In recent years, device companies like Xiaomi and Apple have increasingly turned their attention to upselling and cross-selling strategies. This trend is underpinned by the impressive profits these companies derive from their services business, which is often more profitable than hardware sales. Canalys took a closer look at their financial results reveals how these services have become a vital growth engine, illustrating a winning strategy for the future.
Xiaomi’s Growing Internet Services Business
Xiaomi, known for its smartphones and IoT (Internet of Things) products, has expanded significantly into internet services. This diversification is evident in the company’s recent financial data, where internet services account for 10% of total revenue but an impressive 35% of gross profit. Xiaomi’s internet services span multiple areas, including cloud computing, digital content, and IoT solutions, enabling the company to offer a comprehensive digital ecosystem.
Xiaomi’s IoT ecosystem connects smart devices for seamless control, boosting user engagement and facilitating upselling opportunities. Xiaomi’s strategy highlights the growing significance of internet services, which leverage the success of their hardware products, offering higher profit margins than traditional device sales. Unfortunately, Xiaomi doesn’t have a evenly closed eco-system as Apple has with iOS.
Apple’s services as a major margin driver
Apple has experienced even more success with its services business, which now constitutes 27% of its total revenue but contributes 43% of its gross profit. This shift towards services has become increasingly important as hardware growth slows. Apple’s services include a wide range of offerings, from cloud storage and digital content to financial services and software subscriptions.
Apple hooked on used
Apple’s services segment not only delivers high-margin profits but also strengthens customer loyalty and engagement within its ecosystem, creating valuable upselling and cross-selling opportunities. This dynamic explains why Apple embraces the secondary market.
Consumers who purchase a used or refurbished iPhone often utilize (and pay for) Apple’s services just as actively as those with new devices. This ensures continued revenue from services like iCloud, Apple Music, and the App Store. Moreover, every refurbished or pre-owned Apple iPhone sold brings another user into the Apple ecosystem, increasing the likelihood they’ll remain loyal to iOS for years to come.
Services drive higher margins
Both Xiaomi and Apple’s services are proving to be key drivers of profitability, with internet services and subscriptions offering much higher margins than hardware sales. Xiaomi’s internet services have a profit margin of 77%, while Apple’s services boast a 74% margin, far surpassing their hardware products.
This shift towards services highlights a broader trend in the industry where upselling and cross-selling have become vital strategies. Offering additional services to existing customers, if they use a new or used device, is often more cost-effective than acquiring new ones, making it an appealing strategy for both companies.
Conclusion: used and refurbished a winning strategy for the future
The success of Xiaomi and Apple in monetizing their services businesses demonstrates the effectiveness of upselling and cross-selling strategies. By expanding their service offerings, these companies not only enhance their product lines but also create new revenue streams with higher profit margins. And this is why Apple loves used and refurbished, and Xiaomi will follow.
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