WHY XIAOMI MOBILES ARE SO CHEAP?? | XandarWorld

Why Xiaomi Phones are so cheap | Hey Guys welcome to Xandar World. Here in this post, I shared with you Why Xiaomi Phones are so cheap, Why does Xiaomi limit its profit to five percent. And this is the first part of "Secret Behind Brands".

XIAOMI MOBILES

Why Xiaomi Phones are so cheap 

Why Xiaomi Phones are so cheap you might have recently seen headlines like this, declaring Xiaomi some type of communistic charity club for voluntarily giving up all of its profits above five-hitter. And if anything in you went like wait for a second, that's not, however, anything in capitalism works, then congratulations, your bullshit detectors are operating.

Why will Xiaomi voluntarily limit its profits to only 5%?

The answer is, to make extra money. Sounds confusing, however, it's not. There are really 3 pillars of the Xiaomi business model.

Xiaomi business model

70% of their revenues return from phones, a small amount over twenty to stick out from the rest of their hardware stuff, like air purifiers, power banks, and web routers, and also the final 9-11 return from. what the company calls to web services.
These include things sort of a music subscription service, a cloud storage service, a Xiaomi App store, advertisements on their phones, and so on.

Xiaomi's CEO only vowed to keep net profits of the primary 2 categories below five-hitter, but
not the third one.

Now you would possibly be saying that, given their weight, that's quite a similar thing, however, it is not. See, Xiaomi calls itself primarily an internet company. They said so in their IPO documents, in fact, they have consistently said so since their launch, and that they even claim that one of the meanings of their name is ( Mi ) mobile internet.
Mi [Internet Company ] IPO documents

Xiaomi Business Model

So why would they opt to focus on this little a part of their business? Because they're a for-profit company, not a charity club. See, there could be a comparison between the gross margins of hardware and services in Xiaomi.

Xiaomi margins

And gross margins do not even include things like selling expenses, taxes, overhead prices, and so on.
Xiaomi most likely actively loses cash on hardware, while margins on web services are pretty healthy.

Making smartphone hardware could be a pretty lousy business, as a result of still, only Apple or Samsung have discovered the way to create a correct profit out of it.
But creating web services could be a fantastic business, like Amazon, Facebook, Google, Microsoft, Alibaba, Tencent, and 1,000,000 alternative terribly profitable companies have evidenced.

So Xiaomi urgently desires investors to suppose that their main business is creating web services.

The difference is that ancient phone companies try to create their profits once the client buys the hardware, so mostly leave customers alone after they use their phone, whereas Xiaomi accepts essentially zero profits from the hardware purchase, on the other hand, tries to make cash from their customers throughout the usage amount. Now, this to me looks like the hardware equivalent of a premium package. We used to pay money for package outright, on the other hand, companies figured out that giving it away for free initially, so creating cash from the users later, by creating them pay money for a subscription, or loot boxes, or showing them ads, is a nice business.

Xiaomi creating no profits on hardware is basically similar to Facebook and Google creating their services free, or Amazon discounting phones that have lock screen ads on them.
It's not a charity. it is a business model.

Why do I believe this was a brilliant PR campaign?

Well, I hope it's pretty clear by currently that Xiaomi never really created or wished to make
money from their hardware anyway, as a result of higher phone profits means that fewer users, less
money from services, and eventually, lower profits overall.
So, the 500 limit is artificial and would not have been meaningfully passed anyway.

This was simply an announcement, not a change to their business model.

But, with this statement, they convinced consumers, who never read past the flashy headline, that Xiaomi is simply a begin, trustworthy company that simply doesn't need high profits, however also investors, who entirely get the business model, that Xiaomi is an online company with far better profit potential than simple hardware manufacturers.

One statement that actually did not change something makes consumers a lot of possible to buy
Xiaomi phones and investors a lot of possibilities to invest in Xiaomi. Good PR will produce worth out of ostensibly void. And the third question then is however low hardware profits work in practice.
Well, web services and freemium apps have quite shown us the blueprint already. This kind of business has 2 goals: acquiring as many new customers as potential, and then

making sure that those customers pay as much time and cash on the platform as possible.

Obviously, low hardware costs do the magic for step one, however, step two is all concerning software. Namely MIUI, the company's own version of Android, and it's no wonder that Xiaomi takes it's software so seriously. People should love this UI, become loyal to that, and pay the maximum amount of time with it as a potential for Xiaomi to be ready to sell them their services or serve them ads. And this business model has good and dangerous sides for consumers.

The good stuff means that Xiaomi, not like most android phone manufacturers, truly has money
incentives to often update their phones and provide them with relatively long software support.
Xiaomi has also built a large, engaged online community around MIUI, wherever people will do
things like vote on options to be put into MIUI.

On the dangerous side though, Xiaomi is additionally incentivized to push its own software although it means that duplicating apps or making bloatware, and like all alternative premium software player, Xiaomi has incentives to invade your privacy and to lock you into their system. Cause you've got to keep paying those subscription fees and seeing those ads for as long as the potential for this model to figure.

And the last question is: can this work?

And whereas I notice Xiaomi's business model new and genuinely exciting, I additionally think that
from a strictly business perspective, there are some weaknesses here.

First of all, at 9%, the profitable a part of Xiaomi is extremely little, which implies that right now, Xiaomi's strategy isn't really operating. People are happy to buy low-cost Xiaomi hardware, however, most of them don't need to pay for Xiaomi services. Even the corporate itself admitted that they need to extend this rate, however half-moon the opposite happened, wherever hardware grew considerably quicker than services at Xiaomi. Not a decent sign. The services business is additionally relatively small. Just for scale, Xiaomi created 1.5 billion bucks from services last year, whereas Apple created over nine billion in exactly the last quarter.

And that's on prime of the massive revenue and profits Apple has made up of hardware! So, Xiaomi should grow their services business considerably to succeed in a really international scale.

Second, Xiaomi's business model has only been evidenced in China. It type of works there, as a result of Google services, as well as the Google Play store area unit blocked in China, therefore people are usually happy to use services kind their smartphone maker, even alternative app stores. But as Xiaomi is changing into increasingly international, it'll have to compete against Google.

Google Apps are put in on nearly all international phones, that instantly makes Xiaomi apps less helpful, therefore there'll be lower engagement and lower income per user, and customers may

even be irritated by duplicate apps, instead preferring a phone with a clean, stock android. It's quite enough to own Google spying on you and filling your phone with crap apps

you've never asked to use, however obtaining this treatment from 2 companies directly is not
a great expertise.

In fact, Xiaomi did raise their users during a poll what they preferred, and embarrassingly enough,
their own fans voted for stock android. And then Xiaomi deleted the poll. And the third problem is that people who purchase low-cost phones, additionally tend to use cheap, or maybe free software, that is not what Xiaomi wants.
So so as for Xiaomi's business model to work, Xiaomi can need to invest a lot more into creating very premium phones just like the MiMix, Poco and attract more wealthy consumers, so additionally create web services that truly subordinate those of Google.
Not an easy task for an organization on such tight margins as Xiaomi.