Xiaomi - A Case Study

Why we made this case study at Teagle?

Teagle is all about interaction with customers and for some time already we've been really
fascinated by Xiaomi's successful approach to focus on its customers. After this case study,
we feel even more confident that we chose the right path when we decided to focus on
Customer Interaction Platform. Its a good opportunity to share our team's experience of
understanding customers' motivations.

Now, shall we take a closer look at Xiaomi

In just few years the Chinese smartphone manufacturer Xiaomi became the company with the
largest market share in China, the worlds biggest smartphone market and its currently
expanding its concept abroad. Appealing story, design and the whole customer experience
appear to match together. And it's all done in the Internet.

The key is to be close to customer

Remove barriers between you and your customers

Create direct interaction channels between your managers and customers
Turn your customers into fans and co-operators and invite them to participate

How Xiaomi did this?

...and what could we learn from its success?
Xiaomi is not a device manufacturer by definition. It's a mobile internet and e-commerce
company that just happens to make compatible devices in order to offer a complete customer
experience. An essential motor behind its growth is A Great Story. Xiaomi invites customers
to be part of a modern Cinderella Story, where an underdog Chinese startup rises against its
mighty global rivals despite all negative prejudices and historical load associated with
Chinese manufacturing industry. Xiaomi shows that it's possible to come up with something
super high quality and innovative which is entirely created in China.

Great story Embodying the new Chinese culture

Xiaomi has been accused to shamelessly copy Apple. Xiaomi denies copying, and says its
only inspired by the company. Do they just ride with Apples design and the publicity this
conflict brings in? That might be partially true but theres something deeper that explains
Xiaomis success in China.
Xiaomi represents meaningful novel ideas to many Chinese young urban
consumers, whose individualism and national pride are raising: It's a Cool
Chinese Startup Success Story with a charismatic Chinese founder. The
timing is perfect. There seems to be a need for the story that lets urban
young generation be proud of being Chinese. Xiaomi's attitude against
western IP rights strengthens their rebel image. (Many Chinese see them
as unfair barriers dictated by rich western countries who try to maintain
their power.) Their open and participative approach toward customers
allows everyone be part of their success and manifest it to others with a
Xiaomi device.

Xiaomi is gaining momentum internationally.

With all that momentum and forward looking new ideas Xiaomi has managed to hire well
known employees from big western tech companies. The fact that these guys chose Xiaomi of
all alternatives supports the aura of a globally innovative and interesting company. Of course
it also brings in valuable talent, experience & knowledge from established industry leaders.

Social marketing and market probing

Xiaomi doesn't spend on traditional advertising... instead, it is genuinely present where its
customers are in online forums and social media sites. Xiaomi lives in the internet and so
does its marketing. The company has been active in social media from its very beginning.
(Weibo, WeChat, Xiaomi Forum, Baidu Tieba and Xiaomi Mall). They work hard to maintain
direct communication with their fans and encourage their customers give feedback on
existing products but also on their future ideas and concepts. (Xiaomi calls its enthusiastic
customers and community members MiFans.) There's a true participative culture. Fans are
challenged with game- like online interaction. They can attend and win tickets to live fan
gatherings where Xiaomi employees and managers are often present.
As Hugo Barra said in an interview with Forbes

Xiaomi's obsessive and rapidly-executed focus on user feedback was "not

something you see often in this landscape." He revealed that product managers at
the company can spend half their time perusing the company's active user
forums.
"[A] suggestion gets picked up by a product manager within hours. Within a few
[more] hours it can be at an engineer's desk."

Fast iteration cycle truly based on user feedback

Xiaomi develops devices like software. They produce small batches and iterate the product
all the time. Xiaomi deploys the just in time' -production (first introduced by Toyota's Lean
Manufacturing principles). It keeps the inventories small and works hard to secure a flexible
supply of quality components. Predictions about the next week's demand are derived from
previous week's sales and trends in social media activities.The production capacity of each
device is adjusted accordingly.
A batch of around 50 000 phones with incremental modifications is released and sold (often
within some seconds!) during flash sales on Xiomi's web store every week. Active
community members can see their ideas realized fast which is a great motivator for
customers to participate and give feedback.

