Last May, Xiaomi co-founder and CEO Lei Jun had made it clear that it was an internet services and software company first, a hardware company later. He told India Today Tech that Xiaomi makes hardware just so it can serve as a messenger for its content in China. Indeed, in its home market, the company actually makes money off of its internet streaming services and software.
But things hitherto were very different in India, where Xiaomi has emerged the number one smartphone brand. Its thrust as a hardware company meant that it was not making as much money in the country. The company, already known to sell products at cost or with a profit margin of 1-2%, had announced last April that it would cap income from its hardware business at 5% of after-tax profits.
Hence, the company now has big plans for monetising internet services in India, too. Xiaomi India managing director Manu Kumar Jain told The Economic Times that the company wants to generate revenue and profit from streaming of movies and videos, music, digital payment and applications, and will invest a significant proportion of the recent Rs 3,500 crore fund infusion to expand into internet services. Just last month, the Indian business unit received the second tranche of this infusion amounting to Rs 2,000 crore.
According to him, Xiaomi globally has three financial pillars, devices, retail and the yet-to-be-monetised services. "It is the internet services which will make money for us," Jain said, adding, "We are keen to invest in Indian companies and startups in this space to get them into the Xiaomi ecosystem". However, he reportedly declined to share what percentage of revenue it expects to generate from services or any financials since the parent company is a listed entity.
But given the sheer potential of the space, it will be a neat amount. A report released by industry body IAMAI last October predicted that the number of internet users in India will increase 1.6 times from 481 million to reach 762 million in 2022. Along with increased availability of internet connectivity, the number of smartphone users, too, is expected to grow at 1.75 times to reach 526 million. Consider the over-the-top (OTT) video streaming market alone. The Boston Consulting Group estimates that this segment will mushroom from $500 million to $5 billion by 2023, and already vying for a slice of this red-hot pie are players like Amazon Prime, Netflix, Reliance Jio and Spotify. So Xiaomi has a stiff fight ahead.
So far the company has launched three value-added internet services in the country - Mi Music, Mi Video and, more recently, Mi Credit. The latter, as the name suggests, is a money lending platform that lists financial loan providers such as KreditBee and ZestMoney that MIUI users can access to apply for instant loans.
According to the daily, Xiaomi will soon commercialise Mi Credit, which is currently on pilot. "We are evaluating whether we will apply for NBFC licence, and if we do it we would ourselves offer credit. But it would take time," Jain explained. The company further wants to monetise streaming content from Mi Video and Mi Music, while its file transfer tool Mi Drop has already hit 100 million downloads. Last month it also announced the Mi Pay payments app in India, which is based on the Unified Payments Interface (UPI), taking on rivals like Paytm, PhonePe, MobiKwik and Google Pay.
Xiaomi Technology India's sales in 2017-18 reportedly grew by 175% to Rs 23,060 crore, while its net profit too went up 79% to Rs 293 crore.
Apart from internet services and software, Jain claimed that the fund infusion will also go into offline expansion, opening exclusive Mi Home retail stores, building localised R&D for devices, warehouses and service centres. It also plans to invest in manufacturing, which will be done by partners. Xiaomi recently announced its seventh manufacturing plant in the country in partnership with Flex. More than 65% of the value of the phone manufactured in India is sourced locally.
With PTI inputs