CELLPHONES: Cook Eyes China Apple Pay, Xiaomi Goes Further Offline
Bottom line: Apple is likely to reach a deal to bring Apple Pay to China in the next 12 months, while Xiaomi’s addition of traditional offline sales channels acknowledges it needs to diversify its approach to maintain its breakneck growth.
The old saying “An apple a day” seems to be appropriate this week in China, where Apple’s (Nasdaq: AAPL) CEO Tim Cook is being quite talkative on his latest China trip with a steady stream of small but noteworthy news. He began the week by announcing a new environmental China initiative for Apple, then followed by launching his own microblog on the locally popular Sina Weibo (Nasdaq: WB), often called the Twitter of China. (previous post)
Now he’s candidly talking about hopes for bringing his company’s Apple Pay electronic payments service to China, perhaps through tie-ups with local e-commerce giant Alibaba (NYSE: BABA) or UnionPay, China’s largest electronic transactions network operator.
Meantime, Apple wannabe Xiaomi has also been clamoring for its own place in the headlines, with word that it’s taking the unprecedented step of selling its phones through traditional offline channels. Company watchers will know that Xiaomi has achieved its huge success in part by using a low-cost and trendy sales strategy that has seen it sell all of its phones in China to date via online channels.
It gave earlier hints of this latest move last month, when it announced it would start using traditional offline channels in India, which has rapidly risen to become its second largest market outside China. (previous post) Xiaomi will inevitably attempt to spin this move as a diversification drive, but the bottom line is that it’s probably being forced to take the step to continue its meteoric growth.
Let’s begin with the Apple Pay story, which is part of Tim Cook’s bigger plans for the market that has rapidly risen to become his company’s largest after the US. China has been notoriously resistant to allowing foreign payment services companies into its borders, but is finally relenting after the WTO ordered it to open the market in the wake of complaints by Visa (NYSE: V) and MasterCard (NYSE: MA).
Mindful of that situation, Cook, who is on his 6th trip to China since becoming CEO in 2011, has done a number of media interviews as he attempts to make his normally secretive company more China friendly by talking about his plans for the market. In the latest of those, he is being quoted saying that one of his main missions in this current trip is to conduct talks that will pave the way for Apple Pay to enter China. (Chinese article)
He didn’t provide any other details, but media have previously reported that Apple was in talks to make such a move through a tie-up with Alibaba, operator of the hugely popular Alipay electronic payments service. The latest reports say those talks are still ongoing and that Apple is also talking with UnionPay. (Chinese article) Apple’s high commission rates appear to be one of the biggest obstacles to a deal so far, but Cook’s latest disclosure seems to indicate he’s intent on ultimately signing an agreement.
We’ll close with a look at Xiaomi, which has just sold its phones for the first time in China through a traditional store in Beijing. (Chinese article) The company sold its newly introduced higher-end model costing 2,999 yuan ($500) at the store, and succeeded in attracting several hundred fans to spend the night in line to be first to buy the model.
The company is spinning the move as a diversification in strategy for its newer push into higher end phones, as it attempts to break into a market dominated by Apple and Samsung (Seoul: 005930). Perhaps that’s partly true, though such an up-market push wasn’t really part of the story when it started selling phones through traditional stores in India last month.
The reality here is that Xiaomi has wooed investors by posting meteoric growth over the last 3 years. Its smartphone sales surged to 61 million last year alone, more than triple the 18.7 million its sold the previous year, making it the world’s third largest brand. Internet sales are certainly effective and a good cost saving strategy for a smaller company; but this new offline move reflects the very real fact that Xiaomi realizes it won’t be able to maintain its breakneck growth without adopting a more diversified approach.
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