Alibaba Taking on Xiaomi in Chinese Phone Market 

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April 28, 2015 by ...

It goes without saying that Xiaomi is not the only Chinese company to pilfer and copy ideas. In fact, it is safe to say that in China this is considered business as usual. Lacking the ‘innovate gene’ or desire to foment one, they look at what succeeds, copy the idea and compete on price. 

This is true of almost every Chinese handset maker but Huawei, which the government mandates all civil servants use. With 80 million communist party members, that’s a lot of phone sales.

Huawei is thus the exception to the rule. Companies here lack enough of a patent Portfolio or desire to create one, to command high prices. Their options are to compete on price or implode.

Absent patents, Xiaomi makes peanuts

Xiaomi makes about 10% on their phones. This margin is due in great part, to the fact they pay nothing on lisence fees. Part of this profit funds ‘dogs’ such as $13 scales and the like.

Another source of Xiaomi revenue is commission from preloaded apps offering everything from games to kitchenware. Lei Jun and crew earn coin on all that you buy while using their phones. 

Enter Alibaba

Like I said, China has no shortage of copy cats and Alibaba is no exception. After all, it’s famous online mall Taobao was supposedly partially created with stolen sorce code. This being China, Taobao went unpunished.

Now Alibaba is gunning for Xiaomi. They have partnered with China Telecom to make budget smart phones. These devices, with a moniker proving once again that Chinese firms are anything but creative are dubbed the ‘ Tianyi Taobao Shopping Handsets’. Yeah, that really rolls off the tongue, doesn’t it?

In any event, the phones with a cheeseball name will sell for $50-133 and run proprietary YunOs, which is named after Alibaba’s founder and just as comely. The OS has gone over like a fart in church so far, but handset sales will help.

Hitting In the ‘Mi-nuts’

The real problem for Xiaomi is that Alibaba is targeting their fans. The gear is meant for low to middle income users in tier two and three cities, Xiaomi’s bread and butter. 

Even worse for Xiaomi, Alibaba has over 90% market share in the ecommerce space. Essentially this is a double dose of ‘whipass’ meant for the proverbial financial groin of the Apple knockoff.

Alibaba has teamed up with no-names such as Cyton and Kingsun, but then again, who in China cares? At a good price point and killer sales deals, who in that demographic will buy Xiaomi?

Xiaomi getting while the Getting’s Good

This could be why Xiaomi is rushing to sell outside of China, it’s financial stronghold. Pretty soon pirates could well out ‘Xiaomi, Xiaomi’ in their own home turf.

The best strategic advice for Xiaomi would come from the movie Forrest Gump-

‘Run Forrest, run!’


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