STRATEGY SHIFT

Xiaomi can credit its global success to a decidedly anti-Apple strategy

In August 2011, Xiaomi founder Lei Jun walked onto a stage wearing a black T-shirt and blue jeans. The 41-year-old serial entrepreneur was about to unveil his young smartphone brand’s first product, the Mi-1, featuring one of the world’s fastest chips and billed as an equal to the iPhone 4.

What was really exciting, as Lei announced, was that the handset would be sold for just a little over $300, half of what an iPhone cost back then. It only took the Beijing-based startup one-and-a-half days to sell all 400,000 devices (link in Chinese) available in the first batch, through online sales only. Lei quickly won the nickname of “Lei Busi,” as fans fondly view him as the Steve Jobs of China. (Steve Jobs’s last name in Chinese is 乔布斯, or Qiao Busi.)

Today (May 3), Xiaomi filed to go public in Hong Kong, in what is expected to be the world’s biggest IPO in nearly four years. How did the Apple copycat—as Xiaomi had often been accused—evolve into Apple’s true competitor, one that is now the world’s fourth-biggest smartphone maker?

The secret of Xiaomi’s success, which has won it an expected valuation of $100 billion, is basically an anti-Apple strategy: While Apple has established itself as a premium brand enjoying unmatched pricing power for all kinds of gadgets, Xiaomi sells its products as cheaply as possible and, increasingly, to as many people as possible worldwide.

Xiaomi, founded in early 2010, first shot to prominence in China by selling almost all of its phones online at razor-thin profit margins—a tactic enabled by avoiding costs like rent and sales commissions, and by saving money on commercials. Instead, the company relied heavily on flash sales and its cult-like fan base, cultivated by the company via online forums and events. Like that, Xiaomi surpassed nearly every sales benchmark it set for itself for four years, becoming the world’s third-largest smartphone maker by shipments in the third quarter of 2014, behind only Samsung and Apple.

Xiaomi’s smartphone sales hit a road bump in 2015-16 after domestic rivals like Huawei and Oppo copied its low-cost strategy, while doubling down on offline advertisements. Xiaomi then altered its approach with the opening of more than 200 Apple-esque retail stores across China. Meanwhile, unlike Apple’s far pickier approach to expanding its product range, it morphed into an appliance company, branching out into a wide product range of internet-connected devices, including everything from rice cookers to air purifiers to smartphone-controlled toilet seats. Xiaomi says it’s done this by investing in or incubating over 200 tech startups, in effect becoming a venture capital firm of sorts.

“Our ecosystem even gives customers unusual new products that they never knew existed,” Xiaomi’s senior vice president Wang Xiang told Wired in December. “So they keep coming back to Xiaomi’s Mi Home Store to see what we’ve got.”

What remains unchanged is that Xiaomi products remain dirt cheap. According to research firm IDC, Xiaomi was only behind Apple in the global wearable market in 2017, with its wearables outselling all others in the second quarter. Xiaomi says its Mi Band is around $25, while competitors’ products are around $50-$100. As Quartz has written, the Mi Band 2 “does nearly as much as Apple and Fitbit’s far more expensive models—it has heart-rate monitoring, step tracking and notification—for between one-fifth and one-tenth the prices.”

The next phase for Xiaomi, in Lei’s own words (pdf, p.1), is to become “an innovation-driven internet company” rather than a hardware company. That means future growth will depend much more on lucrative online services—from payments to streaming to gaming—than gadget sales.

In that way, at least, “China’s Apple” will begin to resemble its American rival more than ever before.

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