Is Xiaomi the Next Big thing?

[Nick Kaufman]

This past couple of weeks I came across a slew of articles about a phone company I hadn't heard before, Xiaomi. It's a chinese company and normally, as soon as I hear that piece of information I get a snobbish and turn around determined not to hear anything more about it. But this one looks different, as it looks to have managed the unique feat of combining high specs, high quality and low prices. Without fanfare it seems to have become the third largest cell phone company in the world just by taking a big chunk of the chinese market. So far they don't sell in the US, although you can find devices on ebay - and apparently gps data say a million of them have found their way in the market anyway.
 
Here's a part of the Bloomberg article I just came across:
 

 
 
Xiaomi's flagship phone, the Mi4, sells for a minimum of $327. Its specifications are largely the same as, say, the Samsung Galaxy S5, which costs at least $150 more. The Chinese maker doesn't skimp on component quality to drive down the price: It uses the same Sony battery and optical sensors, Qualcomm processor, Wi-Fi and audio chip, Samsung RAM chip and parts as other premium smartphones. Xiaomi phones don't look or feel cheap, though their design is minimalistic. The Mi interface, with its highly intuitive, native-feeling and iOS-like Android flavor, is an improvement on Google's version of the operating system and doesn't suffer from the bloatware inflicted on users by other phone manufacturers.
 

 

 
The company is spending very little on conventional marketing. Instead, it provides forums and communicates with users on social networks. In 2013, it only spent 3.2 percent of revenue on sales and marketing. Apple's sales and marketing efforts consume twice as big a share of revenue, which is 40 times greater than Xiaomi's. Samsung's selling and marketing expenses account for 16.3 percent of sales.

Even though it saves on everything except quality parts, Xiaomi still has a gross margin only half as high as Apple's or Samsung's. It did, however, make a net profit of $566 million last year, 12.8 percent of revenue. That's high: Samsung's net profit last year was 13.3 percent of revenue.

That may explain why Xiaomi is attempting to attract its latest round of financing at a higher valuation relative to sales than Apple commands. The Chinese company may be more valuable than any other mobile phone manufacturer because its business model is a killer app. Xiaomi founder Lei Jun described it this way:

    When I was with Kingsoft, I had the opportunity to work with Nokia and Motorola, 2 mobile phone giants of their time. One day, I pointed out to their R&D boss, some inadequacies. After that, they merely acknowledged my input, but never acted upon what I had said. So I thought to myself, if I make a phone, you can tell me anything you wish for it or what's wrong. If it is justifiable, we will work on it immediately. I'll give you an update every week and you may even see your wishes come true within a week.

In this era of marketing-driven business, "build it and they will come" isn't a popular approach. It is effective, however. When Xiaomi phones become more readily available in Europe and the U.S., there will be no reason to pay more for competing products whose specifications and build quality are practically the same.
 

 
http://www.bloombergview.com/articles/2014-11-06/xiaomi-s-killer-app-its-business-model

 

[Curll]

Actually ran into someone who had one of these the other week. We all looked at him cock-eyed when he said it was the same parts as a Samsung, but much cheaper. Chinese and cheaper usually means low quality knock-off. But, he was quite insistent. 
 
He loved it, but I didn't quite catch the name of it. Thanks for the link

 

[Nick Kaufman]

Here's the link to their webpage.
 
http://www.mi.com/sg/mi3/
 
I mean it has to be said that their whole design is an apple knock off. I now see they have a MI pad which also has a retina display and a 4:3 resolution..
 
http://www.youtube.com/watch?v=oLsGGjP02_U

 

[Manramsclan]

Here's the link to their webpage.
 
http://www.mi.com/sg/mi3/
 
I mean it has to be said that their whole design is an apple knock off. I now see they have a MI pad which also has a retina display and a 4:3 resolution..
 
http://www.youtube.com/watch?v=oLsGGjP02_U

 
If they can do it better and cheaper, then isn't that better for all of us?

 

[SumnerH]

Here's the link to their webpage.
 
http://www.mi.com/sg/mi3/
 
I mean it has to be said that their whole design is an apple knock off. I now see they have a MI pad which also has a retina display and a 4:3 resolution..
 
http://www.youtube.com/watch?v=oLsGGjP02_U

The tech specs look like a straight up Nexus 9 knock off: 6700 mh battery, 4:3 display @2048 x 1536.
 
The physical design looks like Apple, down to the bevel around the screen.

 

[singaporesoxfan]

Xiaomi is already the world's 3rd largest phone maker and that's without any effort to come to America.

Even their accessories are well made and affordable - my wife bought a pair of Xiaomi earphones and raves about their quality.

 

[Blacken]

Xiaomi's build quality on their phones is really good. I throw shade on the shitty design (seriously, if I want an iPhone, I'll buy an iPhone) and their Android mods largely suck, but they sell unlocked phones so flashing them is really easy.

