Xiaomi, a Chinese firm founded in 2010, unveiled its new Mi-3 handset on September 5th, five days before Apple’s iPhone 5S launch, it’s first in China. Compared to Apple’s global revenues from smartphones in the last year of $80 billion, Xiaomi earned $2.1 billion in China, Hong Kong, and Taiwan, where Xiaomi phones are sold. In the Chinese 2013 second quarter, Xiaomi’s market share in China at 5% has surpassed Apple’s 4.8%.
Interestingly, however, Xiaomi views itself as a company taking more after companies like Amazon, rather than Apple. Unlike Apple’s newest phone, which sells for $860 in China, the Mi-3’s cost is around $330, and is sold exclusively online to lower its cost, and relies on selling services to its users similar to Amazon’s Kindle. Revenue comes as customers use the device, rather than from its initial purchase.
Xiaomi also benefits from Chinese regulations, similar to the benefits from regulation discussed for the automobile industry in Dunne’s book. Chinese government requires that smartphones in China run a restricted version of the Android operating system. Google’s app store, mail service, maps, and other features are banned, creating space for Xiaomi to sell replacement services without competition.
I wonder how long it will be before the Xiaomi brand is available in the US, with an unlocked version of Android? Did it mention any international expansion plans?
The comment about market share is unclear.
The bit about Xiaomi having to run a different version of Google’s Android platform reminds me of an article I read in The Economist last year about a Congressional inquiry into Chinese networking and telecommunications company Huawei’s devices being sold in the United States. There is the fear that Huawei would build a backdoor into the devices to make US networks susceptible to Chinese cyberterrorism. And with Huawei’s CEO’s being a former People’s Liberation Army officer, that fear is heightened, especially since there is an historically close link between “private” enterprise and the Government in China.
Sophia’s point about the connection between how Xiaomi benefits under Chinese regulation in a similar fashion to some examples outlined in Dunne’s book is very interesting. Besides the peculiarities of regulation regarding different firms, especially domestic versus foreign, the Xiaomi phone compared to the iPhone is telling of how important access to the rapidly growing Chinese consumer demand is for companies. Dunne details just how important it was for the executives of GM to gain legal access to a widespread distribution channel in China, since China is like a present that everyone is trying to unwrap.
Qualcomm has been running trials for its new partnership with China Mobile for supplying its new snapdragon processor. China Mobile has ¾ of a billion total customers…a staggering sum. Not only that, they have 150 million 3G customers, the higher margin business that Qualcomm is trying to tap into in China. This phenomenal consumer base, with rapidly expanding income per capita, makes China an exciting market that multinational firms from Apple to Qualcomm to GM all want a piece of, in order to fundamentally benefit their incremental income growth.
Works Cited
http://www.chinamobileltd.com/en/ir/operation.php?section=number&year=2013
http://www.trefis.com/stock/qcom/articles/198025/qualcomm-benefits-from-asp-resilience-and-lte-superiority/2013-07-25
Sorry about the typo Oliver, that’s a 5% market share for Xiaomi versus 4.8% for Apple in China. I’ve made the edit.
As for availability in the US, the article does not mention expansion into the US market. A superficial search on the internet does not yield any avenues to purchase the headsets in the US (although the Xiaomi’s website is interestingly similar to Apple’s in the way they introduce the Mi-3). A newer Forbes article is more revealing. It reports that Xiaomi is not yet looking to expand, as they have only just become profitable. They aspire to in the future, and Taiwan is likely the first expansion (they are “testing the waters now”, but there is potential interest in expansion to the US in the future. Today, Xiaomi is still focused on executing their product well in China. They have an unheard of system of churning out new and improved phones weekly. Xiaomi is highly interested in customer feedback (which it gathers through channels like weibo, a Chinese Twitter equivalent), and translates the suggestions into the hardware of the next batch of 100,000 phones if their engineers think its a good idea. Such an unabashedly consumer focused company seems right up the millennial generation’s alley. How fascinating it is that this example comes to us out of China.
Xiaomi website: http://www.xiaomi.com/en
Forbes article: http://www.forbes.com/sites/parmyolson/2013/10/22/how-chinas-xiaomi-does-in-a-week-what-apple-does-in-a-year-update-devices/
As I plan to write my term paper on marketing issues in China, I find this a very interesting topic. I think Xiaomi is clever to exploit the gap where Apple and Google apps have fallen short. Sophia’s comment that Xiaomi may look to Taiwan as their next road of expansion strikes me, as the Dunne book discusses the delicate relationship between China and Taiwan. Dunne uses an anecdote about the United States’ careful and precise use of nomenclature to describe Taiwan without giving it China’s level of sovereignty to illustrate the delicacy of “naming things” in China. I wonder how the Chinese market would feel about a move of Xiamoi into Taiwan.