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Xiaomi Handset – Chinese Apple?

|Includes: Apple Inc. (AAPL)


What is Xiaomi Handset?
Xiaomi Handset is a dual-core 1.5G smartphone which will be launched in October by Xiaomi Corporation, a venture company with $41 million and 249 employees based in China.

A Crazy Idea?
Leijun, the founder and CEO of Xiaomi Corporation, claimed at the new product release conference in August that Xiaomi was a fans-oriented handset and targeted at becoming Chinese Apple.

Vision of Xiaomi
l         The growth of ‘cloud’ applications and services is much faster than that of handsets
l         The progress of handset in aspect of convenience, friendliness, and localization is far behind technology.
l         Young people direct the future and fashion but their attention and concern are ignored by the mainstream society.
l         Apple is God but Chinese need Chinese God.
Strategy of Xiaomi
Product Strategy: Firstly, Xiaomi use best components to be a best handset. It was said that over 90% of all suppliers numbered over 100 of Xiaomi are the completely same as of Apple. Secondly, internet development mode is introduced to handset development. The software version is updated and released every week. Thirdly, the design of some functions is determined by the vote of xiaomi fans. Fourthly, MIUI, the OS of Xiaomi, derived from the customization and optimization of Android 2.3. Fifthly, the match of internet applications and handsets is targeted at perfectness. MiLiao, Xiaomi’s handset IM software, which functions as WhatsApp at APP store and had attracted over 3 million users within half a year since launch by July 2011, will be deeply integrated into handset OS and hardware.
Pricing strategy: Xiaomi with 1.5G dual-core Qualcomm MSM8260 processor, 1G memory, 1930 mAh battery, 4-inch screen and 8-mega-pixel camera, is priced at only RMB1999 (approximately $312) , far below the expectation of most people. The estimated profit margin is very poor or even negative if quality accidents happen. In contrast to Apple, Xiaomi does not pursue handset profits. Instead, best reputation and enormous customer base are what Xiaomi really concern.
Promotion Strategy: Firstly, Xiaomi targets at the circle of fans which comprise 3 million MiLiao fans and 500,000 Xiaomi handset fans. Secondly, only 10,000 units will be sold in October for the first time and hence only lucky registered Xiaomi fans are qualified to get one. Obviously hunger marketing is employed.
Distribution Strategy: Electronic Commerce is expected to be the main means, catering to the habit of young people while saving big deal of money for channel distribution. Telecom carrier distribution is alternative.

Management Team of Xiaomi
Seven co-founders come from very famous IT companies. Leijun, the former president of Kingsoft and, is CEO and board directors. Linbin, the former vice president of Google China China Engineering Academy, is the president. Liwanqiang, the former vice president of Kingsoft, and Huangjiangji, the former director of ‎Microsoft China Academy of Engineering, are responsible for MIUI. Hongfeng, the former senior product manager of Google China, and Huangjiangji are responsible for MiLiao. Zhouguangping, the former senior director of Motorola China R&D Center, and Liude, the former founder of Industry Design Department of University of Science & Technology Beijing, and Liwanqiang are responsible for Xiaomi handset.

A Bright Future?
Firstly, the vision of Xiaomi is wonderful. In fact, the handset industry chain of China is best in the world and capable of producing world-class companies. As commoditization approaches, those companies which can seek differentiations by hearing the voice of young people and fashion and seamlessly integrating it into handset design will be Chinese Nike.
Secondly, lots of highlights can be observed from four strategies. As a result, I accessed the forum of Xiaomi and surprisingly found that it was very hot and frequently refreshed by countless fans. Some fans said although they were high school student and did not afford to buy Xiaomi, they decided to earn money by themselves during summer vacation. Some said they were very nervous, worrying that they were not lucky enough to get one. Some regarded Xiaomi as their favorites and did not tolerate any criticism on it. This reminded me of the hot scene of the singing contest ‘Voice of Super Girl’ which achieved unparalleled success by adapting game rules to young people.
Any Dangers Ahead?
Firstly, users pay none for most internet applications but have to pay RMB1999 for Xiaomi. As a result, users can tolerate the demerits and frequent update of internet services but cannot stand handset problems.
Secondly, supply chain management is crucial to handset business. If Xiaomi’s shipments exceed 1 million or even 10 million, Xiaomi will undergo great challenge.
Thirdly, the development mode of frequent version update is doubted. It may bring about unreliability.
Lastly, inadequate repair service is risky.

l         Once Xiaomi handset is indeed popular with its fans when launched in October, it would achieve half of success. After that, if Xiaomi could tackle potential problems ahead(although the probability of failure is considerable), it can really produce great product.
l         Apart from Xiaomi’s aggressive solution mode, the mode of SP + handset such as Alibaba + K-touch is working. In spite of the immaturity of the mode of latter, it represents the trend of the industry. Therefore, Xiaomi ought to seize the opportunity window of around 3 years and make its enclosed ecosystem large as soon as possible. Afterwards, it could consider transforming into open ecosystem but controlling some key elements such as handset OS and cloud platform.
l         If Xiaomi failed, it would definitely contribute a lot to the growth of overall Chinese handset industry. It would enlighten Chinese handset makers on the concern about convenience, friendliness, localization, and fashion. More and more Chinese handset makers would walk along the path of Xiaomi and some of them are likely to be Chinese Nike.  

PS: All contents including visions and strategies of Xiaomi are analyzed and summarized from my perspective. The Xiaomi corporation does not claim them or touch only part of them.