Xiaomi: It really ISN'T a biz-miracle idiot tax like Apple

The lads over at Business Insider seem to be getting a little over-excited about Xiaomi's latest fund raising exercise, claiming in their headline that it's the Apple of China. Well, no, not really, Apple is the Apple of China. Making cute kit and selling it in volume isn't the definitive point about Apple itself so a company …

[Anonymous Coward]

Hum, interesting argument.

So if I read correctly no one can be an "Apple" because only "Apple can be Apple".....

By the same token then no two things can be compared because they are different (and thus apples and pears if you'ill excuse the pun) otherwise they would be one thing and could not be compared either.

An interesting philosophical perspective but one that i find a bit self limiting.

Of course Xiaomi is not apple, they're in china in the 2010's not in California in the 1980's ! But they show a very similar flair in swamping markets with techno bling.

So I say if it quacks like an Apple and if it walks like an Apple - it bears to be compared with an apple...

With these deeply philosphical thoughts - a merry christmas/holidays to all

[Gordon 10]

Tims whole point was that it has yet to quack like an Apple - arguably at this stage not even a Samsung

[Sir Sham Cad]

swamping markets

But that was not what was in the article. Now I do enjoy a Worstall read even if I don't grok everything but this seemed simple.

Xiaomi are straddling that Apple supply/demand line by making nice kit, keeping it scarce enough to be considered premium but flogging enough to not be niche. But, the point Tim W was making is that Apple do that whilst raking in hefty profit margins. Xiaomi aren't doing that part.

Hence: not Apple. Yet.

[Anonymous Coward]

The point is really anyone can make and sell cheap Android handsets - the problem is many people will and the profits end up down and down towards zero. The only real difference here is they have a limited term cost advantage - but they are still making little or no net profit.

Apple make revenue on the hardware sale, add-on sales, iTunes and other digital media and enjoy great repeat business. People pay a premium for a premium product.

Last year it was all about Samsung and they were managing to eek out some extra profits on high end models - that seems to have gone and their profits are tumbling as they fight to maintain volume.

These guys will just get replaced by the next Android maker prepared to make zero margins. Android is going after the low end / volume and Google are the real winners.

[anoncow]

The point is really anyone can make and sell cheap Android handsets - the problem is many people will and the profits end up down and down towards zero. The only real difference here is they have a limited term cost advantage - but they are still making little or no net profit.

You exaggerate the importance of windfall profits. Any profit that provides a suitable return on investment is more than satisfactory. Any profit at all is better than expected while growing. After all, the name of the game in tech is to survive and grow. Think Walmart as opposed to Ferrari. Who is richer?

[Yet Another Anonymous coward]

"Only Apple can be Apple"

Exactly, if there was an exact mircon-perfect Chinese named copy of a BMW for 10K nobody would buy it.

Although VW did prove that if you made a 1/2 price version of an Audi with a less desirable badge, some people would buy it

[Anonymous Coward]

And what half-priced Audi car would that be? Bearing in mind VW group own Audi.

[Tim Worstal]

Skoda......

[Yet Another Anonymous coward]

VW have managed almost perfect market segmentation.

I need a car !

Certainly sir, would you like to pay 10K, 20K or 30K for the same car?

And steer you to the Audi, VW or Skoda/Seat version

[Peter Johnston 1]

Making money on old kit

I read elsewhere that Xiaomi's route to profit was on older kit. It priced according to the cost of components on new kit, then made more money as these were commoditised and the price came down. Rather like Apple selling old iPhone 5 innards dressed up as the 5C.

Apple certainly has two groups of consumers in the UK - those whose carrier upgrade cycle fits with the main release and those where it fits with the S release. Xiaomi seems to be simply missing one of these cycles.

[Naughtyhorse]

design costs

lol

China?

[Anonymous Coward]

What makes Apple interesting

Love them or loathe them, they know how to have their cake and eat it. They make a tidy profit on the hardware and then clean up in music, books, videos and apps, while the others have to make do with low margins. To be fair to the other major players, high end tablets are all pretty much equivalently priced at the moment, but with iPhone Apple is still able to maximise its margins (especially when you go beyond base storage).

[anoncow]

Re: What makes Apple interesting

They make a tidy profit on the hardware and then clean up in music, books, videos and apps, while the others have to make do with low margins

Apple has to make do with eroding market share. Seems suicidal in the long run, or at best, not in the interest of shareholders.

[Anonymous Coward]

Music, books, videos and apps are a drop in the bucket

Apple only makes a few percent of their profit on those, and for all the whining about Apple taking 30% of the poor suffering app writers' revenue, Google takes the exact same cut! If Apple is rolling in the cash from sell this stuff, Google ought to really be raking it in since they get the same margin and there are many more Android devices than iOS devices, but as with Apple the Play store is a rounding error in their overall profit.

