Chinese smartphone maker Oppo is playing catch up with rival Xiaomi as it strives to strengthen its content and payment ecosystem in India.
Oppo made its first investment in India, the largest market for the Chinese smartphone companies outside their home base, in last April when the firm led a USD 5.5 million Series C round along with Neoplux for PopXo. The company, subsequently, set up a local team to level up its investment play in India. Oppo is now keenly looking at startups in fintech and content spaces to form strategic partnerships.
“With regard to investments, UPI payments is one of the areas of interest for Oppo," said an industy source familiar with the matter, who didn’t want to be named.“The payment infrastructure is going to be a default feature in every phone soon, looking at the way the whole ecosystem is moving towards digital payments."
According to a 2018 report by research firm Credit Suisse, the digital payment industry’s market cap is expected to hit USD 1 trillion by 2023 in India. Sensing the domain’s potential, Samsung launched Samsung Pay in early 2017 and Xiaomi, recently introduced Mi Pay in the country.
The Point of Sale (POS) lending startups, which give loans at POS as an alternative to credit cards, have also piqued Oppo’s interest. The firm could take a cue from Xiaomi Ventures’s investment in ZestMoney in August 2018. Wealth management is another vertical Oppo may take a shine to.
Apart from fintech, Oppo is also sizing up the vernacular content market.
“In the mobile internet space, vernacular (content) companies with good outreach in tier 2 and tier 3 markets are a focus area for the company,” he said. “But it is a conservative investor. It mainly wants to drive up synergies, so that it can be a mutually beneficial relationship with the companies that it is looking to invest in.”
The China model
The headquarters of Oppo, a subsidiary of BBK Electronics Corporation, is in Dongguan city of China’s Guangdong province. The firm has tasked a 12 member team to make strategic investments in China and South-East Asia. Oppo has made over 20 investments back home in keyboard inputs, social commerce and financial services, but no acquisitions till date. The company has made strategic investments though.
Oppo is trying to emulate the same model India.
“It is following its Chinese strategy, trying to engage consumers and exploit synergies in the mobile internet space with the OEM (Original Equipment Manufacturer) business it already has,” said the person quoted above. “But in India, it depends on a number of variables including the supply of the startups, the companies currently looking to raise money and conflicts of interest etc. Once the company has raised money from a particular OEM or any company, it may not want to partner with another OEM.”
The Chinese OEMs prefer Indian firms which take after successful startups in China.
“Chinese OEMs and investors are trying to replicate the success they have seen in the last 10 years in China in India. Whenever we go and talk to them, they tried to fit us within the China strategy - successful investments, successful acquisitions, successful exits,” said Ankit Prasad, founder, Bobble AI technologies. Bobble is the maker of Indic keyboard and works with major OEMs including Xiaomi and Oppo on different use cases involving smart keyboard, vernacular content and language tech.
“Anything that goes outside the scope of what they have seen in China, they prefer not to touch it. And whatever relates to what they have seen in China, they quickly make the decision,” he said.
Xiaomi is “really brutal” in terms of due diligence, said a startup founder who tapped the company for investment.
“They expect the company to have proprietary tech which is hard to replicate because Chinese are very good at copying things. If they find something easily copyable, then they prefer to do that in-house instead of acquisition or investment,” he said, on condition of anonymity. "They want to know all the nitty-gritties of your technology even before signing an agreement."
But if you are a ‘legit’ copycat, Xiaomi is all in.
“If you are building something that resembles some Chinese product, it is relatively easy to get interest from big companies like Xiaomi. But if it is something new, you need to have a good traction first," said Ashish, co-founder of Clip India, a video content company, which raised $4 million in 2017 from Shunwei Capital, set up by Xiaomi founder Lei Jun. Shunwei has made at least 12 investments in India including Clip India, KrazyBee, LoanTap, MyUpchar and Mech Mocha.
Xiaomi versus Oppo
Xiaomi is a clear leader in Indian smartphone segment with 27% market share in the last quarter, according to a Counterpoint report.
Last year, Xiaomi Ventures said it would invest Rs 6,000-7,000 crore in around 100 startups in India in the next five years to develop a hardware and software ecosystem. So far, it has invested in content startups such as ShareChat and Samosa Labs as well as fintech startup Krazybee and ZestMoney.
“Xiaomi has been able to recognise the Indian DNA very quickly. And they have been taking risks. Xiaomi made a slew of investments in a short time, which Oppo hasn't been able to replicate,” the source said. “Also, Chinese investors and Chinese companies find it very hard to decipher the Indian DNA very quickly.”
“India is very different from China. Initially, Oppo tried to pass on the same offering they had in China in India, which didn't work out. Indians need customised offerings,” he said. “Now they have recognised the fact that Xiaomi has actually done very well. Oppo will hopefully be able to follow them in their footsteps.”
Satish Meena, an analyst at Forrester, said many Chinese companies were on guard while making investments in India in light of the WeChat’s failure in the country.
“Over the last 12 months, Chinese apps have seen a huge following. Meanwhile, Xiaomi has started investing in the country to create an ecosystem of services around its smartphones,” he said. “Oppo, maybe, is trying to follow Xiaomi and catch up with the trend.”
“With the hardware revenue coming in, all Chinese OEMs are trying to go beyond hardware, building an ecosystem of products and services. At this point, the metro markets are already saturated,” explained Meena. “They are now going after users of apps like TikTok, because over the next five years, these users will not only spend time, but also will transact online. And that will help OEMs make money on additional services they are offering.”
Meanwhile, Oppo is aiming for a bigger pie of the smartphone market in India. The smartphone maker launched a budget brand Realme in May last year, and was able to capture a total market share of 15% in Q4 2018, up from 6% a year ago, as per the Counterpoint report.
“Oppo has been trying to maintain its image as a premium brand. To take on Xiaomi, rather than launching affordable smartphones, they launched a separate budget brand (phones ranging between 8-12K). They have been successful in its strategy. Without losing its brand value, it has captured the affordable smartphone market in India,” said Karn Chauhan, Research Analyst, Mobile Devices at Counterpoint.
In January, Oppo said it would set up an electronic manufacturing cluster in Greater Noida and jointly invest Rs 3500 crore with other manufacturers to produce electronics and support accessories for India. Xiaomi, on its part, had shared last year its plans to invest up to USD 1 billion in India by 2022.
Globally, Xiaomi has invested in 220 smart-devices companies and incubated 29 intelligent home products startups, while Oppo recently revealed its plans to invest USD 1.43 billion in 2019 to develop AI-enabled smart devices and 5G phones among other things, apart from pumping USD 145.7 million to develop games, video and other form of contents.
Oppo did not reply to the mail sent by The Passage.
(Avanish Tiwary and Chen Xintong contributed to this story.)