Xiaomi’s Formula For Success

- 16 minutes -

David Rowan did an extensive profile for WIRED UK on Xiaomi and its CEO, Lei Jun, a month ago that I only caught up with now. To me, this is the definitive article to read to have a complete understanding of this interesting company, its motives, and its philosophies.

Speaking of which, what really surprised me was that Xiaomi’s philosophies are quite numerous - you’d think they would be mutually exclusive if they weren’t being referred back to one company - but one philosophy seems to encompass everything else that I’d like to top this post with as context:

 

" “Our motto,” [Lei Jun] continues, “is: Less is more. By focusing on making a small number of products, we can be the best at what we do. But when less is more, it means you need other companies to help you do more things. Therefore, we invest in other companies and form an ecosystem to create more products.” "

 

I’m still trying to wrap my head around what they mean here. Investing in, effectively hiring, other companies and having a hand in their work (they “give feedback, help iterate the design, make intros to supply partners, offer sales channels…”) sounds antithetic to their motto.

 

"But why not acquire the talent to build the products in-house? “Small companies move much faster than we could,” Liu explains. “You have to stay nimble and adapt to change very fast. This is entirely different from a company having different departments to produce various products. AT&T, for example, was leading for 70 years but was succeeded by IBM; 20 years later, IBM was overtaken by Microsoft. Ten years later, Google overtook Microsoft; and in four years Facebook grew up.” "

 

Technology is notoriously volatile - they’re right in thinking that the company must be moving quickly. But I can’t help but think that they have a rabid hunger for growth. Reading the article, you’ll be impressed by the number and range of products Xiaomi’s helping develop.

One of those products is the Ninebot Mini, an iteration upon what we know as the hoverboard. (You would’ve noticed Xiaomi VP Hugo Barra strolling along in one of these things in a video I linked to before.)

Here’s a short review of the Ninebot Mini by YouTuber TechFlow :

It’s impressive enough that it comes with a smartphone app, which can be used as a speedometer, but Ninebot Mini also has a beginner’s mode, limiting the top speed to 5 mph, which can be disabled by going through the training modules in the app. The product is designed to use limitations to improve the overall experience, not unlike Apple.

I think a product like this could be characteristic of the vast and growing portfolio of products that Xiaomi as whole wants to create, as opposed to what we usually associate with products made in China. Throughout the post, Lei Jun makes clear their continual mission to debunk the myth that Chinese companies can only copy and can’t innovate - with the products they’re developing and shipping at the pace they’ve set, it’s easy to see that mission manifest itself.

Liu De, Xiaomi’s “head of ecosystem products”, explains how this ties in with the sustainability of their business:

 

"Traditional companies are like a tree, taking time to grow - but when they fall, they fall fast. Xiaomi's approach is more of a bamboo forest: have you ever seen a bamboo forest die off? No, new baby bamboo is always growing fast to replenish it. By investing in these portfolio companies, we're creating our own baby bamboo. We're building an ecosystem like a bamboo forest."

 

They’re in it for the long haul, but again, to accomplish so much and achieve so much scale in just five years is a little unsettling. (Reading the article, you’ll notice Rowan drop impressive statistics involving record sell-outs and millions of devices sold.)

It all makes me wonder if they’re growing too quickly. Granted, a lot of the work is outsourced, but I wonder where they’re taking the company in the next five years, and the five years after that. Western companies, even relatively diversified players in Silicon Valley like Alphabet and Facebook, are comparatively easy to read and have a roadmap that makes it easy to anticipate what might be coming in the distant future.

That can’t be said for Xiaomi. The only word I can muster that could possibly define their roadmap is “scale”, which might not be the best thing to aim for during the company’s later years.

 

“People think we're a smartphone company - we're actually an internet company.”

One of the main questions I wanted answered when I linked to Hugo Barra’s interview a few weeks ago was what he meant by Xiaomi monetising software and being an “internet company”. I saw that pop out quite a lot in this article.

It seems to come down to a way of thought they call “internet thinking”, which I think isn’t a just single approach, but rather different approaches in different contexts.

Here’s how internet thinking is applied to hardware:

 

" “The internet of things will be even more significant than smartphones and mobile internet,” Liu says. “Wearables, watches, scales, home appliances will be connected, and your smartphone will be the connector... The ecosystem is our bet on the future. In ten years' time, people will see that Xiaomi has changed the Chinese market.” "

 

There’s method to the apparent madness of Xiaomi supervising and incubating a plethora of small companies - they all make products that are either Xiaomi-branded or network with each other and Xiaomi’s phones. The result is a product portfolio of devices that are interconnected, with Xiaomi’s phones as the hub.

Whether or not this translates to Xiaomi wanting to sell this as a seamless experience, rather than just a collection of products that happen to connect with each other in some way, is not covered in detail. I think that is their arguable next step, especially if they plan to compete against Apple and its own seamless experience.

Within Apple’s own devices, there’s virtually no contest - they’ve been touting how integrated their hardware, software, and services are for years. However, with third-party devices that connect to Apple’s devices, there’s tons of room for improvement. Apple’s biggest attempt thus far to create a seamless experience with those products, HomeKit, hasn’t exactly been ushering in “the internet of things” a lot of industry experts have been predicting for years now. And honestly, I think Xiaomi’s in a better position, if not the best position, to do just that.

Now, software. Internet thinking seems to take on a more literal meaning here (emphasis mine):

 

" “The only thing we really care about with all the products we sell today is our mobile internet platform,” Barra, 39, says. “Our phones are the distribution vehicle for our platform - we don't care about selling phones, but about getting as many users as we can. Then we can build a games business, a content business in movies and music and news, a virtual carrier - we have a mobile virtual network today operated by just ten employees. We can build a finance business - Mi Finance - that lets you take out loans and invest in money-market funds. These users are coming from the traffic we have on our platform. People think we're a smartphone company - we're actually an internet company.” "

 

Reminds me of Android and how market share is their metric of choice. Like Android, the profit margins with their hardware matter less than the size of their user base, but Xiaomi seems to be really owning it and making it clear that they want to profit off of their software and services.

How they’re doing in that regard is not clarified in the article, which leads me to believe that it’s a bet that has yet to see its outcome. At the moment, Chinese messaging app WeChat (which Xiaomi praises in the article) seems to be the app that best represents and manifests Xiaomi’s vision of software monetisation. It’s primarily used for messaging, but its functions range from playing games to sending money. I think Xiaomi eventually wants to do that with their OS.

How they aim to handle user data, a civil responsibility largely ignored by other internet companies, is also unknown. But if Xiaomi wants to thrive in an era of increasing paranoia to protect privacy, I think they need to make clear how the data they collect is handled. The cynic in me says that this won’t be high on their priority list since the money, I think, is still in ads.

(Via WIRED UK)