How have Chinese smartphone makers, such as Huawei, Xiaomi, Oppo and ZTE, been able to compete in the domestic Chinese market at lower price points than those of international brands like Apple and Samsung?
Local suppliers and service providers are vying for millions of consumer purchases—specifically, high-quality, feature-rich devices at relatively low prices. They must find ways to be profitable by selling services and building brand loyalty. To accomplish this, local Chinese players are gaining consumer loyalty and additional revenues by operating their own app stores. This has not been a common practice among Android-device suppliers in other parts of the world.
Because the Google Play store was late entering the Chinese market, a diverse system of proprietary app stores has emerged. Now, almost every domestic smartphone maker now has its own app ecosystem. Ironically, the smartphone app landscape in China more closely resembles Apple’s closed, proprietary app system than it does the Android model in the rest of the world.
The Xiaomi App Store, for example, is allowing the local supplier to generate revenue from paid apps, as well as from in-app games that are published in conjunction with Xiaomi. Xiaomi’s success isn’t just from smartphone sales, but from the number of users for its highly customized version of Android MIUI. MIUI and its own app store are the central services for Xiaomi. Selling high-quality smartphones at low prices allows Xiaomi to acquire users for its apps and enable profits from other parts of the ecosystem.
Just as Xiaomi’s rise has boosted the app and web services, the Huawei App Store—with a system for hardware-optimized apps—is also having domestic-market success. Through certain programming interfaces, the apps can optimize the camera’s processor, allowing apps to run faster on Huawei devices. Such optimized apps can only be obtained in Huawei’s own app store.
LeEco, which develops smartphones and TVs with the Android customized EUI platform, gives users access to the company’s own media and content stores. First-time LeEco device buyers can get a free trial for the company’s content service. This trial can be easily converted into a subscription to LeEco’s EcoPass pay TV service.
The bundling of services and apps with hardware is the only way for these suppliers to thrive in the smartphone market with relatively low device prices. Just like Apple, the Chinese hardware and service providers are using the unified service/hardware ecosystem strategy to realize profits and brand loyalty in this highly competitive marketplace.