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Article / 17 October 2014 at 3:22 GMT

Xiaomi maps route to competing with Baidu

China Watcher / Shanghai
China
  • Xiaomi's quality phones are gaining share in a tough marketplace
  • Xiaomi must develop an app with direct links to its smartphone’s services
  • In China, mobile users have access to Google Maps but prefer Baidu

By Neil Flynn

Xiaomi is slowly but surely taking on the big boys in China’s tech space. Its Android smartphones are very popular here because their functionality is very similar to Apple, Samsung and HTC, whilst being significantly cheaper. Also, it is often referred to as the ‘Chinese Apple’ by consumers, which is an association that the firm will be more than keen to continue. Although the firm is still privately held, if and when it does list in the US, it will be a highly sought after IPO.

Their latest venture is the mobile mapping industry, which is dominated by the BAT trio. The two largest map content providers are AutoNavi and NavInfo, the former of which is owned by Alibaba whilst the latter has sold a stake to Tencent.

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 Mobile mapping is a serious business in China. Photo: Thinkstock

The most popular map application is Baidu Maps, which gets its content from NavInfo. This has been a growing concern for Baidu, because they face the risk that increased investment from Tencent in NavInfo could either lead to higher content costs, or perhaps even a termination of the partnership if Tencent decides to launch its own mapping service.

Their options remain rather limited, as switching map content supplier to Alibaba’s AutoNavi would result in the same situation. Likewise, switching to a lesser content provider would decrease the quality of Baidu Maps, whilst developing their own content either from scratch or by acquiring an existing provider. So whilst Baidu remains the most popular service, it is facing new competition from Xiaomi, which have taken a stake in Careland, which specialises in providing content for portable GPS devices. 

Alibaba’s entry into the map content market was less about providing a rival service to Baidu, but more about providing Tmall and Taobao customers with an O2O service. For example, a consumer can buy a product from a nearby supplier, and it will usually be delivered within 24 hours. But if the consumer needs the product sooner, AutoNavi can show the consumer where the supplier is based, and they can collect the product in person.

However, this hasn’t been as successful as Alibaba had hoped, because merchants aren’t overly willing to advertise their exact location to consumers, which would make sense if a merchant possibly sells fake or poor quality products. Alibaba has since decided to allocate resources away from this O2O service, with AutoNavi focusing on map content for in-built satellite navigation systems in cars. 

For Xiaomi to actively rival Baidu Maps, it is essential for the firm to develop an app that has a direct link to its smartphone’s services, such as location based taxi calling. In addition, the map’s content needs to show local points of interest, nearby services, and a way to contact and pay for services seamlessly.

I have discussed previously about the importance for firms to build a mobile ecosystem, because it improves customer retention. Baidu’s advantage over its rivals is that it is a better service. So whilst Xiaomi phones will be equipped with the firm’s proprietary mapping service, Baidu will be expecting these users to download the Baidu Maps app. This has often been the case, as for example, Google Maps is very popular in the West for iPhone users, despite Apple having their own map application. Likewise in China, most people have access to Google Maps and/or Apple Maps, but continue to use Baidu Maps, because the service is better and they are used to it. 

Xiaomi is developing itself as a genuine rival to Apple and Samsung in the smartphone hardware market. By developing its internal software offerings, it is becoming a genuine rival to the domestic tech giants.

-- Edited by Adam Courtenay

Neil Flynn is head equity analyst at Chinese Investors


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