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Eyes on Xiaomi: A Worthy Challenger to the Maker of the iPhone

During one January intensive course, the class talked about how the Beijing-based electronics company Xiaomi grew so fast, so soon. In just eight years, Xiaomi went from a team of eight engineers to a publicly traded company with an implied valuation of $54 billion that could rival Apple. With Apple predicting lower revenue generation this year, eyes are on Xiaomi, whose differentiated product strategy and vision about global consumerism may prove to be more enduring.  

Many refer to Xiaomi as China’s Apple. While true that Xiaomi learned a lot from Apple in terms of strategy, the company has developed its own path to success. In 2010, Xiaomi entered the Chinese market selling almost all of its phones online at a low profit margin— saving on rent and sales commission costs. Only after when competitors Huawei and Oppo entered the market with a low-price strategy did the company open actual stores.

The company started out in software, with a modified version of the Android mobile operating system that looked a lot like Apple’s iOS in design. There were further similarities: from the style of product launches to that of Xiaomi CEO Lei Jun, who donned a black top so culturally associated with Steve Jobs. More significantly, Xiaomi built on Apple’s success factors, including developing an ecosystem that kept users from easily switching to competitors.

Xiaomi CEO Lei Jun from 2016. Photo Credit: Fortune

Unlike domestic peers who were turning down higher-priced devices to compete directly with Apple’s smartphones, Xiaomi decided to take advantage of China’s economic conditions to offer high quality smartphones at a much lower price point. Their reliance on technology, management and logistics would keep the cost low.

If Xiaomi started on a path laid by Apple, the company is now in control of its own destiny. Xiaomi is no longer a smartphone company. In fact, it is generally considered an appliance company with a wide variety of internet-connected products as well as internet services. Xiaomi’s ecosystem goes beyond a few hero products, managing 90 companies that create additional smart hardware and lifestyle technology. Together, there are over 100 million connected devices, making Xiaomi the largest IoT platform in the world.

The company was able to acquire and expand this knowledge by investing in or incubating over 200 tech start-ups. As a minority shareholder, Xiaomi gained critical access to new tech innovations and in turn, lent its supply chain and commercialization expertise to start-ups. This corporate strategy allowed Xiaomi to build a portfolio of some 5,700 patents.

The company’s Mi phone user interface (called MIUI), the Android-based operating system that runs on Xiaomi smartphones, now has 300 million activated users who spend many hours a day on their phones. Crowdsourcing is another part of Xiaomi’s strategy; weekly, the company asks users to suggest new features and then vote to incorporate the winners into its operating system. Every Friday at 5pm, Xiaomi issues an update to the MIUI that includes the most popular features.

Future revenue growth will depend much more on online services—from payments to streaming to gaming—rather than just gadgets.  While there is some doubt whether Xiaomi will continue to growth at this rate, the strategy is very interesting to look at.

One can argue that Xiaomi is going after a different type of smartphone customer compared to that of Apple; a user that is looking for good quality smartphone at an affordable price. This user may be more tech savvy and enjoys connectivity with multiple smart-products. Comparatively, Apple’s customer is willing to pay more for a perceived product quality, values security and is satisfied with minor upgrades on a user-friendly interface. With an average American household owning more than two Apple products, according to CNBC’s All-America Economic Survey, Xiaomi is more than aware of the difficulty in entering the US market. For now, the company is learning from its recent endeavors in India, UK and Spain.

In more recent news, Apple’s market value collapsed by 30 percent since November, a sign that the iPhone business might be declining. Unfortunately, as consumers, we haven’t experienced significant innovation in the new iPhone X nor in any other Apple product. If this continues to be the case, people will experiment with new wearables and lifestyle products even if it’s outside Apple’s ecosystem. This can be the biggest opportunity for Xiaomi to enter the US market. Not by directly competing with Apple and Samsung in the smartphone industry, but by introducing other successful products first. Once the company builds its reputation in the US, it can then gain market share in the smartphone space.

While Xiaomi’s US strategy is still not certain, the question of if Apple will be disrupted by a competitor still remains. Xiaomi already over-smarted Apple in China and has made a huge gain in wearables’ market share across the globe. As consumers need change and technology becomes essential to lifestyle, it will be interesting to see giants like Apple get defeated by startups who are willing to experiment.

Photo Credit: BGR India

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