2013-09-17 06:28:43
Xiaomi, often described as China s answer to Apple, is actually quite different
Sep 14th 2013 | BEIJING |From the print edition
IT FEELS more like a rock concert than a press conference as the casually
dressed chief executive takes to a darkened stage to unveil his firm s sleek
new smartphone to an adoring crowd. Yet this was not the launch of the new
iPhone by Apple on September 10th, but of the Mi-3 handset by Xiaomi, a Chinese
firm, in Beijing on September 5th. With its emphasis on snazzy design, glitzy
launches and the cult-like fervour it inspires in its users, no wonder Xiaomi
is often compared to its giant American rival, both by admirers and by critics
who call it a copycat. Xiaomi s boss, Lei Jun (pictured), even wears jeans and
a black shirt, Steve Jobs-style. Is Xiaomi really China s answer to Apple?
Xiaomi sold 7.2m handsets last year, in China, Hong Kong and Taiwan, earning
revenues of 12.6 billion yuan ($2.1 billion). Apple sold 125m smartphones
globally, earning about $80 billion of its $157 billion sales. But since it was
founded in 2010, Xiaomi has grown fast. A recent funding round valued it at $10
billion, more than Microsoft just paid for Nokia s handset unit. That made
Xiaomi one of the 15 most heavily venture-backed mobile start-ups ever, says
Rajeev Chand of Rutberg, an investment bank. In the second quarter of 2013
Xiaomi s market share in China was 5%, says Canalys, a research firm more than
Apple s (4.8%) for the first time.
Yet we have never compared ourselves to Apple we are more like Amazon, says
Lin Bin, Xiaomi s co-founder, who once worked for the Chinese arms of Microsoft
and Google. Apple sells its iPhone 5 for around $860 in China and has the
industry s highest margins. Xiaomi offers its handsets at or near cost: the
Mi-3, its new flagship, costs 2,000 yuan ($330). Xiaomi sells direct to
customers online, rather than via network operators or retail stores, which
also keeps prices down. Crucially, its business depends on selling services to
its users, just as Amazon provides its Kindle readers at low prices and makes
its money on the sale of e-books. The idea is to make a profit from customers
as they use the handset, rather than from the sale of the hardware, says Mr
Lin.
Xiaomi s services revenues were 20m yuan in August, up from 10m yuan in April.
It is a classic internet business model: build an audience then monetise it
later, as Google and Facebook did, notes Mr Lin. Selling games, custom
wallpapers and virtual gifts may not sound very lucrative, but China s internet
giants have found a huge market for virtual goods: the biggest, Tencent, sold
$5 billion-worth of them last year.
Another big difference is their openness to user feedback. Apple takes an
almost Stalinist approach to its handsets, limiting user customisation in
favour of a we know best design philosophy. Xiaomi is more guided by its
users, releasing a new version of its MIUI software (based on Google s Android
operating system) every week in response to their suggestions. In some cases
Xiaomi asks users to vote via weibo, the Chinese equivalent of Twitter, on
whether particular features should be included or how they should work a form
of democracy its American rival would never countenance.
Apple s launch this week of the iPhone 5C, a colourful, slightly cheaper
version of the iPhone aimed at consumers in China and other developing
countries, marks a shift in its strategy as it faces competition from Xiaomi
and many other Chinese firms. Apple s handsets have sold well in developed
countries, but those markets are maturing. Global sales of smartphones are
growing by 50% a year, notes Canalys, but by 108% a year in China, which now
accounts for over one-third of global sales.
For the first time, Apple held an official launch event in Beijing this week,
indicating its growing interest in this market. Yet there was widespread
surprise at the high price of the 5C, which will cost $733 in China, limiting
its appeal among less wealthy buyers. A rumoured deal with China Mobile to
distribute the iPhone 5C and subsidise its cost has so far failed to
materialise. (Apple also unveiled the iPhone 5S, its new high-end smartphone,
which features a fingerprint reader for improved security.)
Xiaomi the money
As Apple looks to tap the rapid growth of the Chinese market, Xiaomi is heading
the other way. It recently hired Hugo Barra, a Google executive responsible for
product development for Android, to develop new products for international
markets.
Yet Xiaomi and other Chinese firms sell so many games, apps and add-ons in
large part because the Chinese government requires handsets to run a neutered
version of the Android operating system, without Google s app store, mail
service, maps and other features. That helps Xiaomi sell its own replacement
services, an advantage it will lose once it steps outside China. How scared
should Apple be, really, of a rival that has yet to prove that its business
model will work at home, let alone abroad?