How do Chinese Android OEMs make money

Chinese Android OEMs

You may have read news a lot everywhere that only Apple and Samsung make money in the mobile space. The earnings exceed 100% with both of them combined, in fact. This is largely true if you look around, Nokia sold out to Microsoft, Moto sold out to Google, then Lenovo. Sony is losing money every year. Even the used-to-be Android king HTC is struggling really hard. This is partly because the low-cost Chinese handset manufacturers are starting to take over the higher-tier section at insanely low prices, Xiaomi, Oneplus, Huawei, to name a few.

But stop, are these Chinese manufacturers making any money from the mobile business? After all, they won’t be able to continue to offer those competitive prices without any serious earnings. This is the question I will explore in this post. Just read on.The Chinese handset makers have been selling their devices at competitive prices for a good reason, market share. They may not make much money for the phone itself, but from the apps and accessories. More phone they sell, more money they make. Here I list a few places where they make money.

Mobile device accessories

The Chinese manufacturers do not only sell phones. They also sell a load of accessories, like battery, mobile battery pack, cases, and other stuff. For example, Xiaomi sells bunny too.

They usually sell these things at a price between some 3 to 50 US Dollars while the cost is only 1-20 Dollar. In a word, excessive profits. Consumers may only buy a phone at one time, but they may grab more than one case, or covering film.

Let me take Xiaomi as an example. The Chinese handset maker started about four years ago, and it now takes the third spot in world Smartphone market share. It sold about 18,7 million phones in 2013 and is to sell some 60 million devices. At this volume, they must have sold numerous accessories. According to co-founder Mr. Li, Xiaomi has sold about 2000 thousand bunnies as of Sept this year. The average selling price for those bunnies is some $8 while the cost should be less than $2.

Insurance

It’s not the gold old days that we used feature phones to make calls and send text messages. We now use our phone to take photos, send emails, browse the internet, and a lot more. And the device also costs a lot. We also have larger screens along the way. But it also means the phone tends to be fragile. So the manufacturers now have insurance in place to protect the consumers’ handsets.

The Smartisan phone is among the first to announce screen insurance in China. Huawei also offered insurance to its Honor 6 at an extra $16 to the end users.

Pre-installed apps

Well not only Chinese handset makers, almost all Android OEMs and carriers are doing it. In China manufacturers charge about 1 RMB for each pre-installed app come with the phone. It does not sound like much, but it comes to a big sum if you consider the sales volume.

Those apps could not be removed until you root the phone, which voids the warranty. However if you do not uninstall that bloatware, the chances are good that your phone will stutter and lag, even your private information will be stolen.

Sell ads space

We all hate bloatware, and the device manufacturers know that too. So they grow up and tend to abandon this brutal way of making money. But they still have to make money and they do find a new way, sell ads space.

It’s an entirely different eco-system in China as Google Play is essentially blocked. Instead, there are a few app stores from where Chinese users download most of their apps. The developers have to buy ads space to promote their apps. And bookmarks and default search engine are also offered at a price.

Games

If you take a look at the biggest online service provider in China, Tencent, games related earnings account for 80% of a total 19.7 billion RMB. Ma Yun, the chairman of the NYSE listed AliBaBa, once vowed that they will never ever develop games, now entered the mobile game industry.

Whenever a Chinese user buys a Chinese phone, a game center app is on the home screen where you can download thousands of games. Be it Xiaomi, MeiZu, Lenovo, Huawei or OPPO. According to Leijun, CEO of Xiaomi, they send a monthly 174 million RMB yuan payout to the game developers.

As the Chinese carriers are reducing the subsidies, the device manufacturers must find more ways to increase their profits. Some of the producers will be forced to quite as the competition is getting keener. However, you never know who is the next.

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