Complete Ecosystem
So, Xiaomi is a mobile internet and e-commerce company that just happens to make
compatible devices in order to offer a complete customer experience.

Xiaomi Ecosystem

E-commerce site (and fast delivery)

Xiaomi is an e-commerce company. Its devices are sold from their web store directly to
customers. Xiaomi has many showrooms where its devices can be played with, but these
don't have any devices in STOCK to sell out. Centrally managed sales & logistics system
allows Xiaomi control and monitor its sales and inventory and cut off distributors' margins

and the mess of scattered inventories (A model that has been proven successful also by Tesla
Motors).
Xiaomi's biggest revenue doesn't come from devices, but from its proprietary app store and
huge variety of different accessories. Xiaomi reportedly makes only about 10% margin with
their devices. Xiaomi's emphasis on fast logistics ensure that customers don't need to wait
long for their new gadgets to be delivered.

MIUI app store (localized for each market)

Chinese smartphone MARKET is very different from western countries not only because
Google's services and app store are not fully accessible there. MIUI app store has an active
developer community and offers alternative services to Chinese market. Customization is a
very big deal. A great part of Xiaomi's revenue comes from skins, widgets, and other
customization software that users download to change the appearance of the device often
many times per week. In January 2014, according to a study by app analytics company
Flurry, Xiaomi users in average spend more time using the apps than users of its competitor
devices and they download more apps from the app store. Xiaomi takes a slice from every
transaction made in MIUI app store.

MIUI (customized and customizable Android UI)

Xiaomi's MIUI modified Android UI is a glue (and a honey trap) that keeps everything
together and helps Xiaomi stand out from its rivals. Miui comes with many little tweaks and
handy features that resonate well with young Chinese and apparently also Indian
consumers. Almost everything in the UI can be endlessly customized and fine tuned with
skins, widgets and apps available in MIUI app store. This seems to be a good match with
individualistic young generation in urban China.

MIUI can also be installed on a variety of cheap Chinese white label' phones, which often
come with half baked UI's. Long support for device updates help keep these devices relevant
longer even if the phone manufacturer has stopped pushing out updates. This helps widen
MIUI's user base and eventually persuades many to switch into a fully compatible Xiaomi
device.

(Image: http://en.miui.com)

Quality devices (that work smoothly with MIUI)

Xiaomi offers uncompromised performance, high quality parts and premium look & feel
for much smaller price than others can do an equation not seen before. Devices are not
cheap but cost much less than competitors' flagship devices. Xiaomi employs design
language that boldly mimics Apple and other popular brand names. This can be a problem if
Xiaomi wants to scale its businesses to western MARKETS . However, in China, India and
Indonesia the western IP rights haven't been a real barrier. Devices can be customized.
Xiaomi allows each device stand out and match the style and personality of its owner by
offering a great variety of accessories in its e- commerce site.

Social media hubs and fan communities (that fuel

marketing and guide product development)
Before anything else, Xiaomi's founders spent a lot of time in many of China's social media
and made qualitative MARKET research and probing for their fresh startup. These sites
eventually transformed into active co-operation hubs between Xiaomi and its customers.

Soon Xiaomi built its own community sites with reward programs and batches. Still they
have maintained a strong link between the new forum and popular Chinese social media
platforms like Baidu and Weibo.
Xiaomi takes it seriously to keep fans engaged. There are continuously several active
discussions, game-like challenges and competitions online. They have experimented
organizing online party events with live streams from and between live fan events and
gatherings held simultaneously in several locations. Most importantly, these activities are
designed to keep customers loyal and to provide Xiaomi valuable first hand feedback and
insights from its customers. Xiaomi continuously keeps track on swings in participants'
interests, opinions and hot topics. After analysis these insights are used to guide product
development, predict sales and adjust production capacity.

What could we learn from Xiaomi? ...Six insights

1/6. Be genuinely local and know your customers
Respect the local culture and subcultures. It takes some effort to adjust your brand, products
and services, but it makes them feel familiar and more friendly to your new target audiences.
Being humble pays off especially when dealing with old, traditional cultures like China and
India.

