The hidden cost of affordable high-end phones in China

This phrase sounds like a self-contradicting mix of words, but it is exactly what flagship phones in China seem to be. Launching at prices severely undercutting high-end phones like Samsung Galaxies and especially Apple's iPhones in the West, these devices claim to have an identical set of features and hardware, just for a lower price.

But there is a catch.

One of the big stars of the Chinese smartphone market is Xiaomi, a poster child for the "affordable high-end phone" trend. The company that has quickly built up a presence in Asia as its phones severely undercut the prices of rivals. Xiaomi has also just recently entered the European market and its high-end Xiaomi Mi Mix 2 (read our review here) costs just €500, half the price of the Galaxy Note 8 and iPhone X. Yet still, it features a modern, bezel-less design and top-notch hardware. The price of the Mi Mix 2 in China is even lower.

So how is this even possible?

Users in the United States in Europe may not know this, but it turns out that Xiaomi has a very different and slightly shocking business model in China. While its phones run on Android,  they are heavily customized with the company's custom MIUI interface. But this is not just another Android skin: MIUI in China is... actually infested with ads.

This is not a bug, it is a feature. You cannot buy a Xiaomi phone with no system ads, it is actually the norm. In fact, Chinese users jokingly refer to the platform as "AdUI" because of it. Note that Xiaomi phones for other markets do not have system-wide ads, this is something that affects users in China.

To confirm that system ads are actually a feature, here is a recent Xiaomi promotion where the company sells a custom theme that you can purchase and enjoy a mostly ad-free experience for an added cost and limited time. Think of it a bit like Amazon's special offers on a phone, but in a much more intrusive way, with ads popping up at unexpected places and within the interface, not just on the lockscreen.

Here are the actual terms of a MIUI promo that is currently running in China (sloppily machine translated from Mandarin, emphasis ours):

This may be one of the clues as to why some phones in China can be so inexpensive. As the common saying goes, "when it's free, you are the product." It seems to be perfectly true in this case.

source: MIUI (translated)