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INSIGHTS / BRIGHT IDEAS

Chinese startup Xianghuanji takes a gamble on smartphone leasing

China · Oct 19, 2018· By Irene Wang

©Xianghuanji

Now you can rent the newest phones for half the price of an upgrade

From car rides to basketballs, Chinese customers can find almost everything they need on mobile applications that take advantage of the highly popular sharing economy. Why buy an expensive new car and pay for maintenance, insurance and petrol when a click on a ride-hailing app can take you anywhere for the price of a single meal out? Why buy a costly new phone each year when you can rent one for half the price?

Despite increasing prices, users of high-end smartphones experience increasingly shorter service cycles. The startup Xianghuanji, a smartphone leasing service, saw in this trend a business opportunity.

Crunching the numbers

Before founding Xianghuanji at the end of 2016, Aihuishou, China’s biggest electronics recycling platform, analyzed five years of recycling data and current trends in the consumer electronics market.

Aihuishou found that prices of high-end smartphones like the iPhone, Samsung’s Galaxy model and Huawei’s models have been increasing yearly, and, as a result, young people are struggling to afford upgrade costs. Despite the increase in price, these consumers were still keeping their smartphones for less time - the average time of use had decreased from 24-36 months to 12-18 months. Because phones have become status symbols, young consumers have become more open to pay-as-you-go or installment payment plans if it means they can show off the newest smartphones.

After reviewing these findings, Xianghuanji’s founder and CEO Wang Sibao realized that a smartphone leasing business could be very successful. He decided to offer customers the option to “pay for use instead of hardware.”

Because of Aihuishou’s backing, Xianghuanji enjoys not only strong financial support, it also benefits from its parent company’s experience and knowledge of the market. This intelligence meant, among other things, Xianghuanji knew how to create user-friendly leasing plans right off the bat.

Even though, as of June 2017, Xianghuanji is an independent company, Aihuishou, which has five used phone disposal centers in China and has recycled a total of 30 million electronic devices in six years, still helps the startup dispose of returned phones more efficiently than its rivals.

In order to relieve users’ concerns about data security, Aihuishou uses deep cleaning technology to erase completely the original user data before the phone is recycled. The ability to guarantee data security gives Xianghuanji yet another edge over its competitors.

Challenges await

Users can easily lease the latest smartphone model via the Xianghuanji platform. They then get to use the phone for a year at about half the price of the cost of buying a new phone. Rent is paid in monthly installments, and the length of the lease can vary depending on an individual user’s needs.

Since its launch in 2016, Xianghuanji has attracted nearly 100 million registered users, and its monthly rental orders have surpassed RMB 100 million. Such a performance is impressive for a startup. But, like most startups, Xianghuanji faces significant challenges going forward.

First, the leasing industry is capital intensive in nature. Companies like Xianghuanji have to make a significant upfront investment in its devices. It takes at least two years to break even, assuming, of course, all the smartphones are and remain in good shape and can be rented out immediately. This uncertainty not only poses sufficient risks to the company’s original capital, it also means user experience could be compromised.

Second, the phone leasing arena has attracted other startups like Neisha and Jimi, both of which offer electronics leasing services such as phone rental. The fierce competition leaves Xianghuanji with little pricing power and a limited profit margin.

In order to stand out amongst its rivals, Xianghuanji has chosen to prioritize user experience. For example, users can get free on-site repair at home or work during the lease. They can also rent and return the phone at an offline outlet of D.Phone, which formed a partnership with Xianghuanji last year. D.Phone, which has over 1,300 stores, is one of China’s biggest mobile phone retailers.

Because the phone leasing market has a potential value of more than hundreds of billions of RMB, these challenges have not stopped Xianghuanji from pushing onward. And, in April 2018, Xianghuanji raised RMB 150 million in Series A+ financing, so its investors clearly believe the startup has the ability to rise to the top.

Edited by Wendy Lovinger and Wang Xiao'e