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What is, “Xiaomi”, and why should we care?

Posted on 30/08/2013 by David Petrik

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On Wednesday, it was announced that Google would be losing one of its key players on their Android team, Hugo Barra, to a relatively unknown Chinese mobile phone manufacturer. There are no facts on why Barra has decided to make the move, but it has been speculated there was some drama that pushed him to move. Barra will make the move to Xiaomi as the Vice President of Xiaomi Global. The New York Times has dubbed Xiaomi the “Apple of the East”, although many people in the west wouldn’t know it.

Xiaomi has been operating for about the last three and a half years and has an estimated 2,400 employees with an annual revenue of $2 billion USD with sales only in Hong Kong, Taiwan and China. With Xiaomi limited sales are, the chinese born company still managed to sell 7 million devices in 2012 and that number is expected to double in 2013. These numbers may seem insignificant when comparing them to companies like Nokia or Samsung, but it does show rapid growth in a limited area for such a young company.

What makes Xiaomi a unique player in comparison to its other rival Chinese brands, and makes it somewhat comparable to the likes of Apple, is that they do not focus on the low-end market. Instead they make and sell high-end devices that are affordable. With this strategy they have learned their key audience, which are students and geeks. CEO, Lei Jun, spoke to The New York Times in an interview and had this to say, “We’re not just some cheap Chinese company making a cheap phone. We’re going to be a Fortune 500 company.”

Instead of focusing on hardware profits to grow the company, Lin has said that Xiaomi is more concerned with offering services to customers as a way to make money. “The future of mobile internet is really about services” he says. That doesn’t sound too different from Google’s approach of offering competitive products at a low cost or for free and then making money back on advertising. Given that Lin worked at Google before leaving to start Xiaomi, that shouldn’t come as much of a surprise. It could also be a good reason why Barra felt like Xiaomi would be the right place to go when leaving Google.

Some of the issues that the company has faced thus far can be described as uniquely Chinese. Bin says that the company routinely sells out batches of 300,000 phones at a time through direct sales to consumers on its website. Recognizing this high demand, counterfeiters and pirates have swooped in to capitalize on it and sell lower-quality products under the auspices of the Xiaomi brand, tarnishing its reputation and providing poor experiences to customers. Lin says that it is working on increasing production to meet demand and working with the Chinese government to crack down on the piracy issue.

If Barra is going to bring Xiaomi out of the Far East, break in to global markets, and make it a Fortune 500 company, piracy will likely be the least of his concerns. While Xiaomi has had great success in China selling unsubsidized phones directly to consumers via its website, western markets are still largely driven by in-store sales and on-contract, subsidized devices. Carrier relationships are also a huge deal in the US and Canada, something that Xiaomi can more or less ignore in China. In Hong Kong and Taiwan, the smartphone climate is much closer to the West’s subsidy-dominated model than Mainland China’s.

Lin knows Barra from his time spent at Google, and the two have worked closely since Xiaomi launched its first phone in 2011. Lin hopes that Barra will be able to help the company expand into new markets as soon as this year.

Source: The Verge