2015 was the year Xiaomi became just another phone company

A nice brick of glass and plastic.
A nice brick of glass and plastic.
Image: Reuters/Bobby Yip
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At the start of 2015, Xiaomi co-founder Lin Bin rung in the new year with a lengthy open letter that celebrated two major milestones: The company had sold 61 million smartphones in 12 months, and it had lured $1.1 billion from investors.

Xiaomi is starting 2016 with more humility.

After four years of surpassing nearly every sales benchmark it set for itself, the Beijing-based company is now breaking with tradition by declining to reveal its annual smartphone shipments, most likely because it didn’t hit its goal of selling 80 million.

After correctly predicting the smartphone industry’s price war, and creating a groundbreaking business model, Xiaomi has become a victim of its own success. The company increasingly looks like every other Android phone maker out there—because its competitors have successfully copied Xiaomi in a race to provide the cheapest, fastest-to-market device out there.

Xiaomi’s executives, led by charismatic co-founder Lei Jun, correctly bet that most consumers would view Android smartphones as largely indistinguishable from one another, leading to a price war. In order to keep prices as low as possible, Xiaomi pioneered the idea of selling phones primarily online, directly to consumers. The company relied on a flash sales model to help predict demand (and build up hype), and sold just one or two devices to benefit from bulk pricing on components.

That strategy worked, and the popularity of its products in China helped Xiaomi become the world’s third-biggest smartphone maker in October 2014. But in the time since, other brands have caught up.

Huawei’s Honor line borrowed from Xiaomi’s online-only model, and the company is now the top-selling smartphone maker in China. Software companies like Qihoo and LeTV have also found success selling smartphones online using Xiaomi’s formula of flash sales and hype-drenched product launches. Legacy hardware firms like Vivo, Oppo, and Gionee have enjoyed growth using traditional retail channels—indicating that relying on online sales might not be such a great strategy after all.

Xiaomi’s global sales, meanwhile, have been less than impressive. India is its next-biggest market outside of China, but consumers there haven’t flocked to the brand.

In India, as in most developing countries where Xiaomi was expected to shine, it is becoming clear that the company’s true rival is the unnamed “other” phone makers—a slew of “good enough,” little-known Android brands that consumers purchase with indifference because they are even cheaper.

If shilling smartphones is a dead end for Xiaomi’s future, what is its next path? Worryingly, Xiaomi’s non-hardware units remain unproven when it comes to justifying the company’s $45 billion valuation. Only about 6% of Xiaomi’s 2015 revenue is expected to have come from its mobile services (paywall), which include apps (including one for money market funds), streaming media, and other customizable features. But the company doesn’t fully explain how that 6% breaks down.

Its biggest success outside of selling glass slabs is arguably in e-commerce. Acting as a venture capital firm, the company has invested aggressively in Chinese hardware startups specializing in specific products—smart cameras, smart lightbulbs, mini battery chargers—and hopes that its visible brand name will drive their purchase on Mi.com, the company’s e-commerce website. The Mi Band, made by Xiaomi portfolio company Huami, is a testament to the model’s strength. Immediately after its release, the product became one of the best-selling wearables in the world, competing neck-and-neck with Apple and Fitbit.

But Xiaomi has kept mum on how well its other gadgets have sold. Many of its products, like its Hue-esque smart lightbulb or Dropcam-esque home-security cameras, are imitations of Silicon Valley products that have yet to become proven winners themselves. Others, like its headphones, are up against “good enough” competitors available at the nearest electronics market.

Xiaomi’s media and business savvy have helped it become one of the most popular smartphone brands in the world. But in the today’s cutthroat hardware industry, such glory can be fleeting.