Define your target customer groups

Find out what are their needs, dreams, values and challenges
Work with the local natives to truly understand the cultural subtleties
Define and differentiate your sub brands and targeted MARKETING messages
accordingly.

2/6. Create a coherent story for your brand

It should be original and honest to yourself and it should answer these questions:

Why are you manufacturing your products?

What does it mean to own and use your product?
Why does one want to spend MONEY on your product and brand?
Why is it different from owning / using another brand's device?

3/6. Provide interactive hubs for your fans to interact with you
and with each other
When you have your most important fans and followers gathered in one place...

Keep them active and encourage them to participate in various activities motivate
by giving product prizes and samples, organize events, reveal new features...
Collect and continuously analyze user feedback, emerging trends and ideas.
Motivate further by crediting your fans and show how their effort has changed the
products for better.

4/6. Show a short path for interested ones to buy your products

Create a centralized web store for individuals and dealers.

Provide a clear and consistent access to your web store from every touch point you
have in the Internet. That helps you accurately monitor your sales and inventory and
adjust the production capacity accordingly.

5/6. Enable fun and easy customization

Empower your customers with effortless ways to perfectly match their device with their
identity whenever they will.

Act as customization items (e.g. digital themes or physical accessories) were music
something your users want to change often based on situation or feeling.
Make it easy to sort and find suitable alternatives in your store.
Use separate brands (not number codes) for series of accessories that share similar
style. That's especially important for big corporate brands whose main identity might
be too vague for individuals to identify with.

6/6. Adopt lean manufacturing model and fast iteration cycles

Ensure the safe supply of best components, keep your inventories small and
produce smaller batches.
Incrementally iterate product batches based on things you learn from interaction
with your fans and customers and regularly & predictively release upgraded
versions (both hardware and software).
Monitor your sales and reactions of your fans and continuously predict demand
for each product.
Respond by adjusting production capacity accordingly.

The Xiaomi Way

Xiaomi is a Chinese smartphone manufacturer. Recently it made a debut in Indian market
with an exclusive sales tie-up with Flipkart for its smartphone Mi 3. Also known as the
Apple of China, Xiaomi received an unprecedented consumer response in the Asian
markets, when it launched its new smartphone Xiaomi Mi3.

On Tuesday, July 22 2014, the first stock of Xiaomi Mi3 was completely sold in 39 minutes
as major technical issues sprang up amidst unexpectedly high traffic. Taking a lesson from
this website was improved for betterment of consumer experiences and the results were: On
July 29, 2014 the he entire inventory liquidated in just under 5 seconds and on August 5
2014, the entire lot of Xiaomi Mi3 went out of stocks in merely 2 seconds.
In view of the success achieved by this relatively unknown manufacturer, it is worthwhile to
analyze its and marketing strategy. The following attributes proved to be instrumental: The
Product: The company offers high end phones on exceptionally low costs. The Pricing: The
major earnings are expected to come from the sale of content and not the sale of the phone.
The product was sold near to its cost, making it quite cheaper in the market. To reduce
overhead costs the phone was sold via online platforms. Just-in-Time inventory management:
This technique is believed to keep costs down through less inventory holding costs, and
decreases the risks of overstocking. However, it has an additional benefit too. From a
consumer perspective, the limited availability of its products in batches has strongly driven
consumer fervor and inculcated built-up demand. Order placement: By only purchasing
components and manufacturing products after users have placed orders, Xiaomi also
eliminates having to manage surplus raw material, and drastically reduces holding/shipping
costs.
Promotions: Social media: Xiaomi not only broadcasted messages and announcements but by
actively engaging with their customers using social media. Engineers are routinely
encouraged to speak directly to consumers and use gathered feedback to refine software.
Dedicated fan base: Xiaomi has also succeeded in building a dedicated fan base. Those Mifans are very active in social media and were always present at Xiaomis product launches
,cheering and applauding. This enhances the trustworthiness among the prospective buyers.
Word of Mouth: The Flash sales created an sensation and was being talked everywhere. This
helped Xiaomi to amass popularity far and wide. Market Selection: For the present, Xiaomi
has abstained from entering into highly competitive North American and European markets.