Apple makes almost all their money on their hardware, plain and simple. They can do that because they are the only ones who sell Macs and iPhones, while Android (like Windows PCs) are trapped in a race to the bottom where no one could make outsized profits once consumers figured out that a Dell, HP and Lenovo are pretty much the same. Unfortunately for Samsung, they've now figured out Samsung, LG and Xiaomi are pretty much the same thing, too.

The only way you can make money selling hardware is to have something unique others can't match. That's why Apple is able to successfully make the margins they do, because whether you like it or hate it, you have to concede the iPhone offers a different experience than Android does. Samsung tried to became unique with all their S-this and S-that but they've failed in doing so because they're just putting a layer of makeup on the same Android everyone else starts with. Xiaomi phones have Mi-this and Mi-that which do the same things as Samsung's S-stuff, in a phone that costs less than half as much but runs the same Android as Samsung.

Apple provides a different user experience since they make their money from hardware, rather than from trading on personal information like Google does. It is up to the individual to determine whether escaping Google's grasp is worth paying more for a phone, whether iOS provides a better experience than Android, whether iPhones are better designed than their Android competitors, whether the iTunes store has higher quality apps than the Play store, etc. Samsung's problem is, if you opt for an Android, why should you pay iPhone like prices for a GS5 or Note 4, when you can get the same thing for half the price from companies like Xiaomi?

[Anonymous Coward]

Eroding market share is irrelevant

Apple sales are still increasing. Expectations are that Apple will have Q4 sales about 30-40% higher than their previous record (which was Q4 last year, which beat Q4 the year before, and so on) Obviously Apple can't keep increasing their sales forever, but even if this quarter marked their high water mark and they never beat it, there isn't any reason to think their sales will fall to any significant degree.

At least not until something disrupts the current smartphone market the way the iPhone and Android phones disrupted the cell phone market - when that happens, Android's market share will probably become just as meaningless as Nokia and Blackberry's market share were post-disruption.

Yes, Apple's market share is eroding, but all the growth in the smartphone market now and for the past year or two is in the low end. As component prices decrease it was possible to make smartphones for $100, then $50, and now $25. Why should Apple care about missing out on selling $50 phones? What value is it to them to increase their market share but decrease their overall margin by selling $50 phones?

I'm not sure why you think the most profitable company in the world is not acting in the best interest of their shareholders. If they chased market share they'd have to price far lower, and there's no way they could sell enough to make up the lost margin through higher market share. If you think I'm wrong, show your math. What price should they sell them at, how many to do you think they'll sell at that price, how will that affect their profit?

Or do you think that Apple can somehow keep the current iPhone pricing, but sell cut down iPhones to the low end market without cannibilizing the high end market or eroding the market perception of Apple as a premium brand? That is something which succeeds far less often than it fails, and the outcome of increased market share still has no positive benefits.

[imaginarynumber]

Re: Eroding market share is irrelevant

"do you think that Apple can somehow keep the current iPhone pricing, but sell cut down iPhones to the low end market without cannibilizing the high end market or eroding the market perception of Apple as a premium brand? "

Erm.. they did just that earlier in 2014 when they resurrected the iPhone 4 in emerging markets such as India.

http://www.theregister.co.uk/2014/05/09/apple_pulls_iphone_4_from_sale_in_india_after_just_four_months/

[Stretch]

To be an "Apple" you have to produce years of shite before stealing someone else's industry. You have to shamelessly promote substandard products sold at inflated prices. You have to lock the idiots who buy from you into the most terrible of controlled worlds.

They're just using the name to get traction with the rest of the media. Obviously working.

[rocwurst]

Indeed Tim, the "Apple of China" label is wearing pretty thin considering Xiaomi only made $56 million profit last quarter (compared to Apple's $8.5 Billion profit) and Xiaomi has been kicked out of India its second largest market. Apple's profit share of the entire Mobile industry hit 86% in Q3 2014 up from 72% the year before according to Canaccord Genuity.

Apple continues to sell more and more iPhones every year at that amazing 60% margin and has now sold 1 Billion iOS devices worldwide and is on track to sell a quarter of a Billion iOS devices just in 2014 alone. Apple has indeed cracked the secret of rocking horse poo(!).

However, there are also other very important characteristics that define Apple, one of the most important being making the "whole widget", i.e. Apple doesn't just make high-end hardware, they also make the OS, the software, services and sell media and content such as movies, TV shows, iBooks and have their own physical retail stores.

Not only does Apple compete in all of these other areas, they DOMINATE most of them as well - the App Store is number 1 in the world making 60% more revenue than Google Play, Apple Pay is now the number one mobile payments system in the world, iTunes is the number one music retailer in the world, Apple is by far the largest company in the world on the share market - Apple may soon be the World's first Trillion-dollar company - and the Apple Retail Stores make vastly more revenue per square foot than any other retailer in the world,

Xiaomi may be the most blatant copier of Apple's looks on a superficial level, but they are definitely not Apple-like in the vast array of other ways that define Apple as a worldwide phenomenon.

