Tech Talk: Will Xiaomi's Internet-First Approach Fit India?

According to Manu Jain, managing director of Xiaomi's India operations, the company's aspirations in what is arguably the world's most important market could soon shift toward a more online-first approach. Specifically, Jain points toward an intention to place the company's software and services ahead of its hardware sales in one of the most important growth markets in the world. The move might make some sense since, for the third quarter of 2017, the company managed to move more than 9.2 million of its handsets within India - four million of those were within a single month. That places its sales in India second only to Samsung - and only short by a couple of hundred thousand units. Meanwhile, in China, the company's executives have maintained that those other offerings are a much bigger part of Xiaomi's business than hardware - which typically sells at low profit-margins at just over the cost of each device's components and manufacture. On the other hand, it could be argued that the approach was not entirely successful in China and the company is definitely taking a risk by considering a second attempt in a completely different market.

The services themselves cover the gamut, including media and entertainment services, software offerings, and financing services, and each takes advantage of brand-recognition that the company builds up through its hardware. That makes India a prime target for continuing the spread of those services and an online-first approach. In that market, for example, the company's smartphone sales grew by nearly 300-percent over a single year, from Q3 2016 to Q3 2017 and it is on track to double its current earnings in the region by the end of the year. That would place its earnings in India at around $2 billion, in around four years. If its growth continues at even a portion of the current rate, it could easily take the number one spot in the near future. That is, of course, the technology company's current short-term goal. Meanwhile, Xiaomi appears to be ignoring the high-end market for now in favor of sales volume, which is typically led by lower-tiered devices. Sales in the high-end market are currently led by Samsung, Apple, and OnePlus.

Between the high-volume sales of its affordable mid-range and lower-tier devices and a continual push to be a more software and services-geared organization within the region, Xiaomi hopes to create a positive feedback loop. Effectively, the widespread use of its more budget-friendly devices would feasibly lead to brand loyalty and further improvements to the public perception of the brand. That should, in theory, lead to a wider use of the services and software on offer for those devices and possibly to an opportunity to make its premium handsets available in the region. Those would serve to further the use of its other internet-based services. The business model has been moderately successful already in China, although the company is certainly not the most prominent manufacturer in that region. That's not to say it is without its shortcomings, as its leading competitors - OPPO, Huawei, and Vivo - have focused much more heavily on retail services for their own hardware. In fact, Xiaomi has had to adjust its approach in China over time, adding more retail offline sales and focusing more on the hardware itself, which may even indicate that its approach is not as viable as the company previously hoped. Success is by no means a guarantee in India, despite the companies strong current standings there.

Having said all of that, the online approach described for India is also somewhat different from that tried in China so it isn't necessarily destined to fail either. For starters, the company appears to be taking its time despite that it could feasibly implement the approach more rapidly. That is, according to Jain, with consideration for three factors serving as indicators as to whether or not the company is ready to implement its internet-first model in the region. The first of those, namely market maturity, could be the largest hurdle since the market in India is growing so quickly and will likely take quite some time to really mature as a result. Aside from that, and tying into the above-mentioned brand-recognition and sales aspects of the company in the region, the company wants to make sure the company is even more well established and able to hold that position over time. Finally, it is waiting until the teams responsible for creating and maintaining those services are capable of handling the expectations of the region's consumers. So, whether or not Xiaomi ultimately moves forward with putting an internet-first business model in place or whether or not that is ultimately successful if it does, are still very much up in the air, at this point.

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