China’s next Xiaomi?
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China sold 457 million smartphones in 2015, up 17.7 percent year-on-year, according to the Ministry of Industry and Information Technology. Photo credit: SteveC / Flickr

China sold 457 million smartphones in 2015, up 17.7 percent year-on-year, according to the Ministry of Industry and Information Technology. Photo credit: SteveC / Flickr

This brand started up in 2011, the same year as Xiaomi. But 2016 looks set to be its first year in the limelight

Tech in Asia

Let’s rewind to China in 2011. The country’s smartphone market is defined by the likes of Samsung, Nokia, and Apple. If someone told you, “By 2016, the market will be dominated by a Chinese company that you’ve barely heard of,” you likely wouldn’t have guessed Xiaomi, which made its first phone that year.

But you might have bet on Vivo.

Both Xiaomi and Vivo began producing smartphones in the same year, and the two companies took very different approaches to the market.

To emulate, or undermine?

Vivo went high-end, attempting to woo Samsung and iPhone owners over to its side. The company launched the “world’s thinnest smartphone” in 2012, the X1. Vivo bet that consumers were buying phones based on their specs and design – so it threw its lot in with fancy audio processors, headline-worthy hardware, and a price that was modest, but no bargain. The X1 went for $400.

That’s way above the $100-$300 bracket that Xiaomi mostly goes for.

Vivo’s new V3. Photo credit: Vivo.

Vivo’s new V3. Photo credit: Vivo.

Vivo is owned by BBK Electronics, which is also the parent company of China’s Oppo. The same company more recently spun-off a new brand in the form of OnePlus. That connection meant Vivo already had inroads into the Chinese market, where it sold phones in conventional stores and online. The company also went global early, selling devices in Russia, America, and lots more places.

But as history showed, China’s market wasn’t looking for a homegrown version of the iPhone – instead, it was primed for an insurgent.

Xiaomi blasted through the Chinese smartphone market, leaving all brands dazed and confused. In an Apple-style keynote presentation in 2012, the startup showed off its second phone, the Mi 2 for $320, which proved to be a huge breakthrough. Xiaomi eschewed brick-and-mortar stores and retail partnerships, selling the vast majority of its phones from its own website.

Xiaomi took off not because it was able to persuade iPhone owners to make a switch, but rather due to China’s flip-phone users and rising middle class making their first smartphone purchases. And as they did so, they opted for cheaper, better-marketed devices than Samsung or Apple offered.

This trend stayed steady throughout 2013 and 2014. Vivo churned out premium devices, while Xiaomi fired hard at the middle market and budget-conscious buyers.

Vivo’s offerings included a $500 behemoth with a 5.7-inch screen and dedicated audio processors. It also released an insane 2K-resolution phone that featured a fingerprint reader and 6-inch screen for $580. That was back in 2013.

The X6S Plus is one of Vivo’s larger models – replete with iPhone-esque rose gold. Photo credit: Vivo.

The X6S Plus is one of Vivo’s larger models – replete with iPhone-esque rose gold. Photo credit: Vivo.

These phones were phablets just as phablets were coming into style – and before every company had unveiled a two-hands-required model. Features that are now commonplace, like high-res displays and fingerprint readers, were edgy proposals three years ago.

While Vivo danced on the cutting edge, Xiaomi pumped out solid, reliable devices for cheap – and the market ate them up. The company’s Mi 3 sold out less than 2 minutes after its online sales started. By the end of 2013, Xiaomi had sold close to 20 million smartphones. One year later, it would surpass Samsung to become the country’s biggest smartphone brand, seeing sales grow 186 percent in 2014 to a staggering 61 million.

In 2014, Vivo sold 25 million devices units in China – not enough to break into the top 5 producers in the country.

The great convergence

China’s smartphone market has undergone a fundamental change over the last two years. In 2014, the average Chinese smartphone cost $260 – a year later, that price had jumped to $319. This year it’ll likely go up again.

While Xiaomi had been hammering away at the lower chunks of the market – selling phones for as cheap as $75 – consumers had been drifting towards more premium offerings.

That’s why pricier companies like Huawei and Vivo saw a boost in China sales in 2015, with Huawei taking the nation’s #2 slot, and Vivo edging in at fifth.

From the time it released its first phone in 2011, Vivo occupied a weird space. The company was creating cutting-edge phones at a time when Chinese consumers weren’t ready for them. Its operations abroad, like Xiaomi’s, focused on India and Southeast Asia – also not prime markets for $500 phones.

But the times are changing. Xiaomi’s dominance from 2013-15 doesn’t look as total as it once did – and as Chinese consumers begin to flock upmarket, Vivo will be ready to welcome them with open arms.

The new Mi5. Xiaomi needs this and the larger Mi Note to succeed in order to grow in line with China’s demand for pricier phones. In addition, Xiaomi has been teasing an even larger phone that may be called Max, taking it even further upmarket

The new Mi5. Xiaomi needs this and the larger Mi Note to succeed in order to grow in line with China’s demand for pricier phones. In addition, Xiaomi has been teasing an even larger phone that may be called Max, taking it even further upmarket. Photo credit: Tech in Asia

Xiaomi knows this. It’s already taking action to prevent being pummeled in 2016. The brand broke the usual annual product cycle to spend more time crafting its important new flagship phone, the Mi 5. It even came out with a Mi 5 Pro in order to fit into China’s changing market. The Mi 5 is aimed at the same $300+ market that Vivo, Huawei and the like have been prioritizing for years.

But Xiaomi’s numbers so far show that competition in this arena is much fiercer. What Chinese shoppers want and what Xiaomi makes is no longer so in sync.

This isn’t to say that Vivo is suddenly going to rule the Chinese phone market – it’s to say that nobody will. The days of big, dominant market shares are on their way out, to be replaced by smaller, more equal swaths – one of which will almost certainly be Vivo.

Prices converted from that-year RMB values.

Editing by Steven Millward

This post was originally published on Tech in Asia

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Erik Crouch

About Erik Crouch


Erik is an American living in Shanghai, where he follows start-ups, rides the high-speed rail, and buys too many new phones. He specializes in Chinese tech, and what that means for the rest of the world.

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