Xiaomi's Ambition - Stratechery by Ben Thompson
Jay Liew stashed this in Internet of Things
I thought Xiaomi was a smartphone company but apparently it's more like Google or Apple.
There’s come to be a bit of a cliché when it comes to writing about Xiaomi. The author declares that Xiaomi is known as the “Apple of China”, but actually, said author explains, they’re something very different: more like Amazon, or maybe a bit of Google, to use the words of Xiaomi CEO Lei Jun. They sell smartphones at cost, or close to it, and will make money through services.
The trouble with a lot of this commentary surrounding Xiaomi comes in determining exactly what those “services” are. The easy assumption are traditional Internet services like those offered by Google, including an app store, online portals, so on and so forth. That, though, hardly validates a $45 billion valuation, particularly when most of the money to be made on mobile services in China is being vacuumed up by Tencent through their dominant WeChat app, with Baidu (search), Alibaba (e-commerce), Apple (the App Store), and the various Chinese App Stores’ capturing the rest (Xiaomi has their own app store, but it’s only the 5th most popular).
Instead, the way to understand Xiaomi and why exactly they are so valuable is to more deeply understand what Lei Jun means by “services”, and, in the end, why Xiaomi actually is a lot like Apple after all.
Xiaomi is arguably the world's first Internet of Things company.
The key to understanding Xiaomi: they’re not so much selling smartphones as they are selling a lifestyle, and the key to that lifestyle is MiUI, Xiaomi’s software layer that ties all of these things together.
In fact, you could argue that Xiaomi is actually the first “Internet of Things” company: unlike Google (Nest), Apple (HomeKit), or even Samsung (SmartThings), all of whom are offering some sort of open SDK to tie everything together (a necessity given that most of their customers already have appliances that won’t be replaced anytime soon) Xiaomi is integrating everything itself and selling everything one needs on Mi.com to a fan base primed to outfit their homes for the very first time. It’s absolutely a vertical strategy – the company is like Apple after all – it’s just that the product offering is far broader than anything even Gene Munster could imagine.
The services Lei Jun talks about – MiUI and Mi.com especially – sell the products and tie them all together, but they are all Xiaomi products in the end.
And, of course, that fan base is concentrated in the most populous country in the world.
This strategy also explains Xiaomi’s international expansion strategy: India – the world’s 2nd largest population – is already well underway, and Indonesia – the 4th largest – just kicked off. Brazil (5th) is coming soon. True, the United States (3rd) isn’t coming any time soon, but why bother? Apple has the fans, everyone has appliances, and yes, there is a bit of an IP problem.