Lei Jun, CEO and founder of Xiaomi posted an article on Monday to his WeChat public account. He was referring to a speech made at the 15th year anniversary party for venture capital firm GGV Capital. Lei pointed out three key markets for the next 10 years: the mobile Internet market, the rural market, and the enterprise service market.
AllChinaTech presents to you an analysis of the rural market of China, a market in which Xiaomi, JD.com, Alibaba, Facebook, Google and other tech companies are all vying to get an edge in.
Rural market competitors are getting ready
Facebook and Google are going toe-to-toe in this space. In early 2014, Facebook announced it acquired the drone company, Titan Aerospace for USD 60 million. Likely inspired by Google’s Project Loon, which aims to provide free Wi-Fi access to users in less developed countries, Facebook has followed a similar path with its own Internet.org iniative. Both Google and Facebook want to provide free basic Internet access to rural users. When users connect to the free network, Google or Facebook will play the part of a portal website, like Yahoo did 20 years ago. This will open a window for rural users to connect with the rest of the world, with the Internet very probably proving to be of immense benefit to their lives.
So what’s behind this project? With user growth rates in urban areas slowing regional areas present a new opportunity. More than four billion people around the world – mainly based in rural areas – have no access to the Internet. If the market develops properly, that’s a trillion RMB opportunity. No businessman can ignore that.
The common perception of the rural market is that rural folks have less income than urban residents which mean they will ultimately spend less. Digging deeper, the needed infrastructural investment is huge with returns expected to be low, which often drives investors away. It’s a huge market nevertheless especially if we look at it from two perspectives: if we are able to connect rural people with cities to promote product and information exchange; and if we can encourage the rural population to shop online.
However, these two prospects depend on two underlying factors: access to the Internet and a developed transportation network.
According to CNNIC , 30.1% of the Chinese rural population has Internet access and 84.6% of Internet devices in rural areas are mobile phones. These statistics are improving very rapidly.
4G network coverage in rural areas is not only on the increase but is offered at a significant discount in comparison to city areas. Last summer, China Mobile Communications Corporation (CMCC), China’s largest telecommunications carrier, began to install 4G network towers in vast swathes of the Chinese countryside.The latest data from CMCC claims CMCC’s TD-LTE 4G network already covers one billion people in China out of almost 1.4 billion total Chinese, offering peak download speeds of 200 Mbps. People can use their smartphones to do a lot of things.
Now the Internet is ready. The next issue is to solve transportation. In short, a farmer might be able to buy a pair of shoes online, but what if the package weren’t able to be delivered to his house? This is precisely what Alibaba and JD.com aim to tackle. Both have came up with the concept of “rural e-commerce” or the extension of logistics networks to rural areas. In rural areas near to Beijing people can order products through JD.com with delivery expected to their home in two days, one day slower in comparison with the city.
Xiaomi’s eyeing the trillion market opportunity
In his article “China has 1.36 billion people and 0.8 billion farmers” Lei Jun claims he knows the truth of the Chinese market, the rural population is a dominant force in the market. Though many areas have no optical fiber or Wi-Fi access, the 4G network makes it much easier for outliers to reach the Internet. That’s what’s happened in the last two years.
In Lei’s mind, there are two one trillion RMB market opportunities. The first opportunity is how urban resident purchases will help farmers produce high-value products. The current market scale will not bring rural residents a high income, information exchange is needed between both sides. As we all know, Xiaomi is building out its own platform mostly concerned with smart gadgets. Other data from CNNIC shows that in fourth or fifth-tier cities, the price for over 80% smartphones is under 1,000 RMB.
That’s Xiaomi’s market. With its Redmi smartphone, an affordable smartphone manufactured by Xiaomi, it already has a strong foothold in the rural market. With Xiaomi smartphone’s or Redmi smartphones and the MIUI system, Xiaomi can do a lot of things to promote information exchange and create profit both for itself and for buyers and for sellers.
Smartphones and the 4G network are ready to go. Rural people can now buy things without leaving their houses. TV commercials and national policy are encouraging the Chinese to consume more, to boost economic growth. Here’s the second opportunity, to encourage farmers to spend more.
According to Alibaba research institute, by 2016, e-commerce in rural areas will be worth RMB 460 billion which will be a new growth point. Now we know why Lei Jun is so busy telling the world Xiaomi is marching into the rural market.
“I have faith in China’s mobile Internet ecosystem over the next 10 years. A decade later, thousands of startups will mushroom, ” Lei said.
The underdeveloped rural market is an opportunity for more disruptive innovation and products, it will influence the process of market transformation. Just like what Lei Jun says, “The next 10 years will still be a golden decade for entrepreneurs”.
(Top photo from Baidu Image)