Xiaomi paraded its new international figurehead on stage at a press conference late last week in Beijing, signaling to the world that the company is preparing to go global.
Hugo Barra, the former Google executive Xiaomi poached last month, is prized game in the Chinese technology realm – especially for a company entertaining the notion of putting its phones on the international market.
At home, Xiaomi has worked wonders marketing its Mi 2S smartphone. Miraculously, it beat out Samsung's Galaxy S4 as the most popular phone on the mainland in the first six months of 2013.
Xiaomi seems to have come out of nowhere this year. It sold 7 million devices in the year through July, or more than it had in all of 2012. Those sales have catapulted the Beijing-based company into the limelight although it remains a minor player overall. Between April and June, it captured 2.5% of the overall market share for smartphones in China. Samsung had 18%. Sales at domestic companies such as ZTE, Huawei, Coolpad and even the little-know K-touch brand still shadow the three-year-old firm.
What Xiaomi has on those companies – and what led to its meteoric rise on the mainland – is an ace understanding of the forces at play, where mobile internet converges with hardware such as the Mi 2S.
Lei Jun, the company's founder and CEO, is a veteran of the internet industry. He has played not only to a burgeoning market for low-cost smartphones, but to a class of tens of millions of online gamers.
While Lei is firmly in the headlines for now, with commentators excitedly throwing out comparisons with late Apple founder Steve Jobs, he'll need more than his mainland strategy to sell overseas.
Viral infection
In China, young internet users who didn't know Xiaomi a year ago have likely heard of the brand now. One reason for that is because the company has sold a well-crafted smartphone for barely over the price that it cost to make, picking up buyers en masse outside of China's biggest cities.
More importantly, though, the company has developed a vast ecosystem on which users play games, install applications and help sell the phones themselves.
The heart of Xiaomi's ecosystem is the MIUI interface, built using Google's open-sourced Android operating system. Although the core of the interface's code is Android, it looks and feels unique and has attracted a huge user base with the amount of Chinese-language content that works well with the system. Even Chinese that don't use Xiaomi phones often reportedly replace the Android interface that comes standard on many phones with MIUI simply for convenience.
Independent data on user activity doesn't exist for the private company, but it claims that users have already made more than 1 billion downloads since its app store opened just over a year ago.
This is where the ecosystem boosts device sales. Xiaomi pushes advertisements and promotions through its network of users. Word of phone sales that prompt users to share information with friends snowball through the user base. The results have been viral.
“Each user becomes a seed for viral promotion,” said Wang Jun, a device researcher at Beijing-based Analysys International. “For its marketing and promotion tactics, they are all like an internet company. This is completely different from a traditional cellphone maker.”
The company also relies almost exclusively on China's rapidly growing e-commerce sector as its channel for distributing the devices.
These elements have allowed Xiaomi to market batches of up to 300,000 devices that reportedly sell out in under an hour. Late last year, it sold 50,000 phones in less than five minutes directly over the micro-blogging service Sina Weibo.
Perhaps those kinds of sales stats convinced Barra to come on board. Regardless of the coaxing it took to bring him to Asia, hiring the star who oversaw the development of Android is a clear indication that Xiaomi is headed outward.
Different worlds
Xiaomi may soon find that tactics deployed at home can’t guarantee success elsewhere – especially in markets where the company is virtually unknown.
“The biggest challenge of going abroad is still to get brand recognition,” said Sandy Shen, the regional director of research at technology consultancy Gartner. “I don't think they're going to deviate a lot from the current product positioning, which is value- and fashion-conscious. In the international market, there should be such a demand for the product.”
Younger consumers looking for low prices and sleek design no doubt exist in markets throughout the West. The challenge lies in convincing them that Xiaomi is not just another Chinese brand flogging a cheap product. International headlines generated by the Barra buyout might well be effective.
An even greater risk would be that Xiaomi bets on its homegame to work further afield. The factors that pushed the company to the forefront in the first half of the year were unique to the China market and can't be leveraged with nearly as much success abroad.
The company relied almost entirely on e-commerce to distribute phones and couldn't have made such amazing selloffs without rapid growth in that market, said James Yan, a senior market analyst at IDC in Beijing.
China's e-commerce market grew at an annualized 71% between 2009 and 2012 while the US putted along with 12% growth a year, a study from Bain & Company showed last month. China's online purchasing market is projected at about US$540 billion by 2015.
Couple those figures with China's smartphone market – the biggest in the world and expected to add some 300 million devices this year – and Xiaomi's rocket-like sales start to add up.
“The market conditions, online consumer habits, and the entire internet industry and e-commerce came to bring about the company's success,” said Wang at Analysys International. “In a different market, where all these conditions are different, it’s far from certain they'd have the same success.”
Another foolish assumption would be that Xiaomi's content could generate the same user base as it did in the mainland. It will need more than the games and app so adored by Chinese users to accumulate anything close to the loyalty it's garnered in China.
MIUI has performed beautifully on the mainland and is singled out by users for access to its rapidly developing app store. But the interface loses its charm outside of the Chinese-speaking world. Abroad, Xiaomi would likely revert to the standard Android system, looking to Western users much the same as a Samsung or an LG phone.
Empire strikes back?
If Lei can succeed in getting his phones into the palms of users across the globe, a larger threat looms. The tech genius must still consider if Google will strike back, not only for encroaching on its ecosystem empire, but for poaching an important operating systems man.
The best lesson comes from the pressure Google applied to Acer when the Taiwan-based company announced a partnership with Alibaba a year ago. The Chinese e-commerce giant designed an interface rooted in the Android system, Aliyun, but Google coerced Acer into canceling the launch at the last moment. Later Google released a statement saying Aliyun was a “non-compatible version” of Android.
The message from Google then was: Don't take the free software too far. Google had just bought out Motorola and potentially saw the Acer-Alibaba tie-up as unwanted competition built on the success of its software.
Android is supposed to be open source, meaning it's free and developed by a community. But Google still keeps to itself the most fundamental code, passing it onto the community only after it's deemed ready. In that sense, Google still has a hold on the operating system as well as the interfaces built on it, such as MIUI.
Google has yet to comment on MIUI or Barra. That may remain the case given the number of difficulties Xiaomi will face as it focuses on markets in other countries. It may stay under the radar abroad despite the hype it has generated at home, making it a less visible target.
Still, the world's biggest internet company is not one to be had, especially by a rookie firm across the Pacific. The question is whether or not Google deems it necessary to leverage its power over the operating system once again.
