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India ushers in the post-iPhone era

Credit: carlstr via Flickr

Apple’s insistence on premium-priced iPhones has created opportunity for look-a-likes to capitalize in up-and-coming markets.

Xiaomi’s flagship Mi3 smartphone went on sale today on Flipkart, India’s online megastore and largest ecommerce company, beating Google’s sub-$100 Android One to the punch as its Indian supply chain partners get ready to scale. The push into India is part of Xiaomi CEO Lei Jun’s drive to deliver a fivefold boost in sales, up to 100 million units next year.

Flipkart announced in a press release that Xiaomi’s “Mi3 stock was sold out in 38 minutes and 50 seconds.”

A glance at the smartphone pricing chart of India tells the story. Xiaomi (pronounced show me) has a reputation for creating high-quality smartphone designs that sell for $250 and below, competing with 80% of the devices sold in India. So does Google’s Android One, which will be sold in India by indigenous manufacturers Micromax, Karbonn, Spice, Celkon and Intex.

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There is no place on the chart for the iPhone 5s, priced at $901 in India. Call it the post-iPhone era.

PayPal founder and Facebook seed investor Peter Thiel described the technological phenomena of globalization during a Harvard’s Kennedy School of Government interview as “zero to one” and “one to n.” In the developed world, “zero to one” rules. Thiel describes this as non-repeatable innovation that creates new categories of technological progress, but in the developing world Western innovations are copied and mechanically cranked out “one to n.” With the improvements to its last release, dubbed KitKat, Android runs smoothly on inexpensive hardware and is easy to update, making it ripe for copying in developing markets. The cheap copies are getting closer to becoming indistinguishable from the original.

IDC and Kantar World Panel’s worldwide country market share estimates for Android and iOS last February exposed Apple’s strategy for China and the developing world - to segment the top tier of wealthiest and most brand-aware consumers and sell them premium-priced iPhones. To no one’s surprise, the research also pointed to bigger Android market shares in countries with lower GDPs.

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An analysis by Asymco earlier this year forecasted a “one to n” future for smartphones, with most growth happening in developing world markets.

Xiaomi is cranking out copies of Android with Apple-like branding, selling mi-branded phones, tablets, televisions and set-top boxes. Xiaomi spent $3 million to buy and brand the domain mi.com - mi as i minus the m like in iPhone, iPad, iTunes, and mi phonetically identical to the personal pronoun me, which is easily associated with the i in iPhone. Outselling Apple’s iPhone in China, Xiaomi is doing more than just copying, maybe even making better copies.

According to a report by mobile analytics firm Flurry, Xiaomi users spend more time using apps than those on competitors’ devices, including Apple’s, and they spend 62% more time than the average Chinese consumer using media and entertainment apps. Apple’s historic differentiation in Western markets is, of course, iTunes.

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Xiaomi’s first successful day selling in India isn’t a reason for it to declare victory because India isn’t  China, where the company established its success on its brand and ecosystem. Globalizing and monetizing the ecosystem is really what is at stake for every smartphone maker. Smartphones are a razor and blade strategy - vessels for making money by selling media and advertising. At question here for Xiaomi, Samsung, Google, Apple and every other smartphone maker is whether they can forklift over their ecosystems to internationalize, localize, and monetize.

Smartphone hardware and operating systems are governed by Thiel’s “one to n” principal. But the ecosystems are subject to each country’s unique consumer preferences and the success of each brand adapting and appealing to them. Ecosystems are ruled by “zero to n” non-repeatable innovations like Google search, Facebook’s social network and Twitter that drive mobile adoption.

Xiaomi, Google, and Apple are attempting to solve the “zero to n” problem differently in India. Xiaomi has partnered with Flipkart, a similarly entrepreneurial ecommerce company with founders still in control, perhaps betting that the company can maneuver more quickly and create its Indian ecosystem with an entrepreneurial partner. Google has partnered with well-established smartphone makers that it is counting on to inject its Android ecosystem into India. Apple usually relies on localizing its brand marketing and retail stores and partners with indigenous mobile carriers. In India, it has partnered with retailers but hasn’t opened one of its own retail store cathedrals yet in India to lead the faithful.

Xiaomi has targeted the rising middle class in India and the 11 other countries the company plans to expand into, a much larger segment than Apple’s wealthy demographic. Internationalizing and localizing technology and business models is always hard and never a sure bet. Apple will bear this burden in most developing market economies because it can’t reward partners with large numbers of consumer smartphone sales or a large audience for ecosystem revenues to compensate them for sharing in the work to adapt for and attract local consumers. But these rewards exist with Android because, with large volumes and prices in the low to mid range, there are incentives for companies like Xiaomi to strip Android of Google’s proprietary ecosystem, sell in high volumes and bet on cashing in on a different ecosystem in each country market. Or Google’s Indian hardware partners, which will keep Google’s proprietary Android ecosystem and use Google’s brand, are incentivized to sell smartphones to the hundreds of millions of Indian consumers upgrading from feature phones. 

If Xiaomi were not to succeed in India, there are many more companies that will use variants of Android employing different business strategies to capture consumer upgrades. The same is true in each country in each of the world’s regions forecasted in the chart above. “One to n” low-cost hardware and “zero to one” innovation in ecosystems that attract local consumers give Android the advantage in this explosive lower GDP segment.

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