Instead it has focused sharply on the South and South East Asian markets where its can derive
maximum benefits of its low priced handsets.

Xiaomi: Reinventing the Smartphone Business

Model in China
Abstract
The case discusses Beijing-based Chinese electronics company, Xiaomi Inc. (Xiaomi), and its
unconventional business model. Founded in April 2010 by Lei Jun (Jun), a serial entrepreneur
and investor, in association with his friend Bin Lin (Lin), a former Google and Microsoft
executive, Xiaomi was known to produce cheap smartphones with a nice build quality.
Xiaomi followed a unique business model where it sold its smartphones at cheap prices and
later took advantage of the revenue streams generated by selling its software such as apps,
cloud computing, and games. The company sold its smartphones at US$ 200 or US$ 300
whereas smartphones developed by Samsung Electronics Ltd.

Issues
The case is structured to achieve the following teaching objectives:

Evaluate Xiaomis unconventional and innovative online business model.

Understand the need to reinvent the business model of a company amidst rising

competition and changes in the business environment.

Understand the reasons for Xiaomis success in China.
Identify the challenges faced by Xiaomi and explore strategies that the company

might adopt to overcome these challenges.

Examine whether Xiaomi can increase its dominance in the Chinese smartphone

market and become a leading player in the Chinese smartphone market.

Examine the strategies Xiaomi should adopt to enter and make a mark in the emerging

markets it plans to enter.

Examine the challenges Xiaomi could face in gaining a presence in the intensely
competitive US smartphone market.

How Xiaomi wooed the best suppliers

The story
Chinese mobile phone maker Xiaomi Technology was founded in April 2010 by Lei Jun.
Listed by Forbes as one of Chinas wealthiest entrepreneurs, Mr Lei was already worth
$1.7bn, having co-founded three successful technology start-ups since the late 1990s. His
founding team at Xiaomi included former Chinese executives from Microsoft, Google and
Motorola.

The challenge

As a start-up entering an increasingly mature and competitive market, Xiaomi which means
little rice needed to attract top suppliers of critical components. But convincing such
suppliers of its credibility would not be easy because Xiaomi had no brand, no factory and no
record of sales, let alone profits.

Most large component suppliers were extremely loyal to existing customers and had tailored
their factories accordingly. Apple already sourced components from 90 of the top 100 global
suppliers and often invested in their factories to help them buy important machinery.
There was also a widespread perception that Chinese mobile phone companies simply
produced cheap imitations of Apple products. Some big suppliers had previously had bad
experiences with Chinese tech companies that bought a lot of components, manufactured
more handsets than they could sell, and went out of business.
Sure enough, Xiaomi was initially rejected by 85 of these top 100 global suppliers.

The strategy

Xiaomi undertook three strategies to bolster its credibility.

 First, some of Xiaomis top executives concentrated to the exclusion of other priorities on
securing component supplies. Mr Lei asked Lin Bin, who was in charge of daily operations,
to concentrate on supplier negotiations instead of product design. Over the next five months
Mr Lin spent 80 per cent of his time with potential suppliers, clocking up nearly 1,000
meetings and losing almost 20lbs in weight during this stressful period.
Second, Xiaomi took some apparently contrarian steps to show its commitment to potential
suppliers. Two weeks after the earthquake, tsunami and radiation leak that struck at
Fukushima in Japan in March 2011, Mr Lei, Mr Lin and another senior executive, Liu De,
flew to Japan with the intention of securing supplies of display panels from Sharp. Most
foreign visitors were fleeing the country, and the aircraft carrying the Xiaomi executives was
almost empty. The Sharp executives were pleased and touched by this demonstration of
interest, and negotiated nonstop with their Xiaomi counterparts from 8am until 11pm when
they were thrown out of the Starbucks where they were meeting in Osaka, where Sharp is
headquartered.
Third, Xiaomi emphasised to mobile chipmaker Qualcomm its unconventional business
model and in particular the Miui Android-based operating system it had developed for its
phones. Miui is highly customisable and allows hundreds of thousands of keen users to invent
new features. Every week, Xiaomi released a new version that it co-developed with leading
users, responding to their feedback via the internet and online user forums with the most
promising features included in the official release. This helped Xiaomi to keep research and
development spending low and to release a new version of Miui every week. By July 2011,
Miui had amassed 500,000 accounts with 300,000 active users. This vast, loyal user base
gave suppliers further confidence in Xiaomi.

