Often referred to as the Apple of the East, Xiaomi the Chinese upstart seems to have everything going for it. Its success in China has caught global players like Samsung by surprise, it now has a valuation of over $10 billion and recently snagged Google’s VP for Android, Hugo Barra. Barely in its fourth year of existence, Xiaomi has twice the valuation of Nokia’s handset business without having ventured out of China. That will soon change, if things go as planned, with Barra leading Xiaomi’s global operations hoping to emulate the same success. But can Xiaomi do it?
One of the major reasons for Xiaomi’s success and it catching the attention of the outside world has been the pricing of its phones. Xiaomi sells high specced phones that can compete with flagship Galaxy smartphones from Samsung and deliver it to consumers at almost half the price. Its latest Mi3 smartphone, for instance, costs just $327 or half the price of the latest iPhone or the Galaxy S4. The specifications include the top-of-the-line Nvidia Tegra 4 or Qualcomm Snapdragon 800 chipsets, 2GB RAM, 5-inch 1080p display and 13-megapixel camera. Unlike most Chinese vendors, Xiaomi claims to use the best components that are used by the likes of Samsung and Apple.
Xiaomi’s founders like to compare their company to Amazon more than Apple. Rather than raking in huge margins on its hardware, Xiaomi sells it almost at cost to consumers. It then makes money by selling apps, games and online services. To keep the engagement going with its users, it releases a software update every Friday and invites feedback from users on what features to add. Using the hardware primarily as a medium to sell services is a typical Amazon model that has been perfected over the years with its Kindle ebook readers.
This model can work for Xiaomi in China, where Google services are blocked. The Google Play Store is not accessible easily, which is a great repository of hundreds of thousands of free games and apps. Xiaomi essentially fills that hole by providing the quintessential Android feature all of us expect on an Android smartphone, and charges users for some of the content and services.
But what about the world outside China where Play Store is accessible and buyers prefer smartphones that come with the Play Store than those that fork Android and come without Google’s Mobile Suite? It is unlikely that Xiaomi can replicate the same business model in the outside world and will have to tweak it. While Amazon has one of the world’s biggest ebook libraries and the Kindle devices are essentially a delivery mechanism for them, Xiaomi will have to find its niche for which users are willing to pay – apps and services won’t cut it when users hooked on to Google’s Play Store expect it for free.
Without revenues from services, Xiaomi will be forced to let go of its “sell devices at cost” strategy, which is the main reason why people buy a Xiaomi smartphone in the first place. The question now really is whether Barra can find a niche for Xiaomi outside China.