- Tram Ho
Sun Xinhe is the type who finds ways to experience new devices. With a diploma in automation and a good job, citizens of Tai’an City – the third tier city of Shandong province – now own more than 200 smart devices in their 2 homes. From dishwashers to folders, microwave ovens and curtains, all are connected to a mobile app owned by Xiaomi.
China entered the smart home era earlier than most of the rest of the world, thanks to the great merits of Xiaomi. With superior hardware production capabilities and favorable conditions from the Chinese government, Xiaomi has succeeded in “occupying” the home of users – something Amazon and Google are dreaming of. With economic conditions increasingly well-off, Chinese users are really willing to pay to make their home become “as technology as possible”.
Inside a store displaying Xiaomi products in the Philippines.
Founded in 2010 and currently valued at around $ 78 billion, Xiaomi not only built the world’s 3rd largest smartphone empire in 10 years, but also became a leader in the 26th smart home appliance market. billion USD in China. Xiaomi currently sells more than 1,500 smart home devices, the majority of which are cheaper than competitors. More importantly, users can control all these devices with just one app.
By offering a wide variety of low-cost, reliable options, Xiaomi is turning itself into an IKEA of the smart device market. In the financial statement release in 2019, founder and CEO Lei Jun pledged that the company will invest $ 7.7 billion over the next five years to “ensure that it will completely dominate the era of smart living”.
Other major Chinese mobile carriers, such as Huawei, only realized the importance of the smart home market after smartphone sales peaked around 2018. They rushed to enter the market but were behind Xiaomi. years.
Xiaomi dominates the smart home market with a seemingly simple strategy. “First, they took an expensive, high-end product and made a cheaper version,” said Flora Tang, an analyst at Counterpoint Research, on Protocol.
“The second way is to take a popular product, cheap price and improve it. Power bank, desk lamp, power outlet … there are always companies that manufacture them but you cannot remember the model brand name. backup charger you leave at home, “Tang said. Xiaomi will find what its competitors are missing, refine them, and sell its version with better design or features. During a product launch in 2015, founder Lei Jun spent nearly 20 minutes introducing its first model of electrical outlet, praising its design and high performance. Xiaomi spent about $ 1.5 million to research and produce this socket model, Lei said.
Improving mainstream products and creating low-cost versions of high-end products is Xiaomi’s strategy.
As a result, Xiaomi does exactly what IKEA did in the interior market: discounting expensive products and improving the quality of inexpensive products. It is perfectly suitable for hundreds of millions of middle class users in China who want to experience modern life at an affordable price.
However, cheap prices are not the only “specialty” of Xiaomi. More important is the “network” effect they create between their smart products.
Since 2013, Xiaomi has announced an “ecosystem” strategy by investing in a series of manufacturing companies. Currently, they do business with more than 300 companies that manufacture devices from smart bracelets, cables, kitchen products to household cleaning appliances. In most cases, Xiaomi does not manage these companies but has a very close relationship.
In fact, many of these companies own “very related” things like Green Mi, Purple Mi, Cloud Mi or Smart Mi. This partnership brings benefits to both. The partner companies reduce selling and marketing costs through selling on Xiaomi webistes and stores. They also benefit from Xiaomi’s supply chain. As a company that sells low-cost smartphones, Xiaomi is too used to negotiating for good priced components and shares it with the companies they invest in.
In return, these products can only connect to the Xiaomi platform called Mi Home. Together, they create a large, interconnected system. When a customer uses a Xiaomi smart product, they have a need for additional ownership and if they want to switch to a product of another brand, they will find the price they pay too high.
Sun Xinhe is a typical customer. He bought his first Huawei product in 2015 and has since bought hundreds of other products.
Sun feels extremely satisfied with the connection between the products. When he walks into the closet, the sensor detects and turns on the power, the clothes rack will drop and the curtain closes. “All I need to do is change and get out,” he said. After a while, everything returns to its original position.
Challenges for “Xiaomi empire”
But things are changing with the ecosystem of Xiaomi. Companies working with Xiaomi are growing and want to build their own brands. Xiaomi’s low-cost policy forces these companies to narrow their profits. Many of these companies are already developing newer, more premium products that are compatible with other ecosystems, such as Apple’s HomeKit.
“Smart Mi now has its own sales and branding team,” Smart Mi CEO told Time Weekly magazine in 2018. The company produces smart heating equipment, air conditioners and air purifiers for Xiaomi ecosystem.
Xiaomi also faces another complex issue. From its earliest years, Xiaomi has shaped itself as a good price option for the masses. Therefore, users rarely come to them if they want to buy high-end products. However, China’s per capita GDP has nearly doubled since Xiaomi’s inception and users are willing to pay more to improve their lives. Whether or not Xiaomi can attract wealthy customers is still questionable.
User data security is a big challenge that Xiaomi faces.
Another obstacle Amazon and Google have encountered is data security. In China, this issue is mentioned less often than in the US and Europe. However, last September, China issued a draft private data protection law, although it did not mention smart home products. The home data issue became a hot topic in China in 2017 when someone happened to discover images from their security cameras being broadcast publicly.
“Of course, I worry about security issues but there is no solution at all,” said Sun Xinhe. He argues that it is necessary to collect data so that products can understand his lifestyle. “Like you have a maid. She needs to know where to put the equipment, how to use them, when you go to bed and what do you like to eat. your case “.
Source : Genk