The results

Xiaomis efforts paid off in early to mid-2011. Sharp agreed to supply LCD touchscreens
after the meeting in Japan, and Qualcomm decided to supply processors because it felt
Xiaomis open-innovation Miui system could be the next big thing. With vital supplies now
secured, Taiwans Foxconn, which also makes the iPhone, agreed to assemble the new
Xiaomi phones.
In August 2011, Xiaomi introduced its first smartphone, the MI-1, which sold out fast. The
company had revenues of $5.2bn in 2013, up from about $2bn in 2012, and in late 2013 was
selling more smartphones in China than Apple. Its product launches resemble rock concerts,
with devoted fans listening to Mr Leis detailed technical descriptions.
Xiaomis latest round of financing in August 2013 valued the company at $10bn, more than
Microsoft paid for Nokias handset business and matching the value of Lenovo, the worlds
largest PC maker. Investors so far include Singaporean sovereign wealth fund Temasek,
Qualcomm and Yuri Milner, founder of Russian investment firm DST.

The lessons

When facing a credibility gap and scepticism among potential suppliers, new companies must
move quickly and imaginatively. Xiaomi did so by shifting the focus of its senior executives,
taking contrarian steps and emphasising its different business model

Heres the secret behind Xiaomis

disruptive success - are you ready?

A high-resolution 5 inch LCD display manufactured by Sharp, 13MP and 8MP cameras made
by Sony, and a top-of-the-line eight-core Snapdragon processor by Qualcomm you'd be
forgiven if you thought these were specifications for Apples latest iPhone, or the newest
Galaxy smartphone from Samsung.
But theyre not.
Ive just described upstart Xiaomis latest flagship the Mi4, its newest disruptive entry into a
massively competitively global smartphone market yet another top-end offering from the
Chinese manufacturer going for just a fraction of what the latest iPhone or Galaxy will cost
you.
There are hundreds of articles charting Xiaomis meteoric rise, particularly from a marketing
perspective and its wildly successful usage of hunger marketing.
But unknown to most, perhaps the most fascinating element crucial to Xiaomis amazing
success is not its marketing (or lack thereof), but rather its wickedly smart, just-in-time
approach towards supply chain management, a radical departure from the traditional
inventory management techniques typically utilized by other major manufacturers in the
smartphone space.

'Those who cannot remember the past are

condemned to repeat it'
political context over a century ago, but learning from the painful past mistakes has always
been a key tenet of Xiaomi's founders which has helped it so greatly disrupt the global
Philosopher George Santayanas famous quote was originally made in a socio-smart phone
market in just a few short years.
To get real insight into Xiaomis unique ethos, one has to delve deep into founder, Chairman
and CEO Lei Juns past. A computer science graduate from the prestigious Wuhan University,
Lei would join Kingsoft, a young Beijing-based software company swiftly rising to CEO as
the company struggled to stay afloat (no surprise when your main competitors the global
juggernaut Microsoft).
Lei would eventually steer Kingsoft to profitability, exiting the company in 2007 due to
health issues after taking the company public on the Hong Kong Stock Exchange for a
market capitalization of USD400 million. This however, was largely based off its diversified
interests like online gaming, as opposed to its software suites.
While USD400 million was certainly no small sum to scoff at, it paled in comparison to the
massive internet empires (and corresponding personal profiles and reputations) built by
fellow Chinese tech superstars at the likes of Alibaba, Tencent and Baidu. This was taken
akin to a personal failure for Lei, and it would be the catalyst driving him to pursue the
success he felt his talent deserved.
Moving on from Kingsoft, Leis subsequent investment in Vancl, an online retailer which
nearly folded, would teach him another vitally important lesson. Poor inventory planning had

led to severe overstocking of its warehouses with goods that wouldnt sell, a mistake Lei
would never make again.

