Xiaomi passed a significant milestone in Q1 2022. According to Counterpoint Research’s Installed Base Tracker Service, the Chinese brand crossed the 500-million smartphone installed base mark early in the quarter to join Samsung and Apple in the elite club. Theoretically, Xiaomi’s large user base can (1) help the company branding develop further if products match or exceed expectations, (2) give Xiaomi more opportunities to monetize the traffic on its smartphones and (3) allow the company to effectively cross-sell other IoT products such as TWS and smartwatch. But what has been the situation in practice? Xiaomi has taken its brand recognition to a new level, from a regional budget smartphone brand to a global OEM expanding into the premium market. But it hasn’t effectively monetized traffic or cross-sold IoT devices in many regions as it has done in China. Internet services such as fintech and e-commerce and launching more budget smartwatch models in India may help the company to further benefit from its bigger user base. Let us look at each of the three abovementioned topics one by one: Better brand recognition Xiaomi has been a leading force in going beyond China to seek more growth potential as the home market has become mature. 2021 has been a fruitful year for it as the COVID-19 pandemic and governments’ helicopter money stimulated consumers to purchase smartphones. Xiaomi’s successful global expansion is especially obvious in India and Europe where it was among the top three biggest OEMs in Q1 2022.   Counterpoint Market Pulse Service Monetizing traffic Has Xiaomi’s 500-million installed base given it opportunities for more smartphone monetization? Xiaomi classifies the revenue from traffic on its smartphones as “internet service”, which reached RMB 28.2 billion ($4.16 billion) in 2021. Xiaomi disclosed that its outstanding Monthly Active MIUI Users reached 508.9 million in December 2021. Though the two indicators have been growing over quarters, the average revenue per user (ARPU), which measures the efficiency of monetization, has continued to decline with the company’s expansion overseas. It is fair to say Xiaomi’s overseas smartphone shipments have not helped it significantly grow its internet service revenue. Source: Counterpoint Analysis; Xiaomi Financial Reports Xiaomi’s ARPU in China is much higher than in other regional markets, with the premium smartphone ARPU being higher than that for lower-end smartphones. This partly explains the strategic importance of China's premium smartphone market segment, though demand currently appears weak. The extra profit and revenues from China's premium smartphone users could further help Xiaomi subsidize overseas sales channels, enter new countries and step up global marketing campaigns. According to Xiaomi, over 80% of its internet service revenue comes from China, with advertising being the main contributor. In regional markets except China, it cannot be foreseen when or if Xiaomi could challenge Google and its Google Mobile Service or when it would not have to share advertising revenue with the US company. The company should think about other ways to monetize its installed base of users. It could try fintech, e-commerce and other services that could leverage its MIUI in combination with its other consumer IoT products. Cross-selling IoT products Xiaomi has an IoT ecosystem containing various products, from TWS to TV to vacuum robots. But we have not seen Xiaomi fully taking advantage of it. Taking India as an example, Xiaomi was the biggest OEM in the Indian market in 2021 with a shipment share of 24.1%. But its smartwatch and TWS shipments failed to even make it to the top five (according to Counterpoint’s TWS and smartwatch tracker), that too in a market where smartwatch shipments increased 274% YoY in 2021 and TWS shipments increased 60% YoY in the same period. Xiaomi is missing an opportunity but it is not too late yet as the regional competitive landscape has not fully matured. In India, a value-for-money strategy is the key to winning the consumer IoT market. Specifically in smartwatches, Xiaomi’s portfolio was a little bit on the expensive side till last year (around $117-$130) but the Redmi Watch 2 Lite helped the brand to register a strong growth of 238% QoQ in Q1 2022. Such an approach should be sustained. Xiaomi should also consider increasing SKUs in the Indian market. The product refresh rate is high in India when compared to China. Xiaomi’s current portfolio can’t match its competitors such as Noise which launched five products in a single quarter. Conclusion Xiaomi has successfully entered most of the regional markets globally and upgraded its brand image from a market disrupter offering budget phones to a full-fledged OEM expanding in the premium segment. However, Xiaomi needs to take innovative approaches to monetize the traffic from its overseas products. Measures like fintech, e-commerce and buy-now-and-pay-later are gaining support globally. Launching more quality premium smartphones in China can help as well. But all this cannot be done overnight and needs continued investment, from R&D to consumer research to brand image building. Finally, Xiaomi shouldn’t forgo the opportunity to cross-sell more IoT devices in fast-growing markets such as India. A more balanced product portfolio with quality entry-level products is the key to competing against local kings.