Xiaomi – Tough at the top

First there was media. Now there is ecosystem

• Xiaomi is not just the largest smartphone vendor in the Chinese market it is also the manufacturer that clocks up the most usage.
• Xiaomi is now No. 1 in the Chinese market with 14% market share just behind Samsung, Lenovo and Yulong who have 12% each.
• Huawei has 11% for the number 5 slot. (Canalys).
• 39% of all smartphones in China are sold by other vendors meaning that the Chinese market is much more fragmented than other markets making it much easier to get to No. 1.
• While I suspect that Xiaomi is still subscale and losing money, it has reached the number 1 slot in China by following a media and content strategy.
• This combined with attractive devices is exactly the strategy that Apple followed with the iPod until the app store was launched in July 2008.
• This has proved to be very successful and Xiaomi users spend more time using apps than Chinese iPhone users do. (see here and here)
• This usage is particularly concentrated around media consumption clearly indicating Xiaomi’s differentiation in the local market.
• The company has done exceptionally well to get this far, but this is where the difficulty begins.
• Apple pioneered the use of apps on smartphones and so was able to hold the market in check until it was ready.
• Xiaomi does not have this luxury as the market for apps is already well developed.
• It must now start to bring its fledging ecosystem into maturity by expanding its offering into the other areas of Digital Life.
• This will be difficult because much bigger and stronger companies such as Alibaba, Baidu and Tencent already have designs on this market and will be competing against it.
• Furthermore, its foray into the Indian market is unlikely to bring the same kind of rewards that China has.
• This is because the media consumption upon which it has differentiated its offering in China is unlikely to apply in India.
• Hence it will be competing on price just like every other Android vendor.
• However, if Indian volumes are high enough, they may help Xiaomi attain scale and therefore better profitability than many of its peers.
• Xiaomi is number 1 at home but it is a minnow compared to the big fish it is now up against in the race to provide Digital Life ecosystems to Chinese users.
• Xiaomi has a chance but it will have be very innovative and allocate its limited resources extremely carefully and efficiently.