Chinese smartphone maker Xiaomi, one of the fastest-growing tech startups in the world, could pose a significant threat to Google in the future, according to The Information's Amir Efrati.
Xiaomi's line of Mi phones are insanely popular in China. In fact, the company just surpassed Samsung to become the most popular smartphone manufacturer in China.
But it's not just Xiaomi's smartphones that have attracted attention, and that's what worries Google. Several Android employees at Google have told colleagues and others that Xiaomi could "present challenges" by encouraging Android phone owners to use its own apps instead of Google's, according to Efrati.
These could include apps that allow you to search for and purchase goods from retailers as well as Xiaomi's own app store, which the company already offers in China. And, although Xiaomi's non-hardware revenue doesn't amount to much today and its apps are only available in China, it eventually wants to expand these services globally, Efrati reports.
If Xiaomi does try to popularize its services outside of China, it could spell trouble for Google. The search giant requires companies that make Android phones to feature Google's apps and services (i.e. Google Drive, Gmail, Google Maps, etc.) in prominent areas on the home screen. Google is event starting tighten these restrictions, according to a previous report from Efrati.
This is how Google benefits from Android — since Android is open source, companies can modify and build on it for free. Data from Strategy Analytics published by Bloomberg in 2013 show that Samsung actually makes more money from Android than Google does.
But, since Google's apps and services are featured on every Android phone, it keeps users hooked into services like Google Search and Gmail among others.
This is why Google is afraid of a company like Xiaomi stepping in and emphasizing its services and apps more than its own. This is easier for Xiaomi than other Android phone creators since it gets certain exceptions that Google's other Android partners don't, according to Efrati.
For example, Xiaomi doesn't prompt you to sign in with your Google account once you boot up the phone for the first time. You don't have to sign in with Google until you try to download an app from the Google Play Store.
Instead, Xiaomi phone users are required to create or sign into a Mi account, which is Xiaomi's branding for its own services. Xiaomi also doesn't put Google apps such as YouTube and Google Drive on the home screen like other Android phone makers, as Efrati points out. Instead, they live on a secondary home screen.
Xiaomi could continue to get these types of exceptions if it promotes the Google Play Store on its phones sold in China, Efrati reports. Currently, the Google Play Store is only featured on the home screen on Xiaomi's phones sold outside of China.
Xiaomi, which is currently valued at $45 billion, is one of the world's most valuable private technology companies. And it's clear that the competitors have reason to be worried — Samsung, which arguably makes some of the most popular Android phones in the world, saw its profits plummet in 2014. The Galaxy S5, its flagship phone for 2014, didn't sell as well it had hoped, all while Xiaomi has seen explosive growth in China.
Xiaomi also recently announced that it will begin selling some of its products in the United States, although these won't include smartphones.
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