Baidu splashes money on Digione, a mobile firm that wants to overthrow Xiaomi as China’s smartphone king

Baidu splashes money on Digione, a mobile firm that wants to overthrow Xiaomi as China’s smartphone king

November 6, 2013

by Josh Horwitz

Today Baidu (NASDAQ:BIDU), the search giant that’s slowly expanding its software ecosystem, announced an investment in Digione, a mobile logistics company based in Shenzhen. The exact sums and conditions haven’t been disclosed, but according to Techweb, the deal officially makes Baidu the company’s biggest investor. Before we dive into more specifics about the partnership, let’s backtrack a bit and ask: What is Digione and why should I care? The answer might surprise you.A true “offline-to-online” company.

Digione is a special type of logistics company.

Founded in 2006, the firm has from the get-go set out to be a sort of supply chain manager for all-things related to the mobile internet. Believing the convergence of hardware and software, online services and offline services, Digione collaborates with manufacturers, carriers, tech giants, app developers, retailers, businesses and consumers to design specially-customized phones for specific market segments.

What does this mean in practice? Many things. On the retail supply end, Digione established relationships with small and medium-sized phone retailers and now claims to have ties with over 700,000 individual stores. It also collaborated with China Telecom in Chongqing to design and manage the carrier’s Tianyi products and services platform (think “the Verizon store” on your phone), while taking hold of the company’s local retail operations to create a well-branded consumer experience.

Okay, so Baidu invested in a glorified logistics company. Now what?

Later, in June of this year, Digione went on to launch its own house-branded phone, called the 100+, in partnership with China Telecom and Baidu. The device ran on Baidu’s Cloud OS (a version of Android). According to Marbridge Daily, many aspects of the phone’s appearance and software were determined by votes from interested consumers, in what Digione describes as a consumer-to-business model.

If that sounds slightly familiar, you’re not mistaken. Digione has quite openly declared war on Xiaomi, the Chinese red-hot phone-maker that recently surpassed Apple in domestic sales. In an obvious signal, it even went so far as to price its phone cheaper than Xiaomi’s cheapest phone, the Hongmi, by RMB 1.

Xiaomi’s ecosystem is often compared to that of Apple – its products are bought through Xiaomi, and it has its own app store, chat app, cloud service, and e-book store along with other services. Its Android skin is designed in-house, not by third-parties, and it tightly controls its distribution channels.

Digione does the opposite: it inks partnerships with as many different outside parties as it can, and unifies them in one place – the 100+ phone.

In a September Tencent Tech article that’s available on Digione’s website, Digione CEO Xu Guoyang states (translation ours):

Our business model is more open than that of Xiaomi’s. Xiaomi is like Apple, and we’re open like Android: we collaborate with telecoms, Baidu, [e-commerce site] Jingdong and [download client} Xunlei to form partnerships and give a variety of experiences and services for our consumers. We don’t rely on hardware to make money.

We haven’t been able to dig up sales figures for the 100+, but the Tencent Tech piece states that the Digione’s vast network of online and storefront retail partnerships – something Xiaomi doesn’t have – has helped it scale easily.

What does Baidu want from Digione?

Baidu surely hopes that by investing in Digione, it can ensure that its Baidu Cloud OS will make its way into the hands of more consumers. So far it doesn’t seem to have much traction. Given that Baidu could have chosen to invest in any number of Chinese phone-makers, a sign of good faith in the form of an investment is not something Digione will take for granted.

The investment could yield many different results – perhaps Digione could continue to release competitively-priced phones, earn market share, and eat some of Xiaomi’s lunch. Perhaps Baidu Cloud’s user-base will grow. Baidu might even use the relationship as a stepping stone to deeper forays into hardware.

Digione’s roars towards Xiaomi might have some validity, but at this early stage in the company’s smartphone history, it will face an uphill battle if it edges up to Xiaomi. So look at the new this way: Baidu has invested in a forward-thinking smartphone company, that’s kind of like Xiaomi but different, which means that someday, a Baidu phone might see the light of day.