October 4, 2014 by ...
While Xiaomi chartered a jet filled with 100,000 phones and commandeered it to India, Apple presold 2 million mostly $1,000 plus units in Xiaomi’s backyard-China. If this were a war, Xiaomi had sent froward units to the beaches of American-Samoa while Apple took over Beijing.
Xiaomi’s Indian Advance
Xiaomi loaded an airplane with a bevy of units bound for India in a great show of force. Imagine the scene, ‘The air cargo generally comprises of goods and products of different companies bundled into a huge aircraft and sent to its destination. But can you imagine one huge airliner carrying only mobile phones? Well, don’t be surprised but this is very much happening right now – Xiaomi is sending cell phones to India. ‘See more here
While this sounds like great news for the upstart Xiaomi, it pales in comparison to how the new Iphones are rocking China. Initially smugglers were getting $3000 for the mid range model, but now the communist party has approved their legitimate sale and its game on.
Beijing has granted Apple permission to sell in the mainland and Chinese are buying
Initially Chinese consumers gobbled up Apple preorders to the tune of one million units in a matter of hours. Since then China’s desire has only grown. As of this writing Apple has sold two million Iphones 6’s via preorder and thats the good news for Xiaomi. The bad news is that Chinese are going high end with the majority of those two million phones purchased being ‘The 64GB iPhone 6 and 6 Plus models (both priced at nearly $1,000), rather than the cheapest tier Apple offers.’
This is a feather in the cap of Apple, especially on China’s home turf. Talk about shooting one across Lei Jun’s bow. All the ink spilled of late has been about Xiaomi”s iphone killer handhelds, but one Iphone release shows that to be pure puffery. Sure Xiaomi may be the most sold phone in China, but it still wallows away in the shallow end of the market scraping pennies on the dollar while Apple is taking a plunge in the deep end and banging out high end models.
Brutal reality, Apple owns China-Profits are fat- Consider data from the AppleInsider here
China has a huge market for budget Android phones and 57% of these go for less than $330. Apple, on the other hand, owns 80% of market for phones costing $500 and up. Considering that this segment is sizable, as shown this pie chart, Apple is putting the hurt on Xiaomi and others.
As we can see, Xiaomi plays in a market representing 57% of all phones sold. Apple, on the other hand, exclusively sells to 27% of the market. That segment, however, prices their units at anywhere from 10% to 130% higher than Xiaomi offerings. In fact, Apple owns 80% of this group with 21.6 % market share.
Show me the money
On its low end units Xiaomi makes pennies and monetizes its apps. Thus, in great part of its offerings it earns nothing. Apple too has abundant app store sales and thus double dips scoring big margins on both phone cells and add-ons as well. Doing the math, we can see that even if Xiaomi carries the mid-to-low end, their profitability still lags behind Apple, even though they sell many more units.
Big bucks for Apple
Adding insult to injury, according to Appleinsider, here is a price breakdown of what Apple is getting:
‘Apple’s suggested retail price of for the new iPhone 6 is 5,288 RMB ($861 US) for the 16GB model, 6,088 RMB ($991) for the 64GB model and 6,888 RMB ($1122) for the 128GB model, while iPhone 6 Plus is priced at 6,088/6,888/7,788 RMB ($991/1122/1269) at the same three capacities.’
As mentioned, the majority of Apple phones sold are priced from $991-$1269. This equates to a price premium of up to ten times over the cheapest Xiaomi faire.
Where does this leave us?
Media is in the business of selling papers and or getting clicks. The way to do this is to package and sell things people want to read. China is the hottest thing going amd it only makes sense media caters to the ‘lets hear about China’ story. What many do not know, however, is that much of what they read is all smoke and mirrors. It is ‘second hand news’ written by people who were lucky to be in China for any protracted period of time. While that does not preclude them from doing great reporting on China, there is something to be said about being in situ. I have been here for over Eight years and still consider myself a neophyte. Based on my network and proximity, however, I have good insight to the pulse of the Chinese market. Lecturing at a few Chinese universities puts me in contact with a diverse group who loves to share insight with me and is invaluable. My other life as a consultant helps as well.
There is no doubt that Xiaomi makes an ass kicking product for the price, but an iphone killer-meh. Personal research garnered from the sweet spot of the Xiaomi demographic tells me different. Absent the ‘mi-fens’ or Xiaomi fanboys, most Chinese would buy an Apple product if they had the means. Those Xiaomi phones are flying off the shelves into the hands of lower middle class with no other options. For them it is a great value for the money. Xiaomi product lacks charm, has quality problems and essentially a ‘beginners smart phone’. As Chinese consumers mature in their tastes, they will most likely be upgrading to Apple faire rather than Xiaomi gear.
Surveys filled out by my graduate students show that Xiaomi is a second or third choice, but about as far from challenging Iphone supremacy as are walkie talkies. Simply put, Xiaomi lacks cachet, quality and the global appeal that most Chinese consumers desire.
If you are looking for the next Iphone killer and set your eyes on Xiaomi, keep searching.