Xiaomi has zoomed past Apple and Samsung in Chinese smartphone sales just three years after releasing its first model.
The founder, Lei Jun, is now on a buying spree to take that momentum beyond handsets.
Since November, the maker of the Mi devices has participated in more than US$600 million of investments in three companies and announced it bought into dozens of start-ups making everything from an air purifier to low-energy light bulbs.
Xiaomi, which doubled its revenue to $12 billion last year, could be just getting warmed up. Mr Lei wants to be the leader in smartphone sales and has committed to spending $1bn on content as he seeks to build a brand bigger than Apple and Samsung within a decade. Much like with Apple’s success, the idea behind his investments is to assemble enough products and services that customers will be glued to Xiaomi.
“Xiaomi is expanding into the smart home and following the lead of Apple, Samsung and others,” says Neil Mawston, the executive director of the researcher Strategy Analytics. “We expect Xiaomi to build an ecosystem of Mi devices and apps for the home, office and car.”
Mr Lei’s push has credibility because of Xiaomi’s roots in software. The Beijing-based company only started selling phones after developing an adaptation of Google’s Android software called MIUI, which now has more than 85 million users worldwide. Xiaomi is the world’s fastest-growing smartphone maker and ranks third-biggest globally.
Xiaomi has added applications – including data back-up, music and a photo gallery – and offered themes that allow devices to be customised. The company followed with a popular instant-messaging app, cloud services and software to explore restaurants, purchase cinema tickets, track packages and make medical appointments.
“We have made significant progress, investing in more than 20 hardware companies making smart products,” Mr Lei said in a letter to employees this month. “We believe that this ecosystem we are building will be Xiaomi’s most important competitive advantage in our rapid growth ahead.”
Carolyn Wu, a Beijing-based spokeswoman for Apple, and Jini Park, a Seoul-based spokeswoman for Samsung, decline to comment on competition with Xiaomi.
“Most other Android players are not software companies; they have hardware DNA,” says James Roy, a Shanghai-based analyst at China Market Research Group. “Xiaomi seems to be different and they are investing in it.”
Xiaomi’s extra services and its low-cost model of selling from its website helped the company to flourish in China, where Google is largely absent, says Neil Shah, a Mumbai-based research director at Counterpoint Research. Competing overseas will be harder for Xiaomi, which started sales in India and Singapore, and it may take years to catch Apple and Google.
“Xiaomi has done a fair bit to differentiate itself from an average Android player and position itself more effectively in the minds of consumers,” Mr Shah says. “But Xiaomi has its work cut out to develop the scale of applications, software and services to fight the big giants.”
Xiaomi’s rapid growth, with smartphone sales more than tripling to 61.1 million units last year, underpins a valuation that surged to $45bn. The company in December raised $1.1bn from investors, including the Russian billionaire Yuri Milner, who says Xiaomi’s valuation could reach $100bn.
After conquering its home market with smartphones and adding Web-connected TVs and set-top boxes, Xiaomi knows that to make its system stronger it cannot develop all the pieces itself. To further expand, the company is taking stakes in established companies and spending on 25 start-ups.
“Investing in start-ups will allow us to build other types of hardware without doing all of the design and development,” says the Xiaomi president, Bin Lin.
On December 1, Xiaomi participated in a $296m investment in the internet data centre services provider 21Vianet Group. Less than a week later, Xiaomi announced its first investment in the United States by participating in a $40m funding of Misfit Wearables, the maker of products including the Shine activity- and-sleep tracker.
“Lei has figured out he can empower other entrepreneurs to build interesting products and services in Xiaomi’s ecosystem,” says Hans Tung, an early Xiaomi investor, former board member and now managing partner of GGV Capital, which also invested in Misfit.
Some of Xiaomi’s other recent deals focused on content and Web services. In November, the company said it would invest in Youku Tudou, China’s most popular video-streaming site, and about a week later teamed with Mr Lei’s investment firm Shunwei Capital for a $300m investment in Baidu’s IQiyi.com video website.
The company will spend $1bn on digital entertainment to help boost sales of its TVs and set-top boxes, Mr Lei says. It is joining other companies in staking a claim to the future of connected devices, the so-called internet of things.
Xiaomi will focus on three areas: phones and tablets; smart TVs and set-top boxes; and routers. By spreading investments across start-ups it can bring out new products without tying up resources on design and development, Mr Lin says.
“Xiaomi is looking to dominate the next big technology cycle after smartphones: the internet of things,” says Cyrus Mewawalla, the managing director of London-based CM Research.
“Xiaomi’s venture into Internet TVs could be a stab at entering this market for the smart hub for the automated home.”
business@thenational.ae
Follow The National's Business section on Twitter
