Apple Inc. Should Be Worried About This

Xiaomi's popular smartphone, the Mi 3. Source: Xiaomi.

iPhone users are a loyal bunch. They typically stick with the device through upgrade cycles and spend more time using their devices than Android users do. That is until now.

A new report by Flurry shows that Apple's (NASDAQ: AAPL  ) iPhone users in China have been unseated in their app usage by smartphone newcomer and rising star Xiaomi. The new data should be a bit disconcerting for Apple, and for Samsung (NASDAQOTH: SSNLF  ) , as both companies face increasing competition from Chinese vendors.

Recreating the ''Apple Magic"
Flurry took a random sampling of 23,000 smartphone devices in China back in January and looked at how much time they spent using apps. What they found is that Xiaomi users spend 7% more time in apps than iPhone users do, and Samsung users spent 14% less time in apps than iPhones users. This is notable considering that for six years Apple has retained this crown.

Xiaomi users are more engaged with their phones. Source: Flurry.

In a blog post, Flurry said, "This is the first time we've seen an Android smartphone catch up to the iPhone's most important engagement metric — and exceed it ."

Most of Xiaomi's users spend their time in entertainment and media apps, but the more important point is that the so-called "Apple Magic" that the iPhone maker supposedly has in keeping users engaged, has been recreated by Xiaomi.

That wouldn't be such a bad thing if Xiaomi's engagement didn't influence sales, but it does.

Apple is selling the iPhone 4 again in India as a lower-priced offering. Source: Apple.

More than just engagement
It would be easy to try and ignore Xiaomi, considering the company launched its first phone in 2011, and only launched its first tablet this May. But in the first quarter of this year Xiaomi held 10% of the smartphone market in China -- taking the No. 3 spot while Apple holds the No. 4.

This company is clearly a growing problem for Apple in China.

But Xiaomi has taken its toll on Samsung as well. Just this week Samsung said its Q2 profits will be about 24% lower year-over-year, in part because of "increased competition" in the Chinese market. Considering Xiaomi is continually growing its market share in China and its users are more engaged than Samsung users, it's not hard to figure out who the company is talking about.

Foolish takeaway
Much of Xiaomi's influence has been confined to China, but the company has plans to expand into 10 new markets by the end of this year -- including Brazil, Russia and Mexico. As this happens, we'll know more about whether or not the company can create the same user appeal it has in its own country.

As Xiaomi launches devices with good specifications at lower costs, it's going to be difficult for Apple to convince some consumers that its iPhone is the best choice. In markets like India, Apple relies on its older iPhones to drive sales. Back in January it relaunched the iPhone 4 at a cost of about $245. But Xiaomi is taking India head on and just launched its former flagship device, the Mi 3, for a cost of $250. Even with Apple's clout, a newer Xiaomi device with better specs may be hard to pass up. So if Chinese consumers are any indicator, Apple's growing China problem may spill into other markets as well.

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Read/Post Comments (5) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 09, 2014, at 1:09 PM, zippero wrote:

    Now that Samsung is crashing and burning, I guess the media wants to build up Xiaomi as the next Apple-killer. If you fail once, try, try again, as they say. But whoever the Android leader du jour is at any given moment, always remember that Android phones are cheap, commodity products that are profitless (including Xiaomi) regardless of however much market share they ever get. Zero margins take their toll on quality in the end, whether it's so-called high-end phones, luxury cars, or any other product category on earth. In hardware, which requires a good deal of capex, you can't really innovate and stay on the cutting edge year after year like Apple does if your bank account is empty because you're a cheap, no-margin commodity player like Xiaomi, Lenovo, Huawei, etc.

  • Report this Comment On July 09, 2014, at 1:19 PM, zippero wrote:

    By taking the expedient route of adopting Android OS instead of developing their own unique OS's, Chinese Android players are following the same road to commoditization that Samsung took to capitalist purgatory. Android guarantees the commoditization of the entire Chinese Android industry in one fell swoop because these Chinese players have nothing to differentiate themselves from each other than price. Neverending price wars, like the one that's raging in China now at the low-to-mid tiers and which Samsung recently joined, are the future for Xiaomi, Lenovo, Huawei, etc. till Kingdom come, and they're going to have a difficult time fighting Apple at the high end with commodity-level quality.

  • Report this Comment On July 09, 2014, at 1:37 PM, aardman wrote:

    We've seen this race to the bottom before in Windows PCs. Why do these so-called analysts sound as if what's going on in smart phones is a completely new phenomenon?

  • Report this Comment On July 10, 2014, at 5:10 AM, McBobb wrote:

    Before you dismiss Xiaomi's strategy as yet another race to the bottom, read this:

    Now Ben Thompson, the author, is an ex-Apple employee and a big Apple fan. And like us all, he's long on Apple in the smartphone war. But he makes a good point here - it's not necessarily all about the hardware.

  • Report this Comment On July 10, 2014, at 6:00 AM, Mathman6577 wrote:

    What may be more important than time spent in an app is how much the user spends. The average Apple user spends 4x as much money as the average Android user.

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Chris Neiger

Chris has covered Tech and Telecom companies for The Motley Fool since 2012. Follow him on Twitter for the latest tech stock coverage.

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