Xiaomi and Google – Race to the bottom.

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Android One will only ever benefit Google. 

• Xiaomi and Google are resurrecting the Android One program but given what Xiaomi has launched, the original aim of Android One has clearly been completely abandoned.
• The idea behind Android One was to provide a reference implementation of Android optimised for Google’s services that would be used by multiple manufacturers.
• With multiple manufacturers on board and joint sourcing of components, the cost to make these devices would have been substantially reduced.
• This is how Google capable devices could have been economically put in the hands of users at much lower prices which in turn would drive usage for Google, highlighting the whole point of the exercise.
• However, handset makers need differentiation and so they all wanted to tweak the specification meaning that development costs would rise and that any volume discounts on components would be lost.
• The results were devices that were no cheaper to produce than anything else rendering the program useless.
• Xiaomi has resurrected the Android One brand but is completely ignoring the point of the program with the launch of the Xiaomi Mi A1: a dual 12mp camera with 5.5” 1080p screen selling for an incredibly reasonable INR14,999 or US$234.
• The device abandons the MIUI user experience and ecosystem being pushed in China and goes soup to nuts Google.
• This is almost as much a Google device as the Pixel is.
• This is where the Xiaomi’s strategy comes unstuck as I have ong believed that the Android One program benefits Google and no one else.
• While the Mi A1 is a nice-looking device, it is still competing on the basis of hardware only meaning that all Xiaomi is doing is further accelerating the race to the bottom.
• Xiaomi’s strategy has been to sell hardware at cost and then generate profit through its ecosystem of software, services and connected devices.
• By going fully Google, this strategy goes completely out of the window as Xiaomi has no way to make money from its ecosystem.
• Consequently, unless it can outsell its closest rival by more than 2 to 1 (this would require beating Samsung) all it can really hope for is commodity margins at best.
• This might help Xiaomi to grow market share and revenue in India but I think that it will do nothing for its profitability.
• Xiaomi has staged a good volume comeback in 2017 but it is very far from a position where it can make good profits or offer a return to the long-suffering investors who put money in at $45bn.
• I continue to believe that the only winner in Android (outside of Qualcomm, MediaTek and ARM) is Google but I think that this benefit remains fully priced into the shares and prefer to look elsewhere.