Chinese smartphone giant Xiaomi is treading on a fine line in India, the world’s fastest-growing smartphone market, as the local government has banned two of its main apps that have been instrumental for the company in engaging millions of users and creating a huge fan base.
While the Mi Community, the socializing app where Xiaomi’s fans could communicate with each other, was named in the list of 59 apps India banned late June due to the concerns regarding security and privacy of user data, the firm’s popular web browser, Mi Browser Pro, was included in a follow-up list of 47 apps that were banned a month later. Apart from Mi Community and Mi Browser Pro, Mi Video call has also been banned.
Consequently, the Beijing-based company will need to tweak its India strategy, which has been in line with its global strategy, revolving around ecosystem play comprising of devices, internet services apps, and new retail platforms.
While on the surface, it may seem like the ban of just three of its apps from a bunch of other internet services including e-commerce marketplace Mi Store, digital wallet Mi Pay, fitness app Mi Fit, and instant cash loan app Mi Credit, among others, may not dent Xiaomi’s business, but a closer look reveals that it impacts the company at various levels.
The various consulting firms that track smartphone companies put Xiaomi’s user base at about 90 million at present, with almost 30% market share in India.
The ban, specifically on the browser, will impact the Chinese giant’s India revenues, believe analysts. Xiaomi India clocked USD 4.7 billion in revenues for FY 19, as per the latest regulatory filings.
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“Xiaomi, in their own words, is not just another smartphone brand, but rather a digital company,” Prabhu Ram, Head-Industry Intelligence Group at CyberMedia Research (CMR) told KrASIA. “The ban on the bundled Mi Browser follows the earlier bans on other Mi apps. However, unlike the earlier banned apps, the Mi Browser is core to everything that Xiaomi does, including its revenue growth.”
The company generates revenue from apps and services, including music, videos, lending, and payments. Its Mi Browser earns royalties from the default search engine such as Google. It also makes money from digital ads and other integrated shortcuts on its home page. Mi Browser displays 15 shortcuts including that of social media platforms Facebook, Instagram, Youtube, and LinkedIn as well as shopping websites like ShopClues.
According to Faisal Kawoosa, founder at TechArc, a Gurgaon-based research firm, Xioami earns around USD 1 per user per month through its value-added services that it offers through its apps.
Even if we assume that half of Xiaomi’s users use the apps, it fetches Xiaomi a revenue of USD 45-50 million per month, Kawoosa told local media Economic Times in an interview.
It is to be noted that the current users may continue to use the app, but the ban is a huge blow to Xiaomi’s brand image and that may deter its current user base from availing its internet services.
“While the extent to which the ban will affect Xiaomi’s market performance in terms of smartphone sales is yet to be determined, it does cast a big shadow over its brand imagery as well as its IoT ecosystem play,” Ram said.
On a deeper level, analysts feel that the ban on Xiaomi will make things more difficult for the company which is aiming to shift toward the non-hardware device revenues in the future. Internet services offer the company way better margins, as compared to hardware which gives them a mere 5% margins.
In a 2018 interview with The Harbinger China, Donovan Sung, Xiaomi Global’s former head of product and marketing, explained Xiaomi’s business model is based on three pillars.
According to him, Xiaomi’s first pillar is hardware devices which it sells at affordable prices. It includes a wide range of products–from smartphones, earbuds, laptops, and TVs to air purifiers, electric scooters, rice cookers, routers, drones, and other consumer IoT and lifestyle products.
The second pillar is new retail, which includes Xiaomi’s e-commerce channels (such as Mi.com), as well as offline stores (Mi authorized stores and Mi homes), and the last pillar is internet services. Obviously, each of these components is centered around its user base. And that is where the user data becomes important for the company to know which service its users might be interested in.
“We are not just a smartphone company, we are an internet company, with the smartphone and IoT at its core,” Sung said. “An internet company cares most about user growth and retention. If we can acquire active users, then we can upsell them a variety of internet services, and of course, these have much higher profit margins than 5%.”
This essentially means that ban on Xiaomi’s apps may disrupt the company’s long-term plan to get more money out of its device users.
With the Indian government’s new drive to strike down Chinese apps that may have been exploiting user data, Xiaomi now needs to play it safe.
“Xiaomi should aim to assuage the government concerns as well as the sentiments of their current and potential users,” believes Ram. “In essence, there should be more focus on bringing more transparency in terms of the origin and final destination of data.”
Earlier this week, Xiaomi in a media statement said it is working with key stakeholders for an opportunity to make its case for its app with the government.
“Xiaomi continues to comply and adhere to all data privacy and security requirements under the Indian law,” it said. “We are working towards understanding the development and will take appropriate measures as required.”
