With the release of sales of all major smartphone makers, Xiaomi’s sales and latest market value once again becomes the focus of attention. I can say for sure that its plan to sell as many as 80 million to 100 million smartphones must have failed (rumor has it that Xiaomi only sold 70 million this year). However, there was a time when Xiaomi’s market value flared up to 45 billion USD, especially due to the high expectation towards its smartphone business.
What else problems do Xiaomi have besides the unaccomplished sales a year later? Is smartphone business still one of the bonus points for its overall market value estimation?
It is well known that business strategy and model matter a great deal to any company. However, it seems that Xiaomi’s business strategy and model near the end of 2015 differs a lot when compared to those earlier in the year.
You might still remember that Lei Jun, the founder, chairman and CEO of Xiaomi Technology, made it clear that user base, instead of market revenue, matters most to Xiaomi, and that Xiaomi’s real plan was to surpass Apple and become the number one Internet smartphone company in terms of market share in ten years.
Indeed, Xiaomi lowered its profit margin, added its shipment volume and diversified its business scales to accomplish this goal. If Xiaomi had stuck to such plan, then its reliance on hardware business would certainly go down while its revenue in Internet add-value services would rise up. At that time, Xiaomi would be quite similar to American supermarket chain Costo, which is known for its VIP member fee system.
However, when Mr. Lei addressed the media during the second World Internet Conference held in the eastern town of Wuzhen, Zhejiang province, he suggested that Xiaomi would continue to focus on its three core businesses, that is, smartphones, TVs and routers, and that Xiaomi’s goal was to drive the development of the Chinese manufacturing industry as did Sony in Japan and Samsung in South Korea.
I don’t know what’s your opinion on the shift of Xiaomi’s goals at the beginning and the end of 2015, but as far as I’m concerned, Xiaomi is left in a dilemma whether to make profit by expanding its user base and diversifying its business scale, or by strengthening its advantages in hardware. Which is the highest goal of Xiaomi exactly? It could be quite dangerous if Xiaomi is still uncertain about this. Yet, if we take a closer look at Xiaomi’s performance and environment in hardware market, we might better understand why Xiaomi is still uncertain.
Above all, let’s have a look at its performance in low-end smartphone market (where the average price is usually lower than 1,000 RMB). According to public data, the total sales of its most popular smartphone RedMi 2, released in January and priced at 699 RMB, has hit 10 million by the end of June, 2015, with a monthly salary of 2 million, while the total sales of RedMi 2A, released in April and priced at 599 RMB, has surpassed 5 million by the end of July. As a matter of fact, the sales of RedMi contributed to almost half of Xiaomi’s total sales in the first half of 2015.
Some insiders even suggested that the sales of RedMi took up as high as 70% to 80% of its total sales. While Xiaomi depends a lot on its sales in the low-end market this year, other major smartphone manufacturers are also eyeing on this market, so it is no easy job for Xiaomi to maintain its dominance here.
What about the high-end market, then? Recently, Lin Bin, the co-founder and president of Xiaomi, told the media that Xiaomi’s growth and expansion was based on innovation, not merely marketing. He cited the example of Xiaomi’s innovations, such as edge touch, multi-carrier, as well as double antenna, and suggested that it took Xiaomi huge efforts to develop these technologies on its own and that most other high-end smartphones didn’t have these technologies yet.
I shall spare no effort in confirming what he said, but the bold truth is that most consumers turn to Xiaomi because its smartphones are cheap, not because they have be equipped with cutting-edge technologies. One might wonder what’s Xiaomi’s own understanding of innovations when they still can’t add value to Xiaomi itself. By the way, Xiaomi never released its sales of high-end smartphone models.
In comparison, Huawei, whose sales in the Chinese market takes up around 70% of its total sales, is ahead of Xiaomi in terms of shipment volume in both the Chinese and the global market, and the shipment volume of high-end smartphones takes up one thirds of its total volume. Imagine the fierce competition Xiaomi is facing from Huawei.
Besides, other Chinese smartphone brands such as OPPO and Vivo also did a great job in the mid and high-end smartphone market last year, which will certainly pose threat to Xiaomi’s market share, let alone the smartphone giant Apple.
And Mi TV? Statistics suggest that the total sales of all major TV manufacturers reached 31.1 million in 2014, while Xiaomi only sold 300,000 TVs and took up 1% of the market. Although it planned to sell as many as 1 million TVs in 2015, its overall market share remains limited. Worse still, Xiaomi is facing huge competition from LeTV, whose shipment volume is expected to reach 3 million in 2015 and whose business model is the same as Xiaomi’s.
While Xiaomi’s TV business is based on its collaboration with other developers, LeTV started as a content provider and is of course better-grounded. Even if we take into consideration the weaknesses of LeTV, Xiaomi is still at no advantage. As a matter of fact, both Xiaomi and LeTV are facing a common problem: their core user base is too limited.
The inconvenient truth is that Xiaomi might be facing the same problem in the router market. Although Xiaomi ranks the first in the smart router market, its market share in the router market remains quite low. On the one hand, smart router only takes up around 6.1% of the entire router market; on the other hand, other router makers such as Qihoo 360 and Huawei are catching up at fast speed.
Now that Xiaomi is facing competition in all of its three main markets, its growth will certainly slow down in the future.
You might argue that Xiaomi is still investing in smart hardware areas such as TV box, plug board, air purifier, battery, two-wheeled vehicle, etc., yet when it’s facing huge competition in all three major markets, its investment in these areas will only give people the impression that it’s heading for the wrong direction.
More importantly, Xiaomi’s assertion that its ambition is to build an entire ecosystem might no longer be well-ground any more. While the percentage of revenue from its Internet services and software is on the contrary reducing, it’s also facing increasing competition in the hardware market.
In conclusion, the bonus points of Xiaomi when its estimated market value reached 45 billion USD seemed to be missing, and it’s uncertain about which goal it should stick to. When we see things from this aspect, we might wonder that 45 billion USD is too high a market value for Xiaomi at present and in the future.
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[The article is published and edited with authorization from the author @Sun Yongjie, please note source and hyperlink when reproduce.]
Translated by Levin Feng (Senior Translator at PAGE TO PAGE), working for TMTpost.
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