Chi­nese smart­phone-maker Xiaomi is ex­pand­ing its op­er­a­tions glob­ally with Sin­ga­pore as its first in­ter­na­tional mar­ket out­side China, Hong Kong and Tai­wan. A brand that was lit­tle known out­side of China three years ago, Xiaomi is now mak­ing waves across the mo­bile in­dus­try. We take a look at the hum­ble be­gin­nings of Xiaomi, and trace its growth and achieve­ments over the past three years.

1 Where It All Started

Xiaomi was founded in April 2010 by Lei Jun who as­sem­bled a team of seven co-founders. They are Lin Bin, Li Wan­qiang, Dr. Zhou Guang­ping, Huang Jiangqi, Hong Feng, Wang Chuan and Liu De.

The found­ing team is made up of for­mer em­ploy­ees of Google, Mi­crosoft, Mo­torola and other ma­jor tech­nol­ogy com­pa­nies. It added an­other valu­able mem­ber to the team last year in the form of Hugo Barra, who was then-Vice Pres­i­dent of An­droid prod­uct man­age­ment.

Lei set up Xiaomi with the goal to build a smart­phone com­pany that could chal­lenge Ap­ple. The mem­bers of the found­ing team were care­fully hand­picked, with the di­verse mix of work ex­pe­ri­ences and tal­ents prov­ing to be valu­able as­sets for Xiaomi.

As many of its co-founders are ex­perts in en­gi­neer­ing, hard­ware and soft­ware de­vel­op­ment, Xiaomi is, for all in­tents and pur­poses, able to build hard­ware at the speed of soft­ware.

Barra de­scribes Xiaomi as “a new kind of com­pany that the world has not seen yet” and ac­tu­ally finds it “quite spec­tac­u­lar” that it has 8 founders with each in­di­vid­ual “run­ning a startup within a collection of star­tups”.

Not many com­pa­nies can achieve that level of syn­ergy. Soft­ware gi­ant Google tried to rein­vent mo­bile hard­ware with the ac­qui­si­tion of Mo­torola Mo­bil­ity, but it was met with lit­tle suc­cess, even­tu­ally sell­ing the com­pany off to Len­ovo.

Ap­ple is one of the few com­pa­nies that does hard­ware and soft­ware well, which is why Xiaomi is some­times re­ferred to as the “Ap­ple of the East”. How­ever, Xiaomi at its core, is very dif­fer­ent from Ap­ple.

Xiaomi be­gan work on MIUI, which started off as a pure soft­ware ef­fort to build an al­ter­na­tive ROM for An­droid. The team ap­proached sev­eral man­u­fac­tur­ing part­ners and sup­pli­ers such as Qual­comm, Broadcom and Fox­conn, even­tu­ally re­leas­ing their first smart­phone, the Mi 1, back in 2011.

2 A Dif­fer­ent Busi­ness Model

Xiaomi’s driv­ing phi­los­o­phy is based on the be­lief that its busi­ness should be built on ser­vices, and nei­ther hard­ware nor de­vices. The na­ture of the Chi­nese mo­bile phone mar­ket also played a part in shap­ing the busi­ness model of Xiaomi.

By fo­cus­ing on ser­vices, Xiaomi would hope­fully avoid the fate that Lin feels other smart­phone mak­ers will face in the near fu­ture – de­clin­ing profit mar­gins from sales of hard­ware. Dur­ing the D: Dive Into Mo­bile Con­fer­ence in New York last year, Lin stated that “the fu­ture of the mo­bile In­ter­net is re­ally about ser­vices”. He feels that smart­phones are go­ing through a phase that PCs did twenty years ago when profit mar­gins were huge. With the profit mar­gins of PCs in sin­gle dig­its now, Lin be­lieves the same would hap­pen for smart­phones soon.

To build a busi­ness on ser­vices, Xiaomi needs vol­ume and it seems to know ex­actly how to achieve that, thanks to two in­spi­ra­tions that helped Lei model Xiaomi af­ter: A tra­di­tional Chi­nese medicine com­pany called Ton­grentang, and hot pot chain Hai Di Lao. Ac­cord­ing to Lei, both com­pa­nies taught him never to make low qual­ity prod­ucts for the sake of cost, and the im­por­tance of cus­tomer ser­vice.

