Xiaomi is looking to make five times more money — and that may be a headache for Netflix, Amazon, Spotify, and even PayTM

Manu Kumar Jain, Vice-president, Xiaomi and Managing Director, Xiaomi India. BCCL

  • The Chinese smartphone manufacturer, Xiaomi, is looking to monetise its already launched internet services in India according to Xiaomi India's managing director.
  • As the already marginal gross profit margin from smartphones is decreasing for the company, the gross profit margin from internet services increased in FY18.
  • As Xiaomi monetises its growing user base for internet services in India it could be a possible disruption for other players in the market.
After conquering the budget smartphone segment in India, the Chinese smartphone manufacturer, Xiaomi, is ready to enter the burgeoning arena of internet services. The company's already launched a lot of these services in India — like Mi Pay, Mi Videos, Mi Music and Mi Drop — but now, it's looking to monetise those business models.

The recent ₹35 billion infusion into the Xiaomi's India operations is going to be used to build more on the digital content and services business according to Xiaomi India's managing director, Manu Kumar Jain.

Xiaomi globally made less than 1% profit margin from hardware or device sales in 2018, and we have stated that will never make more than 5% profit margin on hardware. It is the internet services which will make money for us.

Manu Kumar Jain, Xiaomi India's managing director told the Economic Times

Within the first quarter of 2018, two new players — Spotify and YouTube Music — entered India's over-the-top (OTT) services space. Services like Hotstar and Netflix have also been experimenting their subscription option to optimise them for the Indian consumer.

Even the digital wallet market is getting more competitive as Google, Amazon, PayTM, PhonePe and JioMoney are launching partnerships and offers to reel in more consumers.

The Indian over-the-top (OTT) streaming services is estimated to grow to $5 billion by 2023 and the current players have only touched the tip of the iceberg according to the Boston Consulting Group (BCG). If Xiaomi's smartphone pricing strategy is anything to go by, then its not afraid to undercut the competition.

From smartphones to internet services

Most of Xiaomi's revenue is derived from the sale of its smartphones. In fact, 65.1% of the company come from smartphones according to the company's annual report. But, the gross profit margin on those devices fell from 8.8% in FY17 to 6.2% in FY18.

In the same period, the gross profit margin of internet services increased from 60.2% to 64.4%. And, though internet services only account for 9.1% of Xiaomi's total revenue, the segment has shown an year-on-year growth on 61.2%.


Things as they stand

Currently, Mi Music and Mi Video has over 40 million users per month in India. And, Xaomi's already started monetising those services by introducing a subscription plan for the former.

Xiaomi's file transfer service, Mi Drop has crossed over 100 million downloads in Google's Play Store after being launched in January this year. And, it's also reportedly at the helm of introducing Mi Credit, an instant loan platform, in India after it unveiling Mi Pay, its Unified Payments Interface (UPI) application last month.

See also:
Global currency wars made it more expensive for Xiaomi to sell phones in India

Xiaomi makes its largest investment in India so far

Redmi's budget smartphones will have their own identity as the brand breaks away from Xiaomi
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