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Does Phone Innovation Involve Slowing Down?

We look at Xiaomi's journey to the third biggest smartphone company in the world

21Jan

Xiaomi are now the third largest manufacturer of smartphones, overtaking Lenovo and LG in 2014. Samsung and Apple still dominate the market, but with Xiaomi's sales up by 25.2% from Q3 2013 to Q3 2014, there's an awful lot for the Chinese company to be optimistic about.

Whereas Apple releases a new iPhone annually, Xiaomi's delivers a new smartphone every 18-24 months. This extended timeframe has allowed Xiaomi to cut costs and develop more innovative products.

Their new phone, the Redmi 2, uses the same components as the Redmi 1 and it's this small portfolio that gives Xiaomi such an advantage when it comes to cutting costs.

Xiaomi profit from better component deals with suppliers, which in turn widens their profit margins over time. This allows them to slash the price of their mobile phones more readily than their competitors and makes their already affordable phones even more appealing further on in their product cycle.

Although there's no doubt that these discounted supplier contracts do cut costs, a smartphone transaction doesn't finish when money and phone are traded. Customers demand constant software updates and perhaps more importantly, the longer someone has a phone, the higher the chance that it's going to become faulty. This means that Xiaomi have to contribute more than their competitors in terms of maintenance, as customers from Apple, for example, often buy a new phone on a more regular basis due to Apple's annual update.

The length between new releases should also be beneficial for the company's new phones. It gives Xiaomi a longer timeframe to assess what improvements should be made, whilst also giving them time to develop even more efficient pricing models. With their Mi4 model a really impressive product, there's evidence to show that it's possible to manufacturer a product that excels from both a financial and functional standpoint.

Xiaomi's method is certainly working for them at the moment. They've yet to break into many international markets, but their pricing model will fit in well with those who are looking for a well-priced and effective product. 2015 will be a big year for Xiaomi, with the Chinese company looking to make more ground up on Samsung and Apple and spread its wings into the world's most attractive economies. 

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