Xiaomi: Will It Become the New Apple at Half the Price?
Chinese electronics company Xiaomi first entered China’s smartphone market back in 2011, with the release of the Xiaomi Mi 1. Fast forward to today, and Xiaomi is the #5 smartphone brand in the world. Over the past seven years, the company’s growth has sky-rocketed; in fact, our Global Smartphone and Tablet Tracker shows that Xiaomi boasted an install base of 250 million smartphone users globally in May 2018.
Remarkably, 56% of Xiaomi’s active smartphones are in markets outside of China, which speaks volumes for its global ambitions. Besides phones, the company is known for a whole host of smart devices: lights, air purifiers, robot vacuum cleaners — the list goes on. Yet, the focus remains on the smartphone market.
Xiaomi Raised $4.7 Billion at a $54 Billion Valuation
Xiaomi went public early last week, with its debut on the Hong Kong Stock Exchange. Although the company raised around $4.7 billion, this was nowhere near the $8.5 billion it was hoping to raise when the IPO was first announced back in May. Xiaomi has since made it clear that this new-found capital will be used to help fund its international expansion, increase the presence of its physical stores, and continue to invest in new products and services. And Xiaomi certainly isn’t waiting around to act on this strategy, as the company has already planned a global product launch in Madrid on July 24, where it is expected to launch the Xiaomi Mi A2.
What’s Next for Xiaomi?
One of Xiaomi’s main draws for consumers is that it offers high-end phones at affordable prices. The devices are often compared to Apple’s — both in terms of design, functionality, and specs; even some of the Chinese company’s advertising has drawn comparisons to Apple’s ad campaigns. And Xiaomi’s well-designed, innovative, and high-quality smartphones — belonging to their own family of services and related devices — are certainly reminiscent of Apple’s everything-connected strategy.
Still, there’s a major difference between the two companies: Xiaomi, in a bid to keep the prices of its smartphones down, makes little profit from its hardware. The company has explicitly stated that it will keep its profit margins below 5%. This is good news for fans, of course; yet, it means that Xiaomi’s financial success depends on its ability to monetize its services. Going public has given the company a comfortable cash injection, but staying ahead of the competition — especially in China — is vital, particularly when it comes to developing new hardware and Internet services. These things require substantial funding, and right now, it is uncertain whether that is possible with a hardware profit margin below 5%.
Another difference is that while Apple focuses on a select few products, Xiaomi — as mentioned above — has its eggs spread across many baskets. The company’s “triathlon” business model puts it in a unique position, featuring a three-pronged approach: selling hardware, selling products through stores both on- and offline, and Internet services.
“You shouldn’t think of Xiaomi as a hardware company, or an Internet company, or an e-commerce company,” said the company’s CFO, Chew Shou Zi, at the Xiaomi IPO. “We are the rare company that can do hardware, and do Internet, and do e-commerce.”
So, even though the company’s focus is on smartphones, Xiaomi is looking to entice customers to buy into a variety of their non-smartphone products. This tactic has even seen some early wins globally: Xiaomi’s electric scooters have been something of a hit in the U.S., with transit startups such as Spin and Bird adopting Xiaomi scooters. This has led to an influx of rebranded Xiaomi scooters across U.S. cities, particularly in San Francisco.
Xiaomi’s Challenges: Internet Services and Securing Success in China
Xiaomi boasted an impressive user base of 250 million in May 2018, but the company still faces a number of challenges. For example, it has seen a steep decline in active users in China recently, losing out to competitors such as Oppo, Vivo, and Huawei. The Oppo R9 and Vivo X9, in particular, have won over many Chinese consumers, even though Xiaomi’s devices generally get positive reviews from consumers and critics alike.
Xiaomi’s positive media coverage, attractive price points, and features that play into consumer demands all put the company in a solid position for a comeback in China, especially now that it’s improving its physical retail channels. A low number of retail stores was actually reported as one of the key reasons for Xiaomi losing its market share in China. All in all, it is crucial for Xiaomi to resume its success in China — the country the “triathlon” business model is most likely to be successful.
Xiaomi has already enjoyed success in markets outside China, with it being the second-most-popular smartphone brand in India and the third-most-popular in Russia. Its continued success in India is of particular importance, as the country will have almost 200 million new smartphone users by 2020, which will bring the grand total of smartphone users to 585 million. This is a lot of new consumers for Xiaomi to tap into. However, it is worth noting that consumers in markets such as India tend to have less purchasing power and spend less on services compared to more-developed markets, which is why getting China right is so important for Xiaomi.
Another challenge for Xiaomi is continuing to grow revenues from its Internet services. The company is hoping to earn more from advertisements delivered via proprietary apps — including video and music apps — across its custom MIUI operating system, which is firmware is based on Google’s Android operating system. But there’s a major cause for concern here: Android’s open nature means that users are free to install apps made by Xiaomi’s competitors. If a Xiaomi app doesn’t live up to consumers’ expectations; for example, if it’s unresponsive or too slow to update features present in competitors’ apps, the company’s user base could quickly decrease.
So although Xiaomi is similar to Apple in many ways, there are some key differences. The Silicon Valley tech giant greatly benefited from the closed nature of the iOS ecosystem and the high-profit margins of its iPhone devices — two advantages that Xiaomi doesn’t share. As for whether or not Xiaomi becomes the new Apple: time will tell.
The original article can be found here.