartwatches, and this can become an existential crisis for them as more people start making smartwatches. And finally, there are complaints regarding quality of the products and their after-sales services.
So what is it that Noise is doing to work on these challenges? We talked about how Boat is succeeding because of aggressive marketing, well Noise is now trying to do the same. In December 2022, the company poached Virat Kohli from its competitor Fire Boltt and made him its brand ambassador. This aggressive marketing is hurting Noise’s profit margins for now. In FY23, they had a gross margin of around 30% but their net profit was just 0.07%, it seems they don’t have any choice if they want to stand apart from the other brands.
Another thing Noise is doing to stay in business is investing in research and development. In 2022, they started Noise Labs, their in-house incubator to tinker and experiment with new technology. The idea was to find the next hero product and it seems they have found one. This is Luna, a smart ring, which according to many people, is the future of smart wearables. It’s like putting all the smartwatch features focused on your health in a ring and removing all the distractions. According to this report, the global smart ring market was estimated to be worth just 147 million dollars in 2022 and is expected to grow to 1.4 billion dollars by 2032, a 10x growth. While this is a tiny market right now, Noise wants to get in early and create this category, the way they did with smartwatches. Big players like Apple and Samsung are reportedly working on smart rings, which proves the utility of this product. And this ring by Noise is priced at 20,000 Rs currently, which shows Noise is playing in the mass-premium and affordable segment, similar to their smartwatch strategy.
The next market that Noise is trying to crack is wireless earphones. Last year, Noise raised their first-ever investment round from Bose and this is a pretty huge deal. Audio devices are the biggest segment when it comes to the wearable device market in India, and currently this is dominated by Boat and Noise only has around 7-8% market share, but with the strategic help of Bose, they can become a key player in this space.
And finally, Noise is bringing their manufacturing in-house. This will one, help them control quality and next, play on the Make-in-India image. They’ve partnered with Optiemus Electronics and Taiwan’s Foxconn and have announced a joint venture with IL Jin Electronics to localise the manufacturing of their products. This will help them in bringing down their manufacturing costs and increase their gross margins, giving them more control over their product and supply chain.
In the end, let me know what is your take away from this case study about Noise. What do you think is its future? Will it be able to create a global wearable brand from India or would it end up like Micromax? Let me know in the comments and I will see you in the next one.