[DCKing]

It's interesting what's going on here. They have gone on record before that they're not making a profit on their phones, and evidently their tactics are creating a bit of an internal mess. They've grown very rapidly.

I imported a Xiaomi Mi 4C a month or two ago for €100 (it still sells around that price). For that price you get a fantastic 5" screen, the same Snapdragon 808 chip / 2GB RAM as the €300 Nexus 5X, a more than decent camera and great build and battery life. The heavily customized OS is surprisingly tasteful and useable, and is being regularly updated with features and Android security updates. In addition the Android core of their custom OS will even get a promised update to Android 7.0 this year, despite the phone being on the market for nearly two years. I'm very happy with it.

If you look at the EU market in the same price category, you can only get utter crap. Specs and general usability of phones in the same price category do not compare, and you need to go well over €250 to find comparable phones. Even then, the software support of those competing devices still does not compare, mostly.

Given that, I do not believe for a second that Xiaomi is able to sell this phone sustainably for this price. Keeping costs low through a focus on Asian markets and low-overhead distribution costs does not magically remove the component and development costs that go into such a device for them to be able to make a profit on it for €100. What's more is that Xiaomi has several models with a 'low-end' price that have mid-to-high-end specs. You see that Xiaomi has quickly won popularity in the tech savvy west for their bang-for-buck value in smartphones despite usually not even selling there.

This is all great for the consumer, but evidently it cannot be (and is not) great for Xiaomi. They wanted market share and they got it, now it's time for the next step.

[dmritard96]

There is an important supply chain related nuance in my opinion - in the US, distribution channels are critically important - Amazon, Best Buy etc. - but in Asia, this isn't always the case, in fact a flash sale on JD or some vendors stores directly means they can play with skinny margins and sell products. If you are selling something in Best Buy, there is a good chance that there is a 50% markup in many cases which is the customer acquisition cost that Best Buy is charging amongst others (limited inventory holding, logistics etc). Because big box retail doesn't have the same kind of foothold in asia and more direct website purchasing is popular, they are able to seemingly to pull off marketplace magic but the reality is their pricing wouldn't look that different if sold in Best Buy for instance. It still might be cheaper, but it wouldn't be the insane rock bottom pricing you are used to seeing reported on TechCrunch...

[tajen]

Vendors (from Samsung to even clothing companies) make agreements with retail stores to have the same price in shops and online. Otherwise online would be cheaper and retail would refuse to list more expensive SKUs. The only ways to bypass the markup of the distribution network are:

- Go "Tesla" mode: Sell directly online or manage your own distribution – Only works if you pull off a unique product, makes the pricesheet much cleaner (examples: Apple and most hardware startups).

- Use Amazon for distribution to bypass retailers and their markup: That would have worked until 2015, but on one hand it seems no seller would rely solely on Amazon for distribution (lack of foothold of Amazon?); on the other hand Amazon decided to massively dispatch counterfeited products together with merchant-originated ones, casting a doubt on the brand and tainting all their providers together.

To date, it seems like retail remains the safest way to order an item...

[newjersey]

Can anyone comment on how Apple works with retailers? Do retailers "buy" from Apple (and pay within thirty days of delivery)? Can retailers return iPhones they can't sell without paying a premium?

Sorry I don't know anything about the market. I don't even know if best buy's margin would be public information or if we'd need to make an educated guess.

[dmritard96]

I don't know the mechanics of how apple works with retailers but honestly all rules are off for them. With respect to Best Buy's margin - its not a flat rate for anyone, its typically negotiated for each vendor based on a great number of things. In general, Apple's ability to bring customers into the store provides massive leverage to them so they can push back on Best Buy pretty hard to get a better deal.

[ValentineC]

> on the other hand Amazon decided to massively dispatch counterfeited products together with merchant-originated ones, casting a doubt on the brand and tainting all their providers together.

Does this happen even with products "shipped from and sold by Amazon"?

[tajen]

As far as I understand, whether it is "sold by Amazon" or by a third party, they put the same products with the same ID in the same bins. Traceability is thus broken, and whichever origin you've selected, they take it from the same bin.

Now I take the question the other way: Amazon's UI confuses the user about the third party products, which is the opposite of giving clear information about genuineness and traceability. The day it matters to them, they'll proudly say "Not a Third Party".

[rahimnathwani]

I don't believe that a large proportion of phones sold by Best Buy have a 50℅ retail markup. If that were the case, you'd expect those models' effective retail prices in China to be ~70℅ of the US retail prices. But they aren't. Brand-name mobile phones retail for roughly the same price in China as they do in the US. (With the exception of iPhones, which are about 20℅ more expensive in China than in the US).

