Editor's note: This is the second installment of the analysis on Xiaomi, China's smartphone company. The story follows the part one of this series entitled Exclusive: Xiaomi Unboxed.
BEIJING, China — Xiaomi, China's smartphone company, dove into the consumer electronics market at a just about the same moment that everybody else in the industry gave up on the box business. Xiaomi, if successful, will prove them wrong.
So far, though, even for Xiaomi, the box business hasn't exactly been a cakewalk. The Chinese company had to scramble for a modicum of cooperation from parts and components suppliers.
Then, when it finally cobbled together its first smartphone, Xiaomi went six months without second-source suppliers, acknowledged Bin Lin, Xiaomi's co-founder and president during an interview with EE Times. The failure by even a single supplier to deliver parts could have dealt the startup a fatal blow. "It's been a rollercoaster ride," said Bin.
After surviving that tightrope act, Xiaomi's continued success hinges on two factors: its successful entry into markets outside China and its relationship with Google.
So far, Xiaomi has taken its products to Hong Kong (well, it is after all a part of China), Taiwan and Singapore. Other foreign markets Xiaomi has targeted include India, Malaysia, a few more Asian countries, and perhaps even Italy (where 50% of mobile users are used to shelling out for their own phones), said Lin.
Xiaomi's overseas foray is likely limited to countries "where consumers are willing to pay for their own phones" rather than getting handsets bundled with carriers' service, Lin explained. The United States, with a mobile market that is tightly controlled by operators, is a tough nut to crack.
Then, there's the Google factor. Lin worries that Google might be "tightening up its ecosystem" by limiting its collaborators. Lin sees Lenovo's purchase of Motorola Mobility from Google as a good thing, since it would make support and code-sharing among Android handset vendors fair. But Lin appears to sense some changes in the offing. "Of course, I'm hoping it won't happen."
While Xiaomi's software maintains 100% compatibility with Android, Xiaomi's MIUI, an improved user interface, is designed to extend features of Android. There's no assurance that Google won't see Xiaomi as its rival -- in the future.
The reception hall at Xiaomi's Beijing Head Office.
(Source: EE Times/Junko Yoshida)
Mobile Internet company
Xiaomi fastidiously avoids labeling itself a CE vendor. Instead, it's a "Mobile Internet company." As Lin told us, "Jun Lei [the company's founder and CEO] and I have always understood the significance of the mobile Internet."
He explained, "Instead of delivering books on bikes to stores, books are now sold online." The convenience of e-commerce is undisputedly proven.
Lin added, "For a startup like ours… this [e-commerce] is the only way to do business. By focusing on marketing on the Internet, we can cut back all the overhead and deliver cost benefits to consumers." Much like Google, Xiaomi sees its mission as making money by delivering services, not selling hardware.
The success of Xiaomi is often attributed to the company's sharp focus on marketing hype and brand promotion. It's also often said that the company outsources -- entirely -- its design, development and manufacturing work to contract vendors.
That isn't true.
Xiaomi doesn't rely on ODMs. Xiaomi's engineering team, armed with deep technical knowledge, is capable of hand picking the PCBs, LCDs, power management ICs, modems, apps processors, image sensors, camera modules, and other components it wants for its phones.