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December 28, 2020
Xiaomi, founded eleven years ago in Beijing, has swiftly become a global tech juggernaut. It is currently the third-largest smartphone enterprise in the world, surpassing Apple.
Xiaomi started its business based on mobile phones with the popular Xiaomi Mi1, which was released in 2011 based on their version of Google's Android called MIUI, mainly to fill the differences between the services used in Europe and the United States to what was being used in China.
After that Xiaomi released several smartphones based on the MIUI and other technology-related products such as Smart TV, Smart Pedometer, Smart Blood Pressure Meter, Smart Action Camera, and more.
Xiaomi became famous because they were all about the brand name they strived to make. They sold their first smartphones nearly to cost and they used only social media and forums for advertising. They kept their products in parallel with the quality that other companies had to offer, with MIUI being an excellent software and getting very good reviews. MIUI made many customers happy, convincing them to buy more Xiaomi devices because of its frequent updates and support.
Currently, Xiaomi sells products that range from smartphones to smartwatches, to headphones, toy robots, and even electric scooters. The company generates most of its revenue from smartphones, but it has also expanded into other products like music and video streaming as well.
If you look into Apple, Samsung, Huawei, or any other phone manufacturer, you will find that every company brings out a new phone each year. Every year they present a phone with the latest display, RAM, memory, processor, etc. Every new technology costs more and only drops in prices after several years. But these companies are always going after new technologies. So, the prices of the parts they use on their phone are higher and as a result, phone prices are also higher.
However, Xiaomi takes a different approach. Instead of releasing phones with newer hardware each year, Xiaomi keeps their phone hardware the same over 24-36 months.
Newly released hardware is always expensive, whether it is a display, RAM, SD card, or processor. However, the prices of this hardware decrease rapidly after 12-16 months. Xiaomi takes advantage of this. Instead of iterating hardware every 12 months, they keep their phone hardware the same for 24-36 months. This way, they can provide superior quality hardware at lower prices. Moreover, as their product cycle spans 2 to 3 years, they can buy equipment in bulk at lower prices.
Another reason for Xiaomi’s low prices is the low-profit margins in place. Lei Jun, founder, and chief executive of Xiaomi, states that Xiaomi is committed to keeping its profit margin between 5%-10%. This low-profit margin allows them to sell a lot of phones. They believe that selling good phones at lower prices will convince consumers to buy more Xiaomi products in the coming years. And this strategy works phenomenally.
Xiaomi also spends nearly nothing on traditional advertisements. Instead, Xiaomi focuses more on promoting its products on online forums and social media. Lei Jun and his team worked very hard and spent a lot of time on forums, making comments, sending posts, and advertising. They used this method to do marketing with zero budget, they set up MIUI mobile phone forum, which became the base camp of “mi fan” with over 1 million registered users. As a result of this large fan base, Xiaomi started to collect feedback from its users every week and implement it in the next release. Every week, a new version of MIUI was released which was again then analyzed by a few hundred thousand hardcore users. Some of the users even participated in product research, development, testing, spreading, marketing, and public relations.
Without a doubt, Covid-19 has impacted the mobile phone industry significantly. The most notable of all of Covid-19's effects on the industry is a falling demand for new smartphones. It's not that the outbreak has rendered smartphones less useful, but the ensuing recession changes consumers' priorities. In the face of economic distress, people won't likely buy a new phone unless they need one. In the U.S. alone, unemployment has reached 14.7%, the highest it's been since the Great Depression. With more than 20 million people without a consistent income, fewer consumers will consider an upgrade they don't need. Even those with job security may hold off on these purchases in light of the growing economic uncertainty.
Cell phone sales aren't the only falling numbers in the mobile industry right now. Smartphone manufacturers have rolled back production in light of the pandemic. Declining revenue and shutdowns over health concerns have severely hindered smartphone production.
According to the International Data Corporation (IDC), in quarter three of the year 2020, about 353.6 million smartphones were shipped. Samsung has experienced a 2.9% increase in growth since 2019, Huawei a 22% decrease in growth since 2019, Apple a 10.6% decrease in growth since 2019, and Xiaomi an outstanding 42.0% increase in growth since 2019. With a market share of 13.1% and 46.5 million shipments, Xiaomi experienced such significant growth mainly because of the increased demand for low-end and mid-range smartphones, especially in countries such as India.
Xiaomi shipped 6 million phones globally in February 2020, compared with Huawei's 5.5 million smartphone shipments. February shipments from Xiaomi and Huawei were 30% and 70% lower year-over-year, respectively, but Xiaomi's smaller decline highlights the strength of the brand outside of China, which was troubled for most of the month by Covid-19 and its impacts on global markets.
Xiaomi's presence in international markets, like India, is likely a contributing factor to its smaller drop in smartphone shipments. Xiaomi had the top-selling smartphone in India for nine consecutive quarters, while Huawei isn't among the top five best-selling smartphone brands. Xiaomi's revenue outside of China, which accounted for 48% of its total revenue in Q3 2019, is primarily derived from India, Indonesia, and Western Europe, per the company's Q3 earnings report.
“While the entire world is still under the dark shadows of Covid-19, we have maintained our keen focus on efficiency to tide over this economic ‘black swan’ with everyone,” states CEO Lei Jun. By keeping their products at low and affordable prices, and by focusing on the global market, Xiaomi has become one of the leading global tech enterprises.
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