Xiaomi is meeting Huawei domestic aggression head on

Smartphone manufacturer Xiaomi plans to increase the investment in channel and retail development in the Chinese market by $725 million, to improve its position and to counter the expected aggression from market leader Huawei.

Bloomberg cited its source at Xiaomi that the Chinese smartphone company has decided to invest CNY 5 billion ($725 million) over the next three years to shore up its channel and retail position in China’s contracting smartphone market. This will come on top of its current budget and will be spent on channel expansion, partner incentive, and sales force financing, according to the report.

The decision is also made in anticipation of Huawei’s aggressive channel and retail movements in China in the near future, the source told Bloomberg. Huawei, the smartphone market leader in China admitted recently that its business will suffer from the US sanctions and the severance of business relations by companies like Google. In the consumer segment, which now accounts for more than half of Huawei’s total revenue, the impact will mainly in the overseas market with the disappearance of Google services from its smartphones posing the biggest impediments to consumers’ purchasing decision. This will drive Huawei to further strengthen its grip on the Chinese market, where it is already supplying one out of ten of the smartphones being sold.

Xiaomi has reaped the benefits after investing heavily in the overseas markets in recent years, having broken into the top five in a number of European markets while also well received in growth markets like India. It has the ambition to become the market leader in its home market too, but so far, the company has been vying for the fourth position with Apple, trailing Huawei, OPPO, and Vivo.

Huawei and Xiaomi also adopt different retail strategies. In addition to smartphones, Huawei also sells its full line of consumer products in the retail outlets including PCs, tablets, and other consumer devices.  Xiaomi, on the other hand, has carried the “ecosystem” concept from online, which used to its exclusively channel, to offline retail. In addition to its own branded products, centred around the smartphones, partner products on its IoT ecosystem are also offered in the retail outlets, in line with its strategies.

Fortnite’s Google Play bypass could be free money for Tencent

Epic Games has taken the somewhat unusual move of distributing the mobile-version of its popular Fortnite title through its own website, potentially saving up to $50 million according to app economy analyst firm State Tower.

Few developers will have the option to bypass the powerful Google Play distribution network, though such is the popularity of Fortnite, Epic Games could make some serious savings by avoiding the platform fees. Fortnite Battle Royale is currently in beta mode on Android, beginning with selected Samsung Galaxy devices, though it has grossed more than $180 million having launched on iOS in March 15. With Android eclipsing the iOS user base by some distance, there is some serious cash to be made.

“We expect that once Fortnite rolls out to the full complement of supported Android devices, its launch revenue on the platform will closely resemble the first several months of App Store player spending,” said Randy Nelson, Head of Mobile Insights at State Tower.

“There is a chance that it will even surpass what we’ve witnessed thus far, based on factors such as the game’s increasing popularity, the growing impact of each new season’s Battle Pass on revenue (these release every 10 weeks), and the potential for players in countries where both Google Play and the iOS version are not available to directly download the APK and spend in the game.”

Such is the influence and power of Google Play, few companies would even consider distributing app’s through their own channel. Due to sheer volume and variety of downloadable games on mobile platforms, cutting through the noise is almost impossible. That said, Fortnite is one of the titles in the small percentage who are broadly memorable and recognisable, alongside the likes of Angry Birds or Pokémon Go. With Google collecting between 15-30% of app and in-app purchase revenues, there is certainly a business case for owning the distribution channels, even if it is risky.

Google and Apple will want to maintain control of this global (aside from China where other app stores rule the roost) duopoly, though if Epic Games could prove there are other options it could effectively be free money for those will a loyal-enough fans, or creative-enough marketers. For Tencent, owner of Epic Games, this will certainly be an interesting exercise.

The online games business unit of Tencent is a minor, but notable one. Mobile gaming was a small percentage of the overall $11.6 billion revenues generated in the first quarter, but global trends indicate there is room for growth. Fortnite is one of the larger titles in Tencent’s broader stable, though Honour of Kings is currently the highest grossing smart phone game in China’s iOS Top Grossing Chart and QQ Speed is another hugely popular game. Should Epic Games be able to prove it can reach customers, and at least maintain revenues/profitability, through its own channels, Tencent could start saving a couple of hundred million a year.

Google will of course do everything in its power to ensure this is an isolated case. The last thing it needs is major titles deserting its app market, though with Fortnite there might be little it can do. Lawyers might be called, strategies might be devised, though we suspect a US company trying to put the legal hammer down on a Chinese company in today’s climate of Trump-inspired tension will be somewhat of a struggle.

Should Epic Games prove there is life without Google, the ripples in the app economy might start turning into waves before; everyone likes saving cash.

Which country will take the leadership position in the 5G world?

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