Just a few seconds after Lei Jun, CEO of Chinese smartphone maker Xiaomi, gave a keynote address capping the Global Mobile Internet Conference in Beijing in May, a throng of college-aged volunteers working the event rushed the podium, snapping pictures of the mop-haired 43-year-old and shouting for autographs.
Since then, Xiaomi’s rock-star status in China (with Lei Jun as front man) has only amplified. Founded in 2010 by a team of seven experienced tech entrepreneurs led by Lei, the Beijing-based company’s cut-rate, high-spec phones have gained a cult following, with online product launches selling out in minutes and analysts gushing about a recent $10bn valuation (with $4bn expected in 2013 revenue and expected sales of 20m phones). In the second quarter, Xiaomi surpassed Apple to control five percent of China’s lucrative smartphone market, the world’s largest, expected to grow to 360m shipments by 2013 according to consultancy IDC.
Where Xiaomi has excelled is in catering to China’s acutely price-sensitive consumers. Its current phones, the more advanced of which stack up favorably against Samsung’s Galaxy series, are priced between 799-1799 yuan, compared to at least 4,000 yuan for high-end models from Samsung and Apple. In September, Apple’s vaunted launch of a 4,488 yuan “budget” model, the 5c, was met with only a tepid response in the Chinese market. According to China Daily, data from China’s online commerce giant Alibaba in 2013 shows that 61% of mobile phones sold on its Taobao marketplace and the Tmall.com platform were priced below 1,000 yuan, 20% cost 1,000 yuan to 2,000 yuan, and only 18% cost more than 2,000 yuan.
“Marketing has been Xiaomi’s real winner…” said Calvin Smith, Director of International Relations at the Great Wall Club, a mobile internet networking and advisory firm that held the GMIC conference Lei Jun attended in May.
“They have absolutely rabid fans. They gained this through creating a sense of pride in both the company and the users…Xiaomi is the underdog, its buyers are underdogs in society – they are individuals in a society where everything is a fight unless you’re at the top…Xiaomi has done a brilliant job of weaving that message into its marketing.”
Fan Junsheng, a recent graduate from a Master’s program at Beijing’s Tsinghua University, has owned a Xiaomi phone since its first model, the MI-ONE was released 2011. Like many Xiaomi users, Fan says the price and specs of the Xiaomi phone was too good to pass up. Although he admits that high-end Apple and Samsung phones are flashier as status symbols, Xiaomi’s practicality appeals to him.
“Why buy an Apple for more than twice the price when Xiaomi is almost just as good?” Fan said.
With the release of its newest model, the MI3, slated for some time around mid-October and the imminent opening of its first flagship store in Beijing’s swanky Wangjing Mall, Xiaomi has commanded a crush of recent media coverage. Arguably, what most excited analysts was Xiaomi’s September announcement that then-Google executive Hugo Barra would leave his job as head of management at the firm’s mobile android unit to lead android-powered Xiaomi’s global expansion, starting in October.
At the 5th September launch for the newest MI3 (starting at 1,999 yuan) and a low-priced Smart-TV (2,999 yuan) also slated for release in mid-October, Barra reportedly told the audience, “I believe it is time for the world to know about Xiaomi.” Currently, Xiaomi sells its phones through its exclusive online store in the Chinese Mainland, Hong Kong, and Taiwan. Barra was admittedly lured on board to help Xiaomi go global, a task that has become almost a quixotic quest for many Chinese tech brands, with perhaps only Lenovo achieving anything close to worldwide brand recognition.
“It is totally feasible (for Xiaomi to globalize),” said Mark Tanner, managing director of Shanghai-based China Skinny, a market advisory firm. “I’d say they will be especially huge in the most price-sensitive markets of Asia, Africa and Latin America, however they will still do well in the developed markets, with the USA being the toughest market for them. “
Tanner acknowledges that barriers do exist, however. “Their thorniest barrier will be the negative perception around China, for both quality and, more likely, Big Brother (Government oversight). (The) USA obviously has a lot of paranoia about Chinese products, just look at the barriers Huawei has faced there…”
Calvin Smith also recognizes the barriers. “The real question will be how well Barra and Xiaomi integrate. If he integrates well and helps put an international spin on the whole “underdog” theme, then the move will have been good from an international perspective,” Smith said, adding that if Barra is sidelined because of cultural and language differences, it will likely result in a “failed marriage.”
Beyond the stigmas that many in the West attach to companies coming out of China, Xiaomi faces another, persistent, criticism: its tendency to model itself (even “copy”, some say) after Apple.
The similarities begin with the company’s boyishly handsome CEO, Lei Jun, who Forbes ranks as the 55th richest person in China with a net worth of $1.75bn. Although Lei has recently shunned comparisons between his company and Apple, calling it instead “more like Google or Amazon,” for its user-first, internet-driven business strategy, he often appears publicly in jeans and dark shirts, à la Steve Jobs.
The company’s rock concert-styled product launches are undeniably cut from Apples mold, and the new flagship store, which will be the first brick-and-mortar location to directly retail Xiaomi phones, has the same wood-plank tables, open floor plan and lighting scheme as Apple stores. Then there are the phones, which, although Android-based, share some user-interface features with the more expensive iPhones.
Stijn Schuermans, senior analyst at VisonMobile, a London-based mobile research firm, who has written about Xiaomi’s market emergence, thinks that the Apple comparisons are misguided. “Yes, in the beginning, Xiaomi styled itself after Apple, but as time has passed, Xiaomi looks less and less like Apple, and more and more like Xiaomi,” Schuermans said.
“Lei Jun was smart. He recognized the cultural dominance of Apple at the time in China, piggy-baked on some of that culture to gain recognition, and now has transformed it into his own brand.”
Smith shares this perspective: “Is Lei Jun the Chinese version of Steve Jobs? No, but there is one place they share traits. It’s not hardware, it’s marketing. He has created a brand and persona with cult-like following by tapping into the emotions of the consumer.”As Xiaomi’s star rises and media coverage mounts, it is the phone’s user-base that will determine whether its win streak continues. “As long as they keep putting out good phones, at good prices, I will keep buying,” Fan Junsheng said. “Why wouldn’t I?”