Why Xiaomi is expanding to making flagships globally.

Hello. In this post, we try to explain why Xiaomi cannot simply stick to making budget phones. Xiaomi’s business model mainly involves selling budget or midrange smartphones at aggressive prices with a good price to performance ratio. They even made public statements before that they limit profits per unit to as low as 5$ or sometimes sell their phones at cost. But this is obviously not sustainable. 

The majority of their revenue in China did not come from selling smartphones, it came from their internet services, which lots of people in China use. The profits they make from hardware is still a significant amount considering how many units they sell, but it is not a margin big enough for sufficient business growth, we can assume they were just breaking even with that revenue and earning enough margins to keep the business going.

And this is what they have been doing until now, selling phones with razor-thin margins, or maybe even at cost, and relying on services and other sneaky ways like bloatware apps and advertisements to make money. Until last year, Xiaomi did not launch globally competing flagship phones, it was only in 2021 that they launched their Mi 11 Ultra outside of China, their flagships before that were just limited to China. 

You can see how making only budget and midrange is really hard to sustain long term. To grow the business and earn more money, they had to start releasing flagship phones globally, since you can make the most smartphone hardware profits through a flagship phone. 

You cannot make that kind of money with a midrange phone or a budget phone. Selling phone hardware for profits though is also a difficult business, only Samsung, Oppo, Vivo and Apple have successfully been doing it globally, for years.

Oppo, Vivo and other Chinese smartphone brands do sell their flagships in China and have recently started going global too. They do make money from their respective internet services, but they also make money from selling phone hardware. So by selling flagships, Xiaomi can make more significant profit margins and can invest more into Research & Development, more than they are now, which is better for consumers and enthusiasts alike. 

In turn, selling more flagships will improve their brand image across the world, and of course, they want people to see Xiaomi as a premium brand and create their own identity in the flagship segment, joining Apple, Samsung and OnePlus.

The Mi 11 series last year was their attempt at a global mainstream breakthrough which did fine in some places and didn’t do as well in others, for example, the phone was not well received in India and Xiaomi did not treat the phone like a flagship either, with poor update cycles.

So did they do it right? Did they successfully launch flagships globally with no issues? Nope. To start, some of their flagships this year were complete downgrades to their so-called successors. Take a closer look at the specifications of the new Xiaomi 12, the “successor” to the Mi 11. 

The Mi 11 does lots of things better, with a higher resolution 1440P display and also an IP Rating. Or, look at the Xiaomi 12 Pro and the Mi 11 Pro. The Mi 11 Pro has higher peak brightness and is IP Certified too. The Mi 11 Pro also has better camera hardware with a 5X Optical zoom camera, miles better than the meagre 2X on the 12 Pro. The 11 Pro supports 8K at 30FPS and the 12 Pro can for some reason only go to 24. (Source: Nanoreview)

Either way, if you’re going to go global and it’s only your second year at that, downgrading a couple of specifications from the previous generation isn’t a great way to begin. Almost forgot, besides the fact that these phones have no IP certification, none of them can do 4K video recording on the front camera and none of them has USB Type C 3.0 ports, they’re all USB Type C 2 ports. Weird how a brand can cram in 120W charging but cannot upgrade the Type C port. 

Then we’ve got the whole problem with the software. MIUI isn’t the most stable or optimised or smoothest software skin out there and Xiaomi does not have a complete ecosystem outside of China, to compete with Apple or Samsung. 

Then there’s the annoying fact that you get bloatware and sneaky recommendations after paying a flagship price for a phone. In the budget and mid-range segment, it is quite understandable, because they don’t make profits there and it is a necessary evil to bring the prices down. But after paying flagship prices, you don’t need to throw in bloatware and put in sneaky app recommendations. 

This does not mean to say they should just stick to the budget segment forever and not launch flagships at all. Xiaomi needs to polish MIUI better for the flagship segment and probably work with developers for app optimisation as Google and Samsung did, and Xiaomi did too, in China. Yes, MIUI 13 cleaned up a lot of bugs but the experience if you’re using the Indian or Global ROM is still not quite flagship level. 

Instead of copying 90% of their aesthetics from iOS, it’s going to be much better if Xiaomi comes up with a more unique software experience, considering people living in the West will simply buy an iPhone if they want such aesthetics. If Xiaomi just fixes their software and also pushes out updates that don’t cripple devices, most of their problems are solved.

There have been lots of posts on multiple media sites about the motherboard failures, boot loop issues, phones dying completely and also bricked cameras, because of MIUI updates. Let’s hope this does not happen anymore because if they persist, even tech enthusiasts will refrain from purchasing their flagship phones no matter how aggressively they are priced.

Xiaomi 12 Pro announced in India today. Will it sell?

Also, if their software isn’t well optimised, I don’t see the Xiaomi 12 series breaking sales records. The tech community might give them more chances with MIUI 13.5 and MIUI 14 but if those versions disappoint as well, then the brand can forget profits through selling flagships in bulk. To establish yourself as a premium brand, you need to have good software.

This is what brought OnePlus higher up the ranks (though their software is a total disaster right now). This post isn’t criticising the Xiaomi 12 Pro, we aren’t saying no one should buy it. Despite the mentioned problems, it is a solid attempt at a mainstream breakthrough, nonetheless. 

People associate Xiaomi with low prices and amazing price to performance ratios, right? So it makes a lot of sense to price the Xiaomi 12 Pro just low enough so that it undercuts the competitors like the IQOO 9 Pro, OnePlus 10 Pro and the Galaxy S22. Realme priced their GT 2 Pro well at 49,999, undercutting even the S21 FE and the iPhone 12. 

Xiaomi 12 Pro launched in India.
Xiaomi 12 Pro launched in India.

And aggressively price it they did, with a price of 62,999 and an introductory price with bank offers to bring it down as low as below 55,000. Now that is great pricing for a flagship phone with specifications like this.

But despite the pricing being quite aggressive, undercutting all the above mentioned competitors, people still do not want to purchase a Xiaomi phone at flagship prices. This is the problem if you centre your entire business model around selling budget and midrange phones. People will just not perceive your company as a premium smartphone brand.

To summarise, Xiaomi will have good chances in the flagship territory only if they establish themselves as a premium brand that carries some brand value, if they don’t downgrade specifications from the previous gen and also improve their software experience, push out updates that do not damage hardware, all while maintaining somewhat aggressive pricing.

You have reached the end of the post, see you next time. Thanks for reading. Drop a comment if you agree with these views. 

Goodbye.

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Surya Sudhanshu

Tech Enthusiast & Journalist, Possibly Funny & Sarcastic, Bibliophile, Chess Player, Photography Enthusiast, Internet Addict, Student. (He/ Him, 17)

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