Planting the seeds of the smartphone

revolution
It was around this time in the late 2000s, when Lei would find himself increasingly fascinated
with the burgeoning smartphone craze. One thing led to another, and alongside Lin Bin (a
Google mobile executive at that time) and several other accomplished, like-minded veteran
technopreneuers, Xiaomi was born.
Taking pointers from his own experiences, and where the likes of industry players like Nokia
failed, Leis compelling vision of a smartphone company which moved, reacted and adapted
to market demands and conditions as fast as a tech startup found great favor amongst
investors, and ultimately as we would find out the public.
With a high-powered team assembled and substantial funding in the bag, securing buy-in
from component manufacturers was a crucial stumbling block the unknown Xiaomi had to
overcome. While initially rejected by 85 of 100 of the worlds top suppliers, through sheer
persistence and some unique strategies, this would be a challenge they would eventually ace.

A phone worth $300, selling for $300

XIaomis unique, wildly successful business model is one for the history books theyve
drastically cut down on the traditional costs associated with marketing and distributing, by

relying purely on the internet for sales. However, many still wonder how it manages to put
together such high-quality products at such low price points, which it claims to be just above
cost.
What Xiaomi has done, is to essentially eliminate the large 20 percent to 25 percent cut
retailers/distributors typically get, and pair that with the vision of earning profits from
accessories and web applications/services within its eco-system (MIUI) instead. Thats not to
say Xiaomi does not earn from its mobile phones at all, for it still certainly does (albeit at a
much lower margin).
But its this conscious decision to forgo greater margins from the phones itself, despite
sporting components coming mostly from the same exact original equipment manufacturers
(OEM) Apple or Samsung would use, that has allowed it to carve out such a substantial
market share in no time at all.
What has resulted is a succession of mobile phones that consumers love, which are absolutely
nothing like the cheap knock-offs that many traditionally associate China manufacturers with.
Xiaomi phones are top-of-class, full-featured products often containing components from
some of the top tech firms in the world such as Sony, Sharp and LG put together by the
same assembly factories used throughout the industry such as Foxconn.
Recently-released statistics for Q2 2014 have just reported that Xiaomi is now the top
smartphone vendor in China, overtaking the venerable Samsung and with their ambitious
expansion plans, the rest of the world had better watch out.

Just-in-time, with just-the-right-amount

From a consumer perspective, the limited availability of Xiaomi's products in batches has
strongly driven consumer fervor and inculcated built-up demand regardless of whether
this supply scarcity is legitimate, or one artificially implemented, precisely in a bid to build
up and drive that demand (a topic which has been widely debated online umpteen times).
From a supply chain management perspective however, Xiaomis Just-in-time inventory
holding technique has been a staple of its business model thats helped keep costs down by
lowering inventory holding costs, and decreasing risks of overstocking on products which
dont move (like Leis Vancl).
By only purchasing components and manufacturing products after users have placed their
orders, Xiaomi also eliminates having to manage surplus raw materials, and drastically
reduced holding/shipping costs (with as much as up to 80% less inventory in the warehouse)
by delivering finished phones almost as soon as they have rolled off the production line.
In addition to the limited production runs, Xiaomi has also brilliantly departed from
traditional mobile sales strategies to augment its razor-thin product profit margins, by selling
the same phones for a much longer period than the majority of its competitors.
For example, it might stick with a flagship product for 18 months instead of one every half a
year, giving it more flexibility with profits, better scope to sell accessories, and most
importantly to take advantage of economies of scale, when component and production costs
drop over time.
Xiaomis model was oft-mocked in the companys infancy, with naysayers arguing along the
if it isnt broke, dont fix it line. But even giants like Nokia and Motorola fell by the
wayside, trying to compete traditionally with todays leaders like Apple and Samsung.
Lei and teams vision has clearly paid off they spotted an opportunity to not just impact, but
greatly disrupt the worldwide smartphone market through the ground-up rethink and
implementation of a business model never before tried in this industry.
One things for certain now, nobody is doubting Xiaomi anymore.

A Mi in every business
No two businesses are ever perfectly alike, and a bevy of stars certainly aligned for Xiaomi to
achieve the success it has today. But there would certainly be lessons applicable from
Xiaomis story for just about any company.
These would include their famed hunger marketing tactics (already a well-known case study
in itself), as well as that unwavering belief in a compelling vision which radically departed
from the norm - not an easy task at all when everyone else was trying to knock them down.