[Yet Another Anonymous coward]

Apple sold most of those devices in the USA and all of them to people who don't care about a $100/month cell phone contract and on carriers who have a margin to bundle phones.

It is going to be tricky selling to the next billion people who think $10/month is a lot of money. It's going to be very tricky doing it in a way which doesn't reduce the value to the $100/month crowd

[KjetilS]

Re: going to be very tricky

What do you call the 1-series and A Class? I would call them entry level.

Also, neither the 3-series or C Class is really that expensive if you go for a lesser equipped model, although other brands will give a lot more equipment for your money.

[Anonymous Coward]

Re: going to be very tricky

I've withdrawn my post, leaving yours orphaned, but I will just remark that calling a Mercedes A class "entry level" is actually just boasting about your income. The average price of a new car is around £15000. The cheapest Merc is around £18000. A Hyundai I10 is entry level, and costs half as much as that Merc. I repeat; Mercedes and BMW have no entry level vehicles and do very well on it.

[Anonymous Coward]

Re: going to be very tricky

"Mercedes and BMW have no entry level vehicles and do very well on it."

Surely the price to purchase is irrelevant for these vehicles vs others. The relevant number to compare is the lease cost for the company car driver? I've been a company car driver many years ago and there was rarely any visible connection between lease costs and the real world.

Surely the same doesn't really apply to Apple boxes, despite the effects of the mobile telcos?

[KjetilS]

Re: going to be very tricky

I guess there are massive differences between different markets here.

As a Norwegian, a base level 1-series or A class isn't very much more expensive than a comparable-size car from many other makers, however they do come with significantly less equipment for the price.

A base 1-series or A class here costs around the same as a Golf.

[rocwurst]

Hardly

Apple makes 60% of their revenue in the rest of the world.

Apple not only has 40% market share in the USA (the World's second biggest smartphone market after China), they also have around that market share in the UK, Japan and Australia.

Every year Apple sells more iPhones, not less - they are on track to sell over a quarter of a billion iOS devices in 2014, up from 234 million in 2013 and Apple has over 885 million active iTunes/App Store users worldwide compared to Google who is only a little bit further ahead on 1 Billion active Android users.

Apple doesn't need to compete in the sub-$200 category of smartphones where 60% of Android phones come from, the iOS installed base is more than are enough to continue bringing in the lion’s share of the profits, app revenues, advertising ROI and e-commerce revenue around the world.

[Desidero]

Sure, moving up market is difficult - until you do. But there are a ton of examples in and out of IT of successfully doing just that, whether disruptive technology or just new mean contender. (fond shimmering flashback to that first Honda...). Sun riseth, sun setteth...

Did I hear the bellweather of "can't do it unless a monopoly?" Fortunately for Xiaomi, they're in China, where the chance of getting a monopoly due to locking out foreigners looks quite fortuitous and auspicious. Margins may be low now - might be raging in 2 years. That is what moving up-market's about. Of course when you have the Chinese government behind you, "margin" includes the gov payoff, just like Elon Musk's bottom line includes $1 billion from the state of Nevada (and Apple's include tax largesse/avoidance from the country of Ireland). It ain't over till it's over (or accounted for, deducted, depreciated, litigated, etcetera).

BTW, bitching about Xiaomi being no JFK/Apple is about as useless as complaining Oasis was no Fab Four - the Gallagher brothers pulled out some half a billion quid playing this cynical note, and I'm sure are quite happy with the result, aesthetic success or not. Xiaomi is certainly already happy riding the Apple vibe to investment and IPO, and no fear of "there's no there there" - only Gertrude Stein cares.

Last, but most important - this is the first time that China's gotten its shit together marketing-wise, and should scare the bejeezus out of the rest of us. Rather than just dumping cheap crap on the rest of the world, having Mommy (gov) super-subsidize its way to success, or using some flashy western interloper to make most of the gnosh, they're actually successfully putting all the pieces together including brand management on the way to the user's hands as a quality enjoyable piece of gear - e.g. satisfying user expectations. If the Chinese can do that with cars, designer apparel brands, colognes, and what-not (airliners and weapons sales?), there will be much gnashing of teeth among the Foreign Devil Gweilos along with a change in economic/political status.

[Anonymous Coward]

@Desidero

I'm inclined to agree - upvoted.

Xiaomi may be the Chinese turnover king, but the Oppo N3 is the really interesting one - a genuine innovation (motorised camera that can therefore take real panorama shots on a tripod). Doing everything in China should mean that niche markets can be made profitable. It's no wonder that Google has been working on a project to produce very customisable phones.

[Desidero]

Re: @Desidero

Interesting camera - phone functions seem iffy from the review I saw, but presumably can buy those functions for next model

[oneeye]

I read a business investment report on the company recently,and the margin is a whopping 1%,yep,that's it. But like the article says,they have all kinds of services,including their own app store. Samsung,look out,here comes Xiaomi!