Xiaomi and Changing landscape of Global Smartphone Market

Global smartphone market grew by 25.3% YoY in 2014 Q2 with a record 301.3 million smartphones shipped (IDC worldwide quarterly mobile phone tracker data). Global smartphone market grew by 5.2% sequentially with respect to 2014 Q1 fuelled by increase in demand for mobile computing and increasing availability of low-cost smartphones. This blog discussed OS and vendor wise global smartphone market and how Xiaomi is making a place for itself in global smartphone market.

Operating System wise global Smartphone market

Operating system wise Android dominates smartphone market with nearly 85% market share in 2014 Q2 followed by 11.7% iOS market share. Increasing supply of low end and ultra low-end android devices fuelled the growth in android market share. Global smartphone OS market share (Total sale of 301.3 million) as dominated by Android can be seen as following:

Android phones saw increase in market share from 79.6% to 84.7% while iOS phone saw decrease in market share from 13.0% to 11.7%.
Vendor wise global Smartphone market

Vendor wise, Samsung (24.9% market share) was largest vendor in terms of market share followed by Apple (11.7%), Huawei (6.7%), Lenovo (5.2%) and LG (4.8%). Others had market share of 46.7%. Android lost 7% market share compared to 1 year ago, while Apple saw loss of 1.3% market share that may be due to long awaited iPhone 6 release in 2014 Q3. Global smartphone vendor market share (share in Unit shipment) can be seen as follow:

 

Huawei could increase its market share due to increased 4G LTE sale in China and low cost Y series phones across other regions. Lenovo could also hold its market share despite pressure from local Chinese brands as it started gaining traction due to its Motorola acquisition.

But, the biggest surprise was in terms of market share was Xiaomi, which had a market share of 5.1% with a total 15.1million smartphone shipments as reported by Strategic Analytics (There might be some difference in IDC data and Strategic Analytics report). The global smartphone vendor market share as reported by Strategic Analytics report can be seen as follow:

 

Further, the fight for smart phone race has shifted from a fight between Samsung and Apple to a fight between Samsung, Apple and assortment of Chinese smartphone vendors. Although, Samsung and Apple dominate world smartphone market, these players are getting very tough competition from players like Huawei, Lenovo and Xiaomi. Currently, 3 out of the world’s top 5 smartphone sellers were Chinese (as per Strategic Analytics report).

Xiaomi as rising Star in global smartphone market

Most noticeable among these is Xiomi, which is also known as the Apple of China. Xiomi, being run by Billionaire Lei Jun, could capture 5.1% world market share that seems to be a great jump for a 4-year-old company with only 1.8% market share one year earlier. A report by Strategic Analytics puts Xiaomi as the 5th largest smartphone manufacturer by market share, while Samsung market share continues to shrink.

Sales Growth

Xiomi has also outstripped Samsung in Chinese market and it has become leading Chinese smartphone manufacturer with 15.4 million sales in 2014 Q2. Xiaomi’s 60 million sales target for 2014 seems to be quite achievable as it has already hit 44 million cumulative sale till 2014 Q3. Xiaomi has been achieving rapid sequential sales growth, which can be seen as follow:

 

Xiaomi Model

Xiaomi’s follow high volume low cost strategy and delivers excellent products at compelling/aggressive price. This strategy of selling high end phones at low price has often been called as “Xiaomi model” by its CEO Jun. Xiaomi uses MIUI operating system and provides locally relevant features and services, which is very crucial for succeeding in Chinese market. Further, its value proposition lies in selling high-end phone at low-end prices coupled with excellent use of innovative and interesting marketing strategy. Xiomi primarily sells its phones through online and operator channel using flash sales. Xiomi produces small amount of its products at regular interval and sell these products at regular time interval. This creates a hunger driven market with demand always surpassing supply.

Pricing Strategy

It is always said that Xiaomi phones resemble a lot with Apple in terms of similar product introduction style and strong similarity in operating system. But, Apple always targets premium customers while the target market for Xiaomi is teens that want high-end phone and low prices. In its pricing strategy, Xiaomi follows footsteps of Amazon and sells its phone for a price that is almost equivalent to the price of the individual components. Xiaomi makes money on its phone by keeping shelf life of each model quite longer than shelf life of Apple. Xiaomi does not renew its product for 2 years while a new version of a phone is launched every 265 days in the industry. The component costs drop over a two year period by more than 90% but Xiaomi maintains its original price and keeps the difference as profit. Thus, Xiaomi business model relies on making profit from plummeting component price rather than charging higher price with introduction of each new model with new features. Further, it makes money from is by selling apps, games and special Android themes and Internet services.

Foray into international market

Xiaomi has been able to conquer Chinese market and its next target will be to expand outside China. Xiaomi model has succeeded well in Chinese market and some other South East Asian countries, but it has largely focused on developing markets like China, India, and Brazil etc. But in future In the future Xiaomi will certainly try to take its business to established markets in Europe and America. Its pricing model will certainly resonate beyond China, but it faces many challenges in scaling its model on a global stage:

  1. Xiaomi needs to build its international brand and familiarise its western consumers with its unfamiliar brand name. This requires large amount of investment in branding.
  2. It need to provide localised services offering woven around MIUI for the markets into which it expands.
  3. Xiaomi needs to tailor its marketing and largely online sales channels as per the market needs of the market it gets into.
  4. Xiaomi’s smart phone is accused to have strong similarities with Apples iPhone and it will need to defend itself against any future accusation of patent violations in developed market.

Xiaomi does have the potential to be a disruptive force beyond China.

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