Inventory however, will always remain the biggest asset and lifeblood of any retail business,
and putting in place effective inventory holding and stock management techniques will give
you a good jump-start on the path to success.

The most important lesson to take home would thus perhaps be the one Lei learnt from Vancl,
and which he absolutely nailed the second time around with Xiaomi the importance of
finding, understanding and implementing the right inventory holding technique to suit the
needs of your business.
Lei understood that inventory management can literally make or break a business, and
structured Xiaomis entire business operations around the Just-in-time inventory holding
technique to minimize logistics and holding costs, while giving the company the best
opportunities to reap enormous long-term success and profits.
The answer for your business might not be Just-in-time, but perhaps an alternative
technique such asdrop shipping (sellers on eBay, Amazon etc), consignment, or even crossdocking (Walmart). But whatever the right answer is, Xiaomis remarkable success story has
highlighted how crucial a decision that is, and the massive impact it has on your business as a
whole.
And thats something we can all definitely learn from for the little Chinese startup that
could is now a rapidly-growing powerhouse conquering one market at a time, well on the
path to global domination.

Xiaomi Inc.: The world's fourth largest

smartphone company the West has never heard
of
In January 2015, Chinese company Xiaomi Inc. announced it had tripled its smartphone
sales to 61m handsets sold while more than doubling its revenues to $12.1bn over its 2013
results. In December 2014, the company became the world's most valuable technology startup company after another round of funding, shortly after it was revealed it had become the
world's fourth largest smartphone seller.

Features and benefits

Provides a profile and analysis of Xiaomi's enigmatic CEO and founder Lei Jun.
Details Xiaomi's beginnings and its early success.
Focusing on Xiaomi's smartphone business, provdes a detailed analysis of its sales
performance in its home market of China.
Analyzes Xiaomi's unique business model, and looks at why it has been so successful
selling almost exclusively through online channels.
Covers Xiaomi's entry into India, assessing how well it has performed thus far.

Highlights
The world's fourth largest smartphone maker, and the world's most valuable tech start-up
company, Xiaomi is also China's third largest e-commerce company. Selling 61m
smartphones in 2014, the company has set itself a target of 100m devices sold for 2015.
Xiaomi markets itself as a software company first and a hardware company second. It sells
its phones at close to cost in order to get as many devices into as many hands as possible in
order to expose the maximum number of customers possible to its e-commerce ecosystem.
Operating in China, Hong Kong and Taiwan, Xiaomi expanded into India, Singapore,
Malaysia, Philippines and Indonesia in 2014, with plans to expand into Thailand, Turkey,
Brazil, Mexico and Russia in 2015.

Your key questions answered

What is Xiaomi, and why has it become so successful?

Why is Xiaomi referred to as "the Apple of China," and why is this not strictly
correct?
What makes Xiaomi's business model so unique, and why does it more closely
resemble Amazon over Apple?
How well has its expansion into India gone?

Xiaomi's Growth Strategy Detailed

Posted by Sameer Singh | 9 Sep 2013 -- 15:00 |

TheNextWeb just published a very interesting interview of Xiaomi's co-founder and

president, Bin Lin. His comments are consistent with my thoughts about Xiaomi's business
model and inherent strengths. Let's take a look at a few of his quotes and what they tell us
about the future of this company.

Building "Word of Mouth" Through Loyal Early

Adopters
Most of the product features that people are feeling are really the software and the services.
Users like the software, they like the experience, they like how they get onto the Internet and
browse the Web, how they download the APKs. They play games that run really smooth, they

