Xiaomi Tech, the Chinese smartphone giant that recently dethroned Samsung as the top smartphone maker in China, is quietly expanding into healthcare.
Xiaomi Ventures, the company's corporate venture capital arm, recently invested $25 million in iHealth Labs, the Silicon Valley-based subsidiary of Chinese medical equipment maker Andon Health. iHealth makes smartphone-connected medical devices such as scales, glucometers, pulse oximeters, activity trackers, and blood pressure monitors. At CES this January, iHealth unveiled some innovative upcoming products -- a wearable pulse oximeter, a blood pressure monitoring vest, and an ECG device which can be attached to a bare chest.
Although $25 million is a tiny investment for Xiaomi, which reported $5.2 billion in revenue last year, it's an interesting move which hints at a full-blown expansion into the mobile health (mHealth) market coveted by Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) (NASDAQ:GOOGL).
The global mHealth market -- which consists of fitness tracking apps, wearables, and medical devices -- is expected to grow from $1.95 billion in 2012 to $49 billion in 2020, according to Grand View Research. Within that market, the Asia Pacific region -- which includes China, Japan, India, and Australia -- is expected to be the fastest growing market with a compound annual growth rate of 49.1% between 2014 and 2020.
How Xiaomi and iHealth complement each other
This isn't Xiaomi's first move into the mHealth market. Back in July, Xiaomi launched a fitness band, the Mi Band, which offered comparable features to Fitbit's Flex ($100) and Jawbone's UP ($80) for a mere $13.
Xiaomi traditionally relies on four main strategies: undercutting competitors' prices, sacrificing margins for sales volume, depending on word of mouth rather than paid marketing, and releasing products in small batches through online retailers to inflate demand. That's how Xiaomi can afford to sell cheap fitness bands and high-end smartphones for less than $400.
We can see similarities in Xiaomi and iHealth's business models. iHealth recently launched iHealth Align, a tiny, smartphone-connected glucometer which only costs $17, compared to similar models which cost around $30. Meanwhile, a box of 50 strips only costs $12.50 ($0.25 apiece), roughly a quarter of the price of name brand strips. Glucometers and strips are sold on a razors and blades model, so iHealth is clearly trying to sacrifice margins on the strips to gain market share -- just as Xiaomi did in the smartphone market.
Meanwhile, iHealth will split into three regional operating groups -- in Mountain View, Paris, and Hong Kong -- which could complement Xiaomi's overseas expansion efforts.
Why Xiaomi could crush Apple and Google in mHealth
Since Xiaomi is now the top smartphone maker in China, its modified version of Android, MIUI, would be a lucrative platform for mHealth companies interested in expanding into China.
The Chinese market has massive growth potential. According to research firm Research Moz, the value of the Chinese mHealth market will grow from 2.21 billion RMB ($360 million) in 2013 to 19.05 billion ($3.1 billion) RMB by the end of 2018. Nearly 65% of those surveyed by the firm had never heard of mobile health, and only 7% had installed mobile health apps on their mobile devices.
Xiaomi is clearly trying to educate Chinese consumers about mHealth with the Mi Band, which synchronizes to its own fitness tracking app on Xiaomi phones. As more Chinese consumers understand the benefits of fitness tracking apps and devices, iHealth could make its smart glucometers and blood pressure monitors compatible with Xiaomi devices as well. This could help Xiaomi gain an explosive head start over Apple and Google in the Chinese mHealth market.
Apple has been trying to digitize and unite health care data in the U.S. with HealthKit, but it hasn't announced plans to launch the platform in China. Apple runs a Chinese-specific iOS App Store which only features government-approved mobile apps, which means that iOS developers in the U.S. can't simply translate their apps into Chinese.
Meanwhile, Google Play is still banned from selling paid apps in the country, while companies like Xiaomi have launched their own Android app stores. This means that it will be nearly impossible for Google's new wearable and fitness initiatives, like Android Wear and Google Fit, to enter China unless the company reaches a compromise with the Chinese government.
A Foolish final word
Xiaomi has clearly taken note of Apple and Google's recent efforts to expand into the mobile health market. With Hugo Barra, the former VP of Android, now serving as Xiaomi's VP alongside CEO Lei Jun, I expect the company to make huge moves into wearables, smart medical devices, and companion apps.
While Xiaomi probably won't crush Apple and Google's mHealth ambitions in the U.S., it could quickly take over huge markets like China and thwart their efforts in other emerging markets.
Leo Sun owns shares of Apple. The Motley Fool recommends Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.