So It Begins

Xiaomi’s US Coming-Out Party

XiaomiIt’s an amazing accomplishment: Xiaomi has become a top-five global manufacturer less than four years after introducing its first smartphone. Perhaps more impressive is that the company accomplished this by selling primarily in the Asia–Pacific region. The question now is what will happen when the company goes global. It’s still academic at present, but the company is moving in that direction a market or two at a time.

Xiaomi announced last week that the company will begin selling a selection of its Mi-branded consumer electronics devices directly to consumers in the US. The products to be listed on Mi’s American e-commerce site will include its Mi Band fitness tracker, Piston ear phones and its external battery chargers. A scan of the Federal Communications Commission (FCC) Web site indicates the company could begin selling its Mi Wi-Fi router as well as the Mi Box (a wireless streaming set-top box).

Most of the products Xiaomi plans to sell in the US have already been available from third-party stores on Amazon, but selling directly at near-production level pricing could allow Xiaomi to disrupt the market for a series of product categories. However, the company won’t immediately be selling smartphones on its US e-commerce site.

CCS Insight believes that Xiaomi must address potential intellectual property rights conflicts before it can enter the US smartphone and tablet markets. The company’s recent clash with Ericsson in India over essential wireless patents could be the tip of the iceberg for Xiaomi (see Daily Insight: A Patent Cold Shower) — it could face technology patent infringement cases in the US and well as issues with the look and feel of its smart devices. We also note that Xiaomi’s smartphones and tablets aren’t currently certified by the FCC. The Mi 4 and other Mi phone sales aren’t imminent in the US.

We believe that 2015 will be a year of brand building for the company. The Xiaomi and Mi brands are still not familiar names to the average American consumer, despite the high level of press attention the company has received in the past year. Xiaomi can wow the market by selling adjacent products at below-market prices, but smartphones will come when all the paperwork is in order.

The timing could even be fortuitous: Xiaomi’s eventual entry into the US smartphone market will come when most American subscribers have been weaned away from high carrier handset subsidies. A trend started by T-Mobile’s Uncarrier strategy has been catching on with other operators. AT&T recently announced that less than half of its subscribers are on unsubsidized plans — the US smartphone subsidy market has changed significantly in the past few years, and the trend looks set to continue. More subscribers will be bringing their own devices to the table.

Xiaomi’s highly conceivable entry into the US smartphone and tablet markets would be a challenge for the current leading Android brands — particularly for Samsung, which has the most share to lose. Xiaomi will begin by establishing a presence in the connected American home, and many households will become familiar with Mi during 2016. Popularity begins at home.

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