take pictures great images We have to do a great job building a great product (software)
before any of the other things can work.
We are the only company who does that: being super open and embracing user feedback and
upgrading (our software) every week. We are the only company; no others.
Thats exactly the reason why we have built a group of fans that are super loyal to us. They
dont get any reward by giving us feedback and trying things. I think the sense of ownership
and a sense of being part of the effort to improve the system, improve the handset, make them
feel being respected and make them feel being part of it.
So its the sense of participation that will get them involved into the discussions, and by
nature thats also the reason they become a big fan of us.
In my previous post, I showed that Xiaomi users are about twice as engaged as other
iPhone/Android users. This is primarily driven by the fact that Xiaomi users belong to a
favorable demographic, i.e. early technology adopters. These users also tend to be extremely
vocal about their product choices and as a result, word-of-mouth has become a very strong
marketing channel for Xiaomi.
I also see somewhat of a parallel with Dell in the late 90s - Dell had realized that hardware
quality had reached market expectations, but the retail interface and customization options
were still limited. This is what Dell sought out to fix with its online model. Motorola has
been moving in the same direction with the Moto X. But Xiaomi has taken this concept a step
further, as it has allowed users to provide actionable feedback or essentially "customize" the
software itself.

Current International Presence

We actually have hundreds of thousands of phones in the States. We couldnt sell to the States
because of logistics shipping only allows shipping to China cities but somehow through
analysis, we figured out that there are hundreds of thousands of phones in the US.
Few people know that Xiaomi already has an international presence - both via devices and
the MIUI firmware that is distributed online for free. On a smaller scale, this suggests that
Xiaomi's model does have international appeal.
Also, it seems as though Xiaomi phones are just slightly outnumbered by Windows Phone
devices in the US. This quite surprising as Windows Phone devices have received fairly
strong marketing support from AT&T, Nokia & Microsoft, while Xiaomi hasn't even
attempted to market to US consumers.

Segmentation by Regional Preferences

Different regions, different countries consumers will have different needs. (We need to)
understand what these consumers want when it comes to software design, and even some of
the hardware design and some of the Internet services that we provide, and we have to do a
great job adapting to international users before we can actually sell it.
So thats why we need Hugo, with really in-depth product experience. Hes one of the best
persons in the world able to do this.
To me, this was the single most important comment from Bin Lin's interview. Xiaomi's longterm strategy will be to customize their software & services based on regional preferences.
Combined with their use of consumer feedback and services-focused model, this presents an
asymmetric attack on leading smartphone companies that will be difficult to defend against.
However, this will also be challenging to implement as Xiaomi continues to expand.

Will Xiaomi Need to Fork Android to Achieve

Localization?
The biggest worry for Android is the fragmentation. That people will take a branch of
Android, fork it off, make a bunch of changes and then never go back. So as Android evolves,
then you have a branch of Android that also evolves, and it becomes so distinctly different
then apps built for this Android version doesnt work on the other version of Android. Thats
what concerns Google.
But MIUI phone since day one, weve never done that. We make a system that always
follows Android updates closely and for many occasions, we have upgraded together with
Androids updates.
Since customization is at the core of Xiaomi's value proposition, some may think that they
would be tempted to "fork" the Android operating system. However, Xiaomi seems to realize
that the path to international success hinges on full compatibility with applications (and by
extension, Google services like Play). In fact, compatibility and quick firmware updates are
some of the key reasons behind Xiaomi's appeal to the vocal, early adopter community. And
by extension, customer loyalty and word-of-mouth marketing are some of the primary reason
behind their rapid ascent.

Xiaomi's Business Model

We think of hardware as just a platform to run services. We dont look to make money on the
hardware, we are looking at users who have bought the hardware, then started to use our
services Its the services that eventually bring in revenue.
Most of the product features that people are feeling are really the software and the services.
Users like the software, they like the experience, they like how they get onto the Internet and
browse the Web, how they download the APKs. They play games that run really smooth, they
take pictures great images We have to do a great job building a great product (software)
before any of the other things can work.
Their services-focused business model certainly seems to be working. In just 3 years, Xiaomi
has joined the (extremely) short list of profitable smartphone OEMs. I think the following
chart complements this quote perfectly:

I have always harped on the fact that high hardware profit margins are not a sustainable trend,
even for industry giants like Apple & Samsung. Over the next few years, the companies that
succeed in the mobile industry will not be those that follow an integrated approach to
hardware & software, but rather those that have the capabilities to leverage dominant
platforms to deliver and monetize over-the-top (OTT) services. Xiaomi looks like the
ideal case study for studying the effectiveness of that strategy.