Hence, Xiaomi be­came what we all know it for to­day – a com­pany that sells its smart­phones at low cost, yet of­fer­ing plenty of bang for the buck. This is in con­trast with the ap­proach taken by other Chi­nese com­pa­nies that of­fer lowspec, cheap de­vices. Its fo­cus on ser­vices is also sim­i­lar to what Ama­zon is cur­rently do­ing – sell­ing its Kin­dle tablets at low prices and earn­ing prof­its through the sales of e-books.

Lei men­tioned in an in­ter­view with TechCrunch that the Chi­nese mo­bile phone mar­ket is more open; con­sumers can buy and use what they want, hence phone mak­ers do not nec­es­sar­ily need to main­tain good re­la­tion­ships with the tel­cos to sell their de­vices.

This is dif­fer­ent from other coun­tries such as the U.S where tel­cos hold the up­per hand, both de­ter­min­ing what de­vices to push, as well as sell­ing phones at sub­si­dized pric­ing with con­tracts. Con­sid­er­ing that Xiaomi smart­phones have very low price points, con­sumers can buy them with­out sign­ing any long-term telco con­tracts.

“A com­pany that sells its smart­phones at low cost, yet of­fer­ing plenty of bang for the buck.”

3 Mar­ket Strate­gies

To min­i­mize cost to the con­sumer, Xiaomi also elim­i­nates the mid­dle­men and dis­trib­u­tors by sell­ing most of its smart­phones on­line through its web­site and so­cial net­works. For ex­am­ple, Xiaomi an­nounced in De­cem­ber 2012 that it would be sell­ing phones via Sina Weibo, which is China’s top mi­croblog­ging plat­form with over 400 mil­lion mem­bers.

It also part­nered with so­cial net­work­ing site Qzone to re­lease the first batch of 100,000 Redmi de­vices in Au­gust 2013. Xiaomi teamed up with in­stant mes­sag­ing app WeChat to sell 150,000 units of its flag­ship Mi 3 smart­phone in Novem­ber 2013. The part­ner­ships with so­cial net­work­ing sites and apps helped Xiaomi project it­self as a hip and cool com­pany that ap­peals to the younger gen­er­a­tion.

Xiaomi re­leases its smart­phones in limited quan­ti­ties or batches on these plat­forms, and the re­sponses are gen­er­ally overwhelming. Crit­ics pointed out that the com­pany is us­ing scarcity mar­ket­ing by cre­at­ing ar­ti­fi­cial short­ages to mo­ti­vate con­sumers to buy the phones, but Xiaomi coun­tered by say­ing these “flash sales” are de­ployed to gauge con­sumer re­ac­tion.

If the re­sponse to a par­tic­u­lar model ex­ceeds ini­tial ex­pec­ta­tions, Xiaomi will in­crease pro­duc­tion of the phones to meet de­mand. This helps the com­pany keep costs to a min­i­mum while en­sur­ing that there is no sur­plus.

It is un­de­ni­able that such “flash sales” will gen­er­ate a lot of ex­cite­ment and me­dia buzz. As Xiaomi be­gins its global ex­pan­sion, the strat­egy of sell­ing phones on­line may change as there are mar­kets in other re­gions where sales of de­vices are mainly driven by in-store sales and sub­si­dized, con­tract pric­ing from the tel­cos.

Di­rect-sell­ing, re­liance on so­cial me­dia, and ‘flash sales” are no doubt savvy mar­ket­ing strate­gies, but Lei feels that the most im­por­tant in­gre­di­ent in the recipe for suc­cess is that “Xiaomi is not sell­ing a prod­uct, but an op­por­tu­nity to par­tic­i­pate”.

Lei used Ap­ple’s iOS 7 as an ex­am­ple to show how Xiaomi’s ap­proach is dif­fer­ent from its com­peti­tors. Ap­ple is fa­mously known for its closed sys­tem ap­proach and users had no idea of what to ex­pect in any new soft­ware re­lease. Ap­ple be­lieves it can an­tic­i­pate and know what is best for users.

