LG Electronics is transforming from a traditional appliance manufacturer that sells products once to a company that generates ongoing revenue after the sale. The strategy involves adding advertising, content, subscription, and management services to hardware like refrigerators and TVs, creating a structure that allows for continuous earnings post-sale.
According to industry sources, LG Electronics aims to derive half of its total revenue and 75% of its operating profit from platform-based services, business-to-business (B2B) transactions, and new ventures by 2030. The company envisions redefining its identity from a maker of appliances to a 'smart life solution provider.'
The most advanced example of this shift is in its television segment. LG has developed the webOS operating system, acquired in 2013, into an advertising and content platform. Each TV sold generates revenue through ads and content displayed on the screen. Devices running webOS have surpassed 200 million globally, with a goal to reach 300 million. The company is not only focusing on its own TVs but also supplying the platform to other manufacturers and expanding its reach into Genesis and Kia vehicles as well as commercial signage. This strategy capitalizes on the nature of platform businesses, where increased device numbers lead to higher advertising revenue.
In the appliance sector, subscriptions play a similar role. Customers pay a monthly fee instead of making a one-time purchase. LG bundles consumable replacements and maintenance visits to maintain customer engagement post-sale. The company plans to expand rental and care services to manage the entire home, transforming appliances into a service that oversees the living space. The share of B2B business has also increased from 27% in 2021 to the mid-30% range recently.
This transition is driven by the limitations of hardware growth. Refrigerators, washing machines, and TVs have already achieved high penetration rates and long replacement cycles. Sales can fluctuate with economic conditions and housing transactions, making it difficult to rely solely on device sales for stable revenue. Recurring revenue helps mitigate this weakness. Subscriptions provide consistent income throughout the contract period, while platforms continue to generate advertising revenue even when sales stop.
LG's second-quarter results demonstrate that this strategy is translating into actual profits. The company's preliminary operating profit for the second quarter reached 1.5788 trillion won, a 146.9% increase from the previous year. While sales grew by only 14.9%, the profit increase was ten times that amount. The operating profit margin rose from 3.1% to 6.6%. The company cited the growth of high-margin businesses like webOS, subscriptions, and online services as key contributors to this profit improvement. This indicates that how products are sold is becoming as important as what is sold.
Industry observers note that the speed at which this transition is taking hold is crucial. LG Electronics is set to disclose performance by business unit at an earnings briefing on the 30th, which will provide insight into the company's progress toward its goal of achieving 75% operating profit from these new initiatives.
* This article has been translated by AI.
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