Dear Xiaomi, add on to the price, and turn off the ads
Mi needs a
Xiaomi released its results for Q3 2020, and while most of the talk was about the (very impressive) increase in revenue and sales, and the brand becoming one of the top three smartphone brands in the world, we were actually interested in one of the seemingly smaller points. A point that has been increasingly in the news over the past couple of years in particular.
The little – or big, depending on your perspective – a matter of advertising in MIUI.
That revenue from MIUI ads
For the report stated that the “advertising revenue” for the brand in Q3 2020 was 3.3 billion RMB, representing year-on-year growth of 13.7 percent. Now, considering the total revenue for the brand in this period was 72.2 billion RMB, that advertising revenue is a mere 4.57 percent of the total revenue. Even if we were to attribute all of the advertising revenue to smartphones (and assume all of Xiaomi’s ad revenues came only from smartphones and MIUI), well, the brand got revenues of 47.6 billion RMB from smartphones, and advertising revenues would be 6.93 percent or about 7 percent.
And this is assuming that all the advertising revenue came only from the phones shipped in the quarter – the truth is that it is likely to come from older devices that run the ads as well.
For the sake of being more liberal, let us go with 7 percent.
The actual impact of seven percent
Some might think 7 percent is a massive amount, and in terms of overall revenue, well, 3.3 billion RMB is certainly a huge amount. But then break it down into the price of a smartphone, and it starts diminishing. In simple terms,
7 percent = an additional Rs 70 on every Rs 1000
Let us take the Redmi Note 9 Pro priced at Rs 13,999, which would get to approximately Rs 15,000, if you add 7 percent to it. And well, if we go to the Redmi 9A, which is priced at Rs 6,799, another 7 percent would get its price up to around Rs 7,300.
And well, as per us, each of those phones remains a very good proposition, even at the (slightly) higher price. As per many market experts, 10 percent is the point at which a price change starts to really pinch consumers. 7 percent is close to that point but distant enough (we think) for consumers not to mind as much, especially given the equity that Xiaomi enjoys in the market.
You might be wondering why we are doing these calculations. Simple: just to show that Xiaomi – in India at least – can compensate for the loss of revenue from these ads by increasing its phone prices by the same percentage, without particularly hurting the price segment the phones are in.
Some Rupees more, for a lot of ad less phones!
I mean, for an additional seven percent (and this is when we are being generous – the actual figure is likely to be lower), users would be able to get devices totally free of ads. Yes, going by what we have seen so far in terms of sales, users do not actually seem to mind the ads that are coming in MIUI – it really seems to be affecting social network more than sales. There was a belief that turning off the ads would hit Xiaomi’s revenues in a very significant manner, but while seven percent of revenues is not a small figure, neither is it the staggeringly large one that many assumed. We have had people speculating that the brand earned twenty to thirty percent of its total revenues from ads.
Seven percent (and that is a liberal estimate once again, we must stress) is not exactly as difficult to surmount. Or so we think – the folks at Xiaomi would know better. And of course, there seems to be no real need to cut back the ads, given the fact that the presence of ads do not seem to be affecting sales. That said, given the fact that ads do not SEEM (once again, we need to stress that we do not have access to the exact figures) to make such a massive contribution to Xiaomi’s revenues from smartphones, and considering the fact that the ads seem a bit of a PR disaster (if not a marketing one), perhaps Xiaomi could look at having ad-supported versions of phones, and ones without ads that cost a little more – just like Amazon did with its Kindle range.
Not everyone seems to mind them, but given the returns they provide, it is perhaps Xiaomi gave us the option to exit its ad world. For, at the end of the day, every ad is an intrusion. Giving users the option to skip them at a small premium would make, to use a Google term, perfect ad sense, no?