Chinese apple
Meet Lei Jun, the Chinese Steve Jobs whose smartphone company is set to conquer the world.
In a darkened Beijing conference centre, hundreds of spectators yell “whoa!” as an onscreen countdown culminates with a video montage showcasing Chinese smartphone-maker Xiaomi and its products, facilities, and fan clubs.
When Xiaomi founder Lei Jun finally takes the stage, the crowd erupts in a deafening cheer.
Mr. Lei draws comparisons to Apple Inc.’s Steve Jobs (he’s often seen in a black T-shirt and blue jeans, similar to the look Mr. Jobs became known for) — but the fandom seen at this launch event last September is more the sort normally reserved for rock stars.
It’s a fervour referenced in Xiaomi’s slogan: “Just for Fans.”
“Inside of China, [Lei Jun is] a bit of a superstar,” said Ryan Lai, a Kuala Lumpur-based market analyst with technology research firm IDC.
Mr. Lei is set to take the stage again on Tuesday to launch what is widely expected to be the Mi4: the latest of Xiaomi’s high-spec, lowcost, Android-based smartphones that have conquered China technology market.
Xiaomi’s brand doesn’t resonate much outside China — yet.
It is setting its sights beyond its home borders, with plans to move into 10 countries this year, including Brazil, Russia and India.
In four years, Xiaomi — which means “little rice” — has already surpassed Apple in market share in China, and is gaining ground on more recognizable homegrown brands Huawei and Lenovo, says Palo Alto, Calif.-based research firm Canalys.
More than 95% of Xiaomi’s smartphones are sold in China, yet it is the sixth-largest smartphone maker globally by sales as of the first quarter of 2014, said Chris Jones, principal analyst at Canalys.
Xiaomi says it shipped 26.1 million handsets in the first half of this year — nearly quadruple the 7.03 million units it shipped during same period last year.
During the first six months of 2014, Xiaomi generated revenue of ¥33-billion (US$5.3billion), up 149% from the same period a year earlier.
In the Asia-Pacific region, Xiaomi had a 7% market share as of the first quarter of 2014, compared with 4% share a year earlier, said Mr. Lai.
Xiaomi’s growth has been fuelled by a strategy that prioritizes online sales, while eschewing traditional mar-
It’s now time for the entire world
to learn about Xiaomi
keting for interaction via social media platforms such as China’s Weibo and WeChat.
“Word of mouth is the single biggest driver of Xiaomi’s success,” said Mr. Lai.
Mr. Lei has said Xiaomi is valued at US$10-billion. Xiaomi had set an internal sales target of 40 million units this year, but has since raised that goal to 60 million units.
Samsung, Apple and BlackBerry should be worried, analysts say.
Samsung said in its secondquarter earnings forecast this month that its operating profit likely slipped 24.5% to US$7.12-billion, partly due to competition from cheaper Chinese rivals.
“Long term, [Xiaomi] could be a huge threat,” said Mr. Lai. “In four years in China, they’ve grown from a small little startup to one of the top-five ranking smartphone players.”
Part of Xiaomi’s allure is the lore of Mr. Lei himself.
He was born to what he called an ordinary family in Xintao, a mid-size city in Hubei province, according to Bloomberg Businessweek. In university, he was inspired after reading a book detailing the careers of Microsoft Corp. founder Bill Gates and Apple’s Mr. Jobs. Mr. Lei began his career as a programmer, and later found success as chief executive of Beijing-based software company Kingsoft. He left in 2007, diversifying the struggling company into video games before taking it public.
Mr. Lei was “financially secure” but didn’t have the high profile of other tech stars in China, such as Jack Ma at ecommerce company Alibaba Group, Robin Chan, an angel investor who backed Xiaomi, told Bloomberg Businessweek.
“He didn’t feel reputationally secure ... It drove him.” Mr. Chan said.
In 2010, Mr. Lei launched Xiaomi with former Google executive Lin Bin, and six other Chinese technology executives and experts from Motorola and Microsoft.
Xiaomi’s first smartphone, the Mi1, was expected to sell 300,000 units. It sold more than seven million.
The company also leveraged Mr. Lei’s oratory talents. During Apple-style launch events, he raises his tone and paces his words to build anticipation.
At first, however, his unpolished Mandarin was mocked by the big-city elites, said Bryan Wang, a Beijing-based analyst with Forrester.
The younger generation, particularly in China’s smaller centres, can relate to Mr. Lei’s background and admire his success, he added.
“That’s why he himself has become an icon,” Mr. Wang said.
Mr. Lei is now worth an estimated US$1.75-billion, according to Forbes.
But Mr. Lai argues that Xiaomi’s success doesn’t hinge on Mr. Lei’s character. Indeed, it’s cheap phones driving the company’s surging popularity.
For example, Xiaomi’s latest Mi3 smartphone is available in China starting at 1,499 Yuan, or US$241, compared to the iPhone 4S at 3,288 Yuan (US$530) and the iPhone 5S at 5,288 Yuan (US$852), according to a Xiaomi website. Samsung’s Galaxy S5 starts at 4,999 Yuan (US$805), according to its Chinese website.
The reality is Xiaomi is successful because the devices are “cheap,” said Mr. Lai.
“The pricing strategy is so aggressive, it’s irresistible,” he said.
Privately held Xiaomi does not disclose full revenue and profit figures. But many analysts believe its smartphones have very lean profit margins.
Instead of raising prices, Xiaomi’s business model in- volves selling cheaper smartphones to lure customers, and generating additional revenue through value-added services and accessories like battery packs and covers.
Xiaomi has also branched out into televisions and tablets — called MiPads.
But it’s the opposite of Apple’s model of high-price, high-spec products in gleaming-white retail stores.
“I feel that we’re very different from Apple, and probably more like Amazon’s Kindle,” Mr. Lei told Bloomberg.
Xiaomi’s products often sell out online in minutes. Analysts, however, suspect that the company keeps inventories low to build hype.
Xiaomi has “broken the mould,” said Mr. Jones.
“It’s just been the right kind of recipe for success in the Chinese markets, and so much so that many of the other Chinese vendors have looked to emulate its model,” he said.
Having successfully disrupted its domestic phone market, Xiaomi is going global.
It kicked off this push with a high-profile recruit: Google’s Hugo Barra, who left his post as vice-president of product management for Android last August to become vice-president of Xiaomi Global.
“It’s now time for the entire world to learn about Xiaomi,” Mr. Barra said at an event in Beijing last September.
Outside the Chinese mainland, Xiaomi has already moved into Hong Kong and Taiwan. This year, it staked its territory in Malaysia, Singapore, the Philippines, and India. Indonesia, Thailand, Vietnam, Russia, Turkey, Brazil and Mexico are next.
Xiaomi also launched a new English website in July, Mi.com.
“Shorter name, bigger world,” a Xiaomi slogan reads.
Its success won’t be easy to duplicate in the major developed markets, analysts say.
Xiaomi’s reliance on socialmedia marketing and online sales keeps prices low. The model works best in China, where consumers buy their own devices and activate them with a telecom carrier. In Western markets like Canada, phones are often bought through carriers, which subsidize the cost as part of multiyear contract.
Developing markets will be where Xiaomi is best suited for success, but it’s only a matter of time before it looks to Europe, the U.S. and Canada, said Mr. Lai.
“Their plan is to go as big as possible, obviously they’ll have to go everywhere,” Mr. Lai said.