XiaoMI : M is for Mobile & I is For Internet

Smart Devices Giant

  • We have been closely tracking and have extensively covered Xiaomi’s business which primarily has been smartphones.
  • Xiaomi is the world’s fourth largest smartphone brand (see here) and the number one smartphone brand in China (see here), thanks to Xiaomi’s bestselling models (see here) such as Redmi 2 & Redmi Note in entry-tier as well as high-tier respectively.
  • Xiaomi has adopted “Hardware as a Distribution” strategy (see here) selling hardware at a very competitive price points in order to acquire users for the Xiaomi’s platform.
  • Currently, almost 85% of Xiaomi’s revenues comes from smartphones (see here) and a mere 1% from apps and services.
  • We estimate the apps and services revenues will jump to almost 5% of the total revenues this year.

Xiaomi Revenues Counterpoint Research

 

Smart Devices Giant + OTT services + E-Commerce Platform

  • The Mi platform is not just a platform where Xiaomi will generate revenues from apps and services rather quite ambitious as a platform of everything it can sell to the acquired user – hardware, software, cloud, content, mobile services, e-commerce and much more spanning across different categories possible in mobile technology space.
  • Xiaomi has ambitions to become much more than a “smartphone vendor” into a full-fledged “internet player” globally.
  • Xiaomi has already invested in more than 50 companies globally across different offerings and plans to increase investment to more than 100 companies in near- to mid-term.
  • Key strategy here fro Xiaomi is to “acquire users” and it could be by cross-selling any Mi branded technology offering which spans from Mi branded toys, to connected Mi Home Automation to Mi TV to Mi smartphones and tablets to now Mi Mobile an MVNO service which the Chinese brand has ventured into
  • Though Xiaomi’s platform is designed to be differentiated but is a closed and more integrated unlike the new upstarts such as Jolla or Cyanogen (see here)

Smart Devices + OTT services + E-Commerce + Internet Pipe

  • Xiaomi’s new offering Mi Mobile is gearing up to sell prepaid voice, data plans to Chinese consumers by becoming a mobile virtual network operator (MVNO) piggybacking on China Telecom & China Unicom networks
  • Xiaomi with immense popularity for its products and e-commerce portal has built a strong 100 million+  fan base to which it can cross-sell its new offering
  • We at Counterpoint estimate Mi Mobile can scale to 5 million users by end of this year and potentially to 25 million by end of next year
  • It will not only attract its existing growing fan base but also users from other carriers into its ecosystem which eventually can upgrade to Mi devices and other offerings
  • This is a classic cross-selling strategy of building newer products and offerings to sell to its existing user-base and also attract prospective users creating a halo effect
  • This level of cross-selling with attractive proposition fosters brand loyalty and thus builds a strong foundation to always boost the bottom lines.
  • Unlike other OEMs, Xiaomi is bolder and its services strategy doesn’t limit just to content or apps or cloud but also in becoming a virtual pipe for providing low-cost internet to its users
  • This is an early warning signal where this fearless Chinese brand could be disruptive as its valuation continues to sky rocket.
  • This will set precedence for other vendors to follow this model as they rethink their long-term strategy to compete with Xiaomi as they are not competing with a hardware brand but an internet vendor
  • We estimate that one of the next areas where Xiaomi will venture soon into would be “mobile wallet” (see here)or “Mi Pay” to support its e-commerce platform and app, services offerings.
  • The next frontier in 2017 and beyond would be to enter and disrupt the Electric Vehicle (see here) market

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Having said that, the Western markets still remain a weak spot (see here & here) for Xiaomi and will be interesting to see how much of the broader ecosystem success it enjoys in China it can replicate outside China.

– Neil Shah