Two years ago, Oppo and Vivo couldn't crack the top five in China's smartphone market. Now they're on top after elbowing Apple aside, thanks to people like Cheng Xiaoning.
Cheng runs a thriving electronics store in the rural town of Miaoxia, tapping into her WeChat social media account to promote the brands that pay the biggest commission, and in her case that's Oppo and Vivo. While such payments start at about $6, they escalate for more expensive handsets and reach almost $29 for Oppo's high-end smartphones.
"That's why I like to introduce the Oppo R9 Plus to potential customers," she said. "Business has been perfect, actually never been better."
Cheng and tens of thousands of like-minded boosters form the vanguard of the pair's charge against Apple Inc. and Samsung Electronics Co. Working with the local stores that dominate sales in China's far-flung provinces, Oppo and Vivo came out of nowhere to upend the industry order and squeeze out former local darling Xiaomi Corp. Their labels graced one out of every three smartphones sold within China in the third quarter, while the iPhone's market share, at 7 percent, stood at its lowest in almost three years.
Oppo and Vivo trace their origins to reclusive billionaire Duan Yongping and employ similar strategies. That includes harnessing the spending power of rural customers away from top-tier cities such as Beijing and Shanghai. It's where Apple's vulnerable given the iPhone's lofty price tag. They eschewed e-commerce to instead court the stores where three-quarters of smartphone sales take place. Apple has been more reluctant to relinquish the retail experience to local free agents, who sometimes charge brands for in-store displays and posters.
"Oppo and Vivo are willing to share their profit with local sales. The reward was an extremely active and loyal nationwide sales network," said Jin Di, an International Data Corporation analyst based in Beijing. While they declined to detail their subsidy program, she estimates the two were the top spenders in the past year. "They're doing something different -- they do local marketing."
China had for years driven Apple's and Samsung's growth. The U.S. company generated almost $59 billion of sales from the region in fiscal 2015, which was more than double the level just two years earlier. Even as the domestic economy began to sputter, Chief Executive Officer Tim Cook spent a good chunk of an earnings call last year talking up the country's promise, saying Apple's investing there "for the decades ahead."
Then the country's slowdown and regulatory tangles took their toll. Authorities intervened, blocking iTunes Movies and iBooks, ending a period of near-unimpeded growth in the country. But perhaps most crucial was the ascendancy of cheaper but just-as-good local alternatives.
"Apple needs to offer something cutting-edge to appeal to maturing Chinese smartphone users," Counterpoint Research director Neil Shah writes. Oppo and Vivo can use the time until then to cement their positions, he said.
Together Oppo and Vivo shipped about 40 million smartphones in the third quarter, about 34 percent of devices sold in the world's biggest market, according to IDC. In 2012, their combined share was about 2.5 percent. IPhone shipments plunged more than a third, to 8.2 million during the period -- less than half of Vivo's. Samsung, which once led the market, now settles for roughly 5 percent, according to Counterpoint.
Samsung declined to comment for this story, while Apple didn't respond to requests for comment.
It's unclear how Apple can reclaim lost ground in the interim. Previous attempts to drift down-market -- with the iPhone 5c and SE, for instance -- fizzled as local users shunned seemingly inferior devices. Oppo and Vivo pack high-end specs into a phone that sells for a fraction of its rival's in China, where iPhone 7s start at $784. Consider the Oppo R9 plus: for $435, buyers get an aluminum body, 6-inch display, 16-megapixel camera and a battery that claims 19 hours of calls, photo and web browsing. Vivo's high-end Xplay6, with a price tag of $650, also undercuts Apple.
"Both companies invested heavily in marketing," said Nicole Peng, Asia Pacific research director at consultancy Canalys. Oppo and Vivo have a strong grip on the middle market for phones from $200 to $500, she said. "Their offline channel strategy paid off."
Today, Vivo touts its cameras and Oppo focuses on rapid-charging and battery life. But their offline strategies remain the same: mobilizing tens of thousands of private shop owners.
For now, neither Oppo nor Vivo appear overly concerned with the world's most valuable company. Their executives say they'll stick to their winning strategies, while exploring ways to keep pushing the smartphone envelope.
"We have to keep our minds clear in the fast-changing market," said Allen Wu, Oppo's vice-president in charge of sales. "All we need to do is to keep our heads down and make the correct moves."
Information for this article was contributed by Alex Webb.
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