Xiaomi's next challenge: basic issues such as supply chain

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Xiaomi's shipments in the Chinese market have surpassed Apple's, but to truly challenge Apple, Xiaomi still needs to solve the most basic problems such as the supply chain.

Text｜CBN reporter Ye Yuchen

As an imitator of Apple in China, Xiaomi has finally surpassed Apple in terms of shipments.

Canalys data shows that in the first quarter of this year, Xiaomi and Apple shipped 10.4 million and 9 million units in the Chinese market respectively. In fact, this is the second time that Xiaomi's mobile phone sales have surpassed Apple in a quarter. According to Canalys data, in the second quarter of 2013, Apple's mobile phone shipments were 4.3 million units, lower than Xiaomi's 4.4 million units.

However, the positioning and price of the two are not consistent, and the sales are not highly comparable. Especially now, Apple is in the cyclical off-season before the launch of its own new products. As usual, Apple's performance at this stage has always been poor. Not only Xiaomi, but also Lenovo, Huawei and other companies have surpassed Apple in sales, so this number does not have much gold content.

More important than the number is that Xiaomi seems to have grown from a mere imitator to a possible challenger.

In May, Bloomberg reporter Brad Stone came to Beijing to attend the launch of Xiaomi TV and tablet, and then he visited many of Xiaomi's partners. In early June, Stone published an article titled "Xiaomi mobile phones have conquered China, and now it is targeting the rest of the world." An American netizen with the ID name Henli left a message after Stone's article: "My first mobile phone was an Apple, and my second mobile phone was a Samsung S3. So it seems that my next mobile phone will be a Xiaomi."

Xiaomi obviously has a bigger goal for its mobile phone sales. In March this year, Lei Jun told "First Financial Weekly" that Xiaomi's shipments in 2014 are expected to be more than 40 million units, and the target for next year is 100 million units.

In terms of sales growth, the Redmi mobile phone released in July last year contributed the most. As of February this year, the total shipments of Redmi online and offline reached more than 5 million units per model. In April

2012, Lei Jun publicly declared that he would not make low-end and mid-range mobile phones. Xiaomi mobile phones are priced at around 1,999 yuan, and the target users are enthusiasts. However, just two months later, in June 2012, it received the third round of financing of 216 million US dollars. Xiaomi began to prepare to expand its product line, and the Redmi mobile phone project was launched. It was no longer a mid-range phone, and it was no longer a fever phone.

When Redmi chose distributors, it only considered operators. The mobile version was released in July last year, the Unicom version was released in November, and the Telecom version was released in February this year. It is worth noting that the Redmi mobile version is not a contract phone, but is sold as a bare phone. China Mobile does not need to invest in subsidies and can earn channel fees in the middle. As of the end of February, Redmi shipped 2.5 million units to operators, and basically no channel inventory was formed. The offline scale was formed mainly due to China Mobile's offline promotion.

Xiaomi mobile phones are positioned for enthusiasts, pursuing high performance and high cost performance. The Redmi mobile phone priced at 799 yuan is positioned for mass users, pursuing experience and high cost performance. From fever, to general fever, and finally positioned for the masses, Xiaomi mobile phone industry is constantly expanding its market coverage, extending from first-tier cities to third-tier cities.

With the guarantee of high cost performance, Xiaomi has accumulated a good reputation in three years. The "word-of-mouth marketing" that Xiaomi is most fond of has shown its effect and has entered a period of expansion.

The success of Xiaomi mobile phones is usually attributed to the excellent marketing ability of the Xiaomi team. The cyclical nature of smartphone sales is very obvious. From the sales figures, we can see obvious changes in demand. Xiaomi is good at using this cyclical nature to adjust its production volume. Through a series of Internet marketing programs, it creates topics in the months when other mobile phone brands have the worst sales and increases the sales of mobile phones.

"During the Spring Festival in January and February, the number of couriers in express delivery companies decreased, e-commerce sales were low, and offline shopping malls were relatively hot. It took until the Lantern Festival to recover. In March, there was a small peak. Some accumulated demand was released in March. In June, it was a trough again. During the summer vacation exams, it began to recover at the end of August, and began to come back in September. In the next few months, it kept climbing until before the Spring Festival." Lin Bin, president of Xiaomi, analyzed the sales curve of smartphones.

In line with this sales cycle, Xiaomi played the family card during the Spring Festival when e-commerce sales were bleak. Redmi became the best gift for parents during the Spring Festival. In June, the second low period of the year, the Xiaomi Youth Edition mobile phone for student users was launched.

If Xiaomi wants to achieve Lei Jun's shipment goal of 100 million units, it needs to build a richer and more powerful ecosystem. The tablet computer released in May, as well as the Xiaomi TV and Xiaomi Box that have been released before, are all promoting the maturity of this ecosystem.

In Xiaomi's entire system, MIUI has a more important position. In May 2014, MIUI users reached 50 million. Among the existing 50 million users, 43 million users came from the natural growth of Xiaomi mobile phones, and the number of users who flashed the phone was about 7 million. At the end of last year, MIUI's monthly revenue reached 30 million. "By the Spring Festival next year, MIUI users should exceed 100 million," said Hong Feng, head of MIUI.

At Xiaomi's press conference on May 15, Lei Jun specifically emphasized the importance of MIUI to Xiaomi. As "the part of smart devices responsible for 'intelligence'", the importance of MIUI is being strengthened unprecedentedly. In the future, how to better tap into the existing 50 million users has become an important topic for Xiaomi.

At present, MIUI's revenue comes from the "ecosystem" channels such as the theme store that it has been involved in since 2012. Including the application store, theme store, game center, online music, and online reading, all have begun to make money for MIUI. Among them, the application store, game center and browser constitute the main source of income, and the income brought by the reading channel is slightly lower.

In the future, Hong Feng hopes that MIUI can change a way to make money, for example, directly integrate with some service providers at the system level and make money from the system. After integrating the phone number database business of DiaoLianBang, ChuBao, and Sogou, and integrating the life services of 58.com and Dianping, MIUI attempts to extend its services to a deeper and more basic direction, such as the recently launched address book yellow pages function and the "Xiaomi Life" product. After

purchasing the new domain name mi.com for US$3.6 million, Xiaomi plans to open up 10 overseas markets in 2014, including India, Russia, Turkey, Brazil and other countries.

But selling Xiaomi overseas is not an easy task. Lei Jun must prove that he can find a new model suitable for overseas markets. Unlike the domestic market, more than 90% of mobile phones in mature markets are sold through operators. Foreign users are more accustomed to buying mobile phones from operators rather than through e-commerce.

A bigger challenge is that with the explosive growth in sales and the expansion of the market overseas, Xiaomi's already tight supply chain will face greater pressure. After all, overseas users may not be as patient as domestic Mi fans.

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