I suspect that Best Buy makes insignificant margins on most cellphones, but makes it up on accessories (and I guess they sell carrier plans as well?).

[Camillo]

You are somehow mistyping % as ℅.

[mdrzn]

Are you on a retina screen or what? Great catch.

[KaoruAoiShiho]

I believe I read that Xiaomi has an ecosystem model where they sell phones as loss-leaders at low margins in order to build their brand and capture customers for high margin software. I don't think that's going to work as they don't own the operating system.

[dogma1138]

It will work there are quite a few alternative app stores that do make money.

Considering that emerging markets sell phones without google play I would go on a limb and say that most android phones sold now come without the play store.

[pcr0]

I think China is the only market where phones are sold without google services. Even when Xiaomi sells to India or Hong Kong, the phones are often "global version" (different ROM), which come with google services because everyone outside China expects them.

[dogma1138]

Africa, India, Latin America Russia and many super cheap phones in Europe.

[dmritard96]

This is a great point! Because of google services being blocked in China, the play store is unavailable so people download their apps ('A-P-Ps' if talking to someone in China) via 3rd party sites. Trying to become a substantial app distributor is a nice idea but also very difficult between Apple have a locked down platform and serious competition from antimalware companies and others who already have a solid foothold in this space, but I can certainly see the value in trying.

[Splines]

They have https://en.wikipedia.org/wiki/MIUI, but I don't know if MIUI enables them to sell services or have their own app store.

[Fnoord]

If their goal is marketshare and then profit, then step 2 is raising the price. Be it slowly (so it is less apparent to avoid bad publicity) or quick (guaranteed uproar, but only once).

An alternative theory could be their business case is related to "Xiaomi Can Silently Install Any App On Your Android Phone Using A Backdoor" [1]. One could come up with a theory their business case is related to that kind of behaviour. Ie. a front for Chinese government.

[1] https://thehackernews.com/2016/09/xiaomi-android-backdoor.ht...

[petra]

And even without being a malicious front, you can see them as part of the Chinese economic strategy, moving away from manufacturing to innovation/marketing .

And it looks quite nice: Xiaomi build a phone brand. Uses brand to become a consumer electronic start-up hub(offering startups, Chinese startups, a great supply chain, marketing, IP protection - all the hard things for those startups) as a way to rapidly scale. And they will have better access, and preference to Chinese silicon suppliers(think the esp32 , a great chip, afaik it's only inside Chinese products) rising that industry.

[supergreg]

Are you sure it is Xiaomi selling under cost and not the other way around? Prices for other phones are excessive compared to Xiaomi and other Chinese brands with similar specs.

[hkmurakami]

Considering the fact that no other smartphone manufacturer other than Apple and Samsung don't make a profit...

[bostand]

I don't think their business plan to sell things at a loss.

This is a young company with many great engineers and known for their efficiency

[bostand]

> They have gone on record before that they're not making a profit on their phones

Maybe not (I actually think they do), but they are making money on phone-plus-services.

[disiplus]

i ordered xiaomi note 2 for my sister and you get what you pay. the rom is completly shit. its full of ads you cannot turn of. and the battery became unusable after only half year. because i ordered it online i dont have any warrany. my sister had to buy a new smartphone. dont just look at the specs when you buy something.

[dilemma]

Xiaomi roms don't have ads. You ordered from a third party vendor that had installed their own rom showing ads. This is a problem of their distribution model -- the phones are available internationally only via unofficial third parties -- rather than their product.

[Markoff]

You can get them in major European electronics chains, no need any shady reseller. They are pricier than online but you will get clean software and two year warranty while price is still beating closest competition of Lenovo and Honor.

[disiplus]

they have ads even in official roms.

and sorry but the roms that xiaomi sells are without play services. the reason for customization. the rom is miui with google services.

[DCKing]

There are certain gotchas when importing a Xiaomi phone, one of which is being wary of replacing the software the distributor has put on it with official Xiaomi software. Clearly you didn't do that.

[disiplus]

official roms dont have play services, thats why there are those customizations in the first place.

[Markoff]

nobody stops you from taking advantage of cheap Xiaomi hardware and then installing Lineage or whatever custom ROM you like there, that's what i did with my two Xiaomi phones and will do in future also with other brands like LeEco, good luck trying to catch me in your ecosystem

though it might work on majority of population without necessary skills to unlock bootloader, install recovery and ROM

but anyway outside China there are Google services even in Xiaomi phones, so their only advantage is in Chinese market where are dozens of app stores