Rise and Fall of Xiaomi: What does this actually mean?
The mobile industry has been rapidly evolving since inception, trends came and went, technologies came and went, so did companies. Once mighty Nokia had to sell off its Hardware Business, BlackBerry is struggling to sell even a million units, HTC and Sony seem to have completely given up and now we have Xiaomi joining the league.
Back in 2014, Xiaomi received $1.1 Billion in funding and was valued at a whopping $45B while investors were aiming at valuation increasing two-fold to $100B. But, in two years, today Xiaomi is valued less than $4B. Obviously, multiple factors are responsible for the fall of Xiaomi, often dubbed as “Apple of the East”.
So how did Xiaomi have this sad fate?
Since inception, Xiaomi aimed at making smartphones packed with high-end hardware and premium designs, but selling them at a very low affordable price. The Mi 3 was a huge hit, followed by the Mi 4. Then, it forayed into the low-end market with the Redmi series, which too sold well. But, not as well as expected.
According to figures released this week by research firm IDC, Xiaomi saw sales of its smartphones drop by almost 40% in China during the second quarter of 2016 when compared to the same period in 2015. The overall Chinese market grew during the same period by 4.6% and while Apple suffered a similarly large drop in sales, Xiaomi’s real competitors in the mid-to-low end of the market — Huawei, Oppo and Vivo — all saw significant growth. In the 12 months following its record-breaking valuation, Xiaomi missed smartphone sales targets twice, as well as revenue targets.
The calculation was that once Xiaomi launched its smartphones in western Europe and the United States, it would become a global player. In fact, Xiaomi has been doing a lot more than just smartphones, their portfolio includes Air Purifiers, Wearables, Mobile Accessories like Power Banks, Portable Speaker and Headphones. Due to this diversification, Xiaomi seems to have lost focus as to what it really want to do. Even LeEco has been slowly getting into multiple segments, but their aim of creating an ecosystem is clear and everything being researched is with respect to it.
However, the problem is that Xiaomi simply does not have the patent portfolio to enter these markets. Long accused of copying hardware and features of established players like Apple and Samsung, Xiaomi is completely unprepared to enter a more mature market, where it would immediately face a volley of patent lawsuits, stymieing any chance it has of establishing itself as a major player.
Even in India, its second-biggest market, it has faced sales bans for infringing Ericsson’s patents. And despite signing patent licensing deals with Microsoft and Qualcomm, it is still unprepared to make the leap into these bigger markets.
Patents, these are a core factor and hugely decide the future of a company. Today, even though Nokia, BlackBerry and Sony are practically gone, they still rule the market silently, it is their long term R&D which pays off. This has never been the case with upcoming smartphone companies like Xiaomi, LeEco, Vivo and Gionee. Huawei has been in the market for a very long time and is doing very well, considering it too caters to both, high end and low end via Honor series. Huawei too holds a substantial amount of patents when it comes to processors and wireless technologies. No wonder it has been highly successful in entering the American and European markets.
Even in India, we’ve seen the rise and fall of Micromax. The market atmosphere is no longer about innovating or developing something new, it’s about who can provide better Hardware Specs on paper and sell for a cheaper price than the competition. While the Mid-Range and High-Range move ahead, the affordable segment always struggles and is all about competitive pricing.
I’ve always felt that the amount of R&D you do is directly proportional to your sustainability.