Article / 02 April 2015 at 5:11 GMT

Product incubator Xiaomi expands its smart-home strategy

China Watcher / Shanghai
China
  • Xiaomi is known for competitively priced quality products, such as smart TVs
  • It has content deals with Alibaba-backed Youku Tudou and Baidu-backed iQiyi
  • Xiaomi is rapidly expanding its smart home offerings by outsourcing


By Neil Flynn

The Chinese electronics company Xiaomi recently celebrated its five-year anniversary, and used the occasion to announce the improvements to its smart-home product range. This is a key strategy for the firm, which has been taking a novel approach to the industry, by not only competing with rivals with the release of standard smart products such as TVs, but also by adding smaller products that can all be integrated via the smart home app.

Five-year anniversary, five products

As the firm celebrates its five year anniversary, it marked the occasion by releasing five products that will further increase its smart-home ecosystem, as major tech firms target the industry as the core strategy for 2015.

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Xioami collaborates with third party manufacturers in supplying products that can all be integrated into its smart-home concept. Photo: iStock


 The firm has released a new version of its 40 inch smart TV, which costs just 1,999 yuan ($322). Xiaomi has built its reputation of developing quality products that retail at a low price, and it has helped the firm to build a strong standing in the smart-home market.

The key for any smart TV manufacturer is the quality of the content, and Xiaomi has invested $1 billion in digital content. This includes agreements with major content providers in China, particularly the Alibaba-backed Youku Tudou and the Baidu-backed iQiyi, and as a result has 240,000 hours of copyrighted video content integrated into the TV.     


Xiaomi TV
















The Xiaomi Mi TV 2, from smart TV manufacturer Xiaomi. Source: Xiaomi

Xiaomi has released the Mi Smart Scale, which can be combined with the Mi Fit app and the Mi Band fitness wristband in order to offer a quality product for the growing health tech and wearable market. This is also a product available for everybody, because the scales and the Mi Fit app work with both Android and iOS smart phones, meaning that users don’t require a Xiaomi phone in order to use them.

With the release of the Apple Watch, and the development of Baidu’s health wearables, Xiaomi is capitalising on the growing popularity of the market. In keeping with its other products, the Mi Smart Scale costs just 100 yuan ($16), which makes it incredibly competitive.  


Xiaomi Mi Scale













The Smart Scale is targeted at the growing health technology market, and it is competitively priced at just $16. Source: Xiaomi  

The firm also released a power strip that comes equipped with three USB ports. Founder Lei Jun spoke at length about the power strip, showing the media the ‘beauty’ of how the wires were arranged, instead of the typical jumble of wires from the generic Taobao-bought power strip, also known as a power board.

Although it’s difficult for investors to get excited about a power strip, it should be seen from a wider perspective. Most tech firms are focusing on appliances such as TVs and air conditioners in order to build their smart home product range, and whilst Xiaomi is doing this, they are also expanding their product range to cover every area of the home. The power strip can be controlled via the smart home router and app, which means that Xiaomi is bringing more and more products into its Smart Home ecosystem.

 
Xiaomi Power Strip

















Xiaomi’s power strip can be controlled via its smart-home router and app. Source: Xiaomi 

The smart-product incubator

The smart scale discussed above isn’t made by Xiaomi, as it is produced by a firm called Huami, which also produces the Mi Band fitness wristband. This illustrates how Xiaomi operates, and how it is able to keep costs low, because it invests in firms that produce smart-home products. 

Another example of its smart-product incubator model is the smart light bulb that is produced by Yeelight, which allows users to control lighting in their home via a smart phone. Xiaomi helps these small tech firms to leverage their operations on its manufacturing infrastructure. By giving these firms access to Xiaomi’s production sources, costs can be driven down, and access to the delivery infrastructure allows the firms to focus solely on product development.

By outsourcing its Internet Of Things products to third party manufacturers, Xiaomi is able to expand its smart home offerings much quicker and much cheaper than its rivals. Whilst it will always face stiff competition with its smart TV, there is very little competition in markets such as smart plugs and smart light bulbs, because the current profit potential of such products isn’t particularly high.

Xiaomi benefits from being a private company, because it doesn’t face shareholder pressure to grow earnings, so it can produce these products in order to build market share in the long term. In addition, technology firms typically face huge R&D costs, but Xiaomi doesn’t have this, because third party firms develop the products, and through investment, Xiaomi helps to incubate the product and bring it to the market. So the risk to Xiaomi from R&D investment is much lower than if it just developed its own products.

When a user buys a smart light bulb, it can only be used with the Xiaomi router. So Xiaomi is building a smart-home system that is centralised around the router, which allows third party products to be integrated into the system. This encourages users to buy the smart home router, and allows Xiaomi to collect data on users, which can be monetised.

– Edited by Robert Ryan

Neil Flynn is a portfolio manager at Alcuin Asset Management. Follow Neil or post your comment below to engage with Saxo Bank's social trading platform.

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