Xiaomi – The big leagues

Users are buying Xiaomi for the right reasons.

• With 26.1m devices sold in H1 2014, Xiaomi is becoming a force to be reckoned with.
• This performance moves it up into contention with Huawei, LG Electronics and Lenovo all of whom I expect to have shipped similar volumes during the first half of 2014.
• Xiaomi’s volumes remain almost entirely in China but it is clear that the company has ambitions upon the global stage.
• I think that the difference with Xiaomi is the fact that its users are not buying its devices solely because they look nice or because they are cheap.
• The latest study from Flurry suggests that users are buying the devices because of a user experience that is unique to Xiaomi devices.
• This study (see here) shows that Xiaomi users spend more time using apps than iPhone users due to the huge amount of time they spend in media consumption on these devices.
• Xiaomi users spend 62% more time consuming media on their smartphones than the Chinese average.
• This is all down to Xiaomi’s strategy to pursue a content strategy that goes hand in hand with its devices.
• This is a very good sign for Xiaomi as it shows that the management of this company has understood the importance of the ecosystem right from the start and is already addressing it as best as it can.
• Xiaomi does this by offering its own user experience on top of standard Android making it not part of the Google ecosystem.
• For Xiaomi the future lies in filling out the Digital Life Pie with other services beyond media consumption.
• If it can successfully do this, then users in China will demand its products to get access to its user experience and the company will be able to make some money.
• However, in the other Digital Life segments it is going to come up against the three Chinese heavyweights: Baidu, Tencent and Alibaba.
• These companies all have ambitions of their own in the Chinese market and RFM calculates that there is only enough space for three successful ecosystems in the Chinese market.
• Hence, Xiaomi needs to fill out its Digital Life offering as quickly as it can before the heavyweights repeat in China what Google has done in the West.
• This battle is about the heart and the mind of the user.
• I also think that international expansion will be a very tough.
• This is because Xiaomi’s key selling point is its fledgling Chinese oriented ecosystem and I suspect that this will not appeal to users outside of China.
• Elsewhere, it will be in the same boat as everyone else selling commoditised product at tiny margins as its key draw will not be applicable.
• Xiaomi, has a fraction of the resources that are available to its rivals and hence I think that its best chance of success lies in developing its ecosystem in China.
• Here it has a chance against the big players but elsewhere it is a minnow in a brutal market.