On the other hand, Xiaomi gives users a say in the de­vel­op­ment process of its hard­ware and soft­ware. For ex­am­ple, the com­pany en­cour­ages its soft­ware en­gi­neers to en­gage users in fo­rums to gather feed­back on MIUI. Based on the feed­back, Xiaomi is­sues free soft­ware up­dates ev­ery Fri­day for its users.

Ac­cord­ing to Lei, two fea­tures of the voice record­ing app on Xiaomi phones are con­trib­uted by a group of Chi­nese jour­nal­ists. The jour­nal­ists sug­gested that the app should con­tinue to record even if an in­com­ing call comes through, and the phone be switched to silent mode when the app is in use. Fol­low­ing their in­put, Xiaomi made these changes to the app.

User par­tic­i­pa­tion not only helps Xiaomi build a loyal fan­base, it also helps cut down de­vel­op­ment costs as MIUI is con­stantly re­fined with fea­tures that users ac­tu­ally want and use. In com­par­i­son, other phone mak­ers in­vest huge amount of funds, time and ef­forts to de­velop fea­tures that may turn out to be not prac­ti­cal or ir­rel­e­vant for users.

4 Break­ing into The Global Mar­ket

With a goal of sell­ing 40 mil­lion phones this year, Xiaomi has to ex­pand its mar­ket reach glob­ally. Its first in­ter­na­tional stop is Sin­ga­pore, where the com­pany has started sell­ing the Redmi smart­phone since late Fe­bru­ary.

Sin­ga­pore is an im­por­tant test for Xiaomi as the mar­ket is con­sid­ered small. The coun­try has a pop­u­la­tion smaller than Hong Kong at 5.3 mil­lion, but with a sim­i­lar smart­phone pen­e­tra­tion rate sim­i­lar of 87% based on a Nielsen re­port in Septem­ber 2013.

Like the U.S., the Sin­ga­pore mar­ket is still largely driven by on-con­tract, sub­si­dized de­vices. It’s too early to de­ter­mine whether Xiaomi can repli­cate its suc­cess in Sin­ga­pore by sell­ing its phones di­rectly to con­sumers. The con­cept of buy­ing un­sub­si­dized phones hasn’t taken off, al­though there are signs that it is pick­ing up, as the re­cent launch of the $318 Mo­torola Moto G showed.

As a Chi­nese com­pany, Xiaomi can­not es­cape the per­cep­tion of Chi­nese prod­ucts as knock­offs of pop­u­lar brands. Many Chi­nese com­pa­nies have tried to break into in­ter­na­tional mar­kets with lit­tle suc­cess, ex­cept for Huawei and Len­ovo. Whether or not Xiaomi’s grow­ing cult sta­tus and so­cial me­dia strate­gies can al­le­vi­ate this re­mains to be seen.

Xiaomi’s em­pha­sis on build­ing high qual­ity, high per­for­mance prod­ucts at cost has not gone un­no­ticed. Dur­ing a panel in­ter­view at Xiaomi’s head­quar­ters in Jan­uary, Ap­ple’s co­founder Steve Woz­niak pro­claimed that Xiaomi makes ex­cel­lent prod­ucts good enough to break into the U.S mar­ket. Ap­par­ently, he has been us­ing a Mi 3 and grew a lik­ing for the de­vice.

Mov­ing into new mar­kets may pose a chal­lenge for Xiaomi when it comes to main­tain­ing its fo­cus on cus­tomer ser­vice and gath­er­ing feed­back from dif­fer­ent mar­kets. Even though Xiaomi has done a pretty good job on its home turf, man­ag­ing the needs of dif­fer­ent mar­kets si­mul­ta­ne­ously is a to­tally dif­fer­ent ball game, and one that can strain the re­sources of a com­pany with over 3,000 em­ploy­ees.

“Sin­ga­pore is an im­por­tant test for Xiaomi as the mar­ket is con­sid­ered small.”


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