 

[Caspir]

I had no idea the founder worked at Kingsoft. I love their office product. My buddy has one of these phones and he swears its the best he's ever owned. I'm starting to see them on the T a bit more when I'm riding into work in the morning, and a FB friend got to review one and said it was fantastic overall. It'll be interesting to see if they can make some headway with Americans over the next few years.

 

[wade boggs chicken dinner]

What do you mean by big?

A poster named JohnnyK has one (he mentioned it in this thread - http://sonsofsamhorn.net/topic/85579-my-next-smartphone-will-be/page-2) but he lives in Austria. I think Xiaomi doesn't work on all US networks and my guess is that they have no interest in coming to US in large numbers and face a copyright infringement lawsuit from Apple.

As you mention, they don't spend a lot on marketing. I would also assume they don't spend a ton of money on R&D. They also price their phone just above the total component cost (unlike Apple, for one) and rely on selling a lot of them over a two-year period to juice up their margins (component costs go down) so they don't do a ton of product refreshes. Obviously this works okay for a new company that has a lot of buzz, but I wonder how sustainable it is.

Here's an interesting article on their business model: https://hbr.org/2014/10/xiaomi-not-apple-is-changing-the-smartphone-industry/.

 

[singaporesoxfan]

Xiaomi is already the 4th largest (forgot that Lenovo and Motorola merged to be #3) smartphone maker in the world - bigger than HTC and LG, and thought to be a big reason for Samsung's declining market share. To me, that means it's already become a big thing even before coming into the U.S. - it's not a brand new company. Whether or not their phones will succeed in the U.S. market is another question.

 

[behindthepen]

http://www.bloomberg.com/news/2014-11-04/is-xiaomi-really-worth-50-billion-.html
 
http://online.wsj.com/articles/smartphone-maker-xiaomis-2013-profit-nearly-doubled-1415195999
 
It's still a pretty tight model, not making much in profit, but the growth is definitely there.  It will be interesting to see if any US carriers embrace them as an alternative to Apple.

 

[NortheasternPJ]

Xiaomi is already the 4th largest (forgot that Lenovo and Motorola merged to be #3) smartphone maker in the world - bigger than HTC and LG, and thought to be a big reason for Samsung's declining market share. To me, that means it's already become a big thing even before coming into the U.S. - it's not a brand new company. Whether or not their phones will succeed in the U.S. market is another question.

 
As stated up thread, I'm assuming they haven't entered the US due to Apple. Their whole game is an Apple knockoff that even Samsung would be ashamed of.  Not saying they'd be barred from selling the US but Apple would launch a very expensive legal attack and I'm not sure they have an interest in that.
 
That' being said Lenovo just launched it's iPhone clone and even cloned the images for ads, so who knows anymore
 

 

 

[singaporesoxfan]

I wonder if Apple would fear retaliation from Chinese authorities on their production there if they took action against Xiaomi.

 

[Nick Kaufman]

The tech specs look like a straight up Nexus 9 knock off: 6700 mh battery, 4:3 display @2048 x 1536.

 

The physical design looks like Apple, down to the bevel around the screen.
 

 
The Nexus 9 has an 8.9'' screen size, this is 7.9''... just like the Apple mini with retina.

I do want to note though that this tablet weighs 360 grams or so which is more than the 331 that the ipad mini weighs and even more than the 311 that the original mini weighs. May be for most people this doesn't matter, but I had the original ipad mini and bought the second version a couple of weeks ago and to my surprise I found that the additional 30 grams of the cell model were enough to make feel a bit uncomfortable while holding it.
 

 
Xiaomi's build quality on their phones is really good. I throw shade on the shitty design (seriously, if I want an iPhone, I'll buy an iPhone) and their Android mods largely suck, but they sell unlocked phones so flashing them is really easy.
 

 
What if you want an iphone with an android OS? That's what Xiaomi offers. In general, those devices seem more elegant than most android devices save for HTC One.

OTOH, the fact that Xiaomi's devices are such blatant Apple knockoffs exposes the fact that apple devices is to some extent a positional good. In other words, to some unknown and unconscious extent, you re paying extra not only for the phone itself, but in order to show that you can afford an overpriced phone. Conversely, buying a Xiaomi may signal that you are a pretender, a fact that perhaps may not put a dent on sales, but may attach a certain social stigma.

 

[Blacken]

What if you want an iphone with an android OS?

Then I suggest counseling. Possibly shock therapy. Failing that, a good stick to the side of the head.

(And I mean, I use a Moto X on a daily basis. But why buy something that sort of looks like the real deal? So you can profile for people?)

 

[Nick Kaufman]

I can think of a million reasons. May be you want a phone with an sd card slot, which Apple shows no inclination of adding in its devices. Or an FM radio app. Or a niche app that's better on the android OS. Or a device with a different size than the one Apple offers. The Mi4's screen is 5 inches big and was released before iphone 6 for example. Personally, I am looking a small screened size phone with large storage capacity; the iphone 5s with 32gb doesn't cut it for me. And so on and so on.