Ever wonder how a Chinese company could have Google’s DNA and a product inspired by Apple, yet still not be a copycat? For Xiaomi Corp, the differences are all about product pricing and business philosophy.
The Beijing-based firm, which expects to raise US$10 billion from its initial public offering in Hong Kong next month, has freely admitted that the iPhone influenced two-thirds of its smartphone design, but notes the Xiaomi version costs just one-third of the Apple product.
And which other smartphone manufacturer has offered to cap profits on its hardware business and distribute the balance to consumers?
Chairman and founder Lei Jun insists he is trying to pursue an innovative business model underpinned by courage and trust. But he also wants innovation at honest prices.
“Every day for the past eight years, our vision to be friends with our users and to be the ‘coolest company’ in the hearts of our users has motivated us to pursue innovation and maintain an unwavering focus on quality and efficiency,” he wrote in the listing prospectus.
This time it is Google that has provided the inspiration. The five-page, 2,000-word letter recalls the strategy adopted by Larry Page and Sergey Brin in their Founders’ IPO letter back in 2004, which also sought to cast their emerging company as a technological pioneer.
Lei recalled that his team, which consisted of six engineers and two designers, had founded Xiaomi in April 2010 with the simple objective of creating a very cool smartphone that they loved. Eight years later the firm is the fourth-biggest smartphone supplier in the world, with 190 million monthly active users and over 100 million devices that can support internet-of-things capabilities.
When he explains his business model, Lei often uses the analogy of a shirt, shoes or a tie that cost US$15 to produce, but could eventually be sold for $150— a ten-fold mark-up. Xiaomi is happy, for now at least, to settle for a much more modest take than its competitors.
In fact, Lei has pledged to set only a 5% net profit margin on hardware products from this year, and return the rest to buyers, stating that he believes it is more important to deliver a sustained, high-quality user experience than pursue one-time profits.
Whether shareholders will agree after the public listing is unclear, but Lei said he was confident his business model was resilient. So far he has been proved right: Xiaomi’s sales declined in 2016 because of a production issue, but have since picked up again.
“As far as we know, apart from Xiaomi, there has never been another smartphone company that has successfully rebounded after a decline in sales”, the chairman noted. “Good things happen to good people. Please join us on our journey, always believe,” he added.