Xiaomi came out of nowhere to dominate the Chinese phone market and become one of the world's most valuable startups. But can the Chinese maker of phones that cost a fraction of a typical Apple (AAPL) iPhone or Samsung Galaxy successfully expand to other countries?
New York University journalism professor Clay Shirky became fascinated with Xiaomi when he moved to China in 2014 and studied the company's history and analyzed its strategy. His new book, Little Rice: Smartphones, Xiaomi, and the Chinese Dream, chronicles the company's rise in the context of the massive changes that are roiling China. Xiaomi capitalized on the growing wealth of lower middle-class Chinese, a trend which is likely to continue even as the overall Chinese economy slows.
Starting in 2010, just as the Chinese mobile market was shifting from old-style brick phones to the glass-faced, touch-based phones Apple popularized, Xiaomi founder and computer scientist Lei Jun made an early bet on Google's Android operating system. Using a customized version of Google's software made it much cheaper to introduce new software for its phones quickly. Xiaomi was also a pioneer in using social media and online selling to further reduce costly advertising and marketing expenses.
"They've carved out a niche where it's a mid-priced phone with high-end design," Shirky told me in a telephone interview from Shanghai. "It's better than anything as cheap as it is, and it's cheaper than anything as good as it is."
Still, Xiaomi is locked in a massive battle with other manufacturers, both local and global. Apple has seen a huge resurgence in China since introducing larger screen phones a year ago, and Huawei and Lenovo are trying to copy some of the upstart's viral marketing techniques. After topping the sales charts for 2014, Xiaomi fell behind Apple in the first quarter of 2015, retook the lead in the second quarter only to lose it to Huawei in the third, according to Canalys.
"Huawei’s ascent to China’s smartphone throne is a remarkable feat, especially in the context of an increasingly cutthroat and maturing Chinese smartphone market," Jessie Ding, research analyst at Canalys said in the third-quarter report. Xiaomi "is under tremendous pressure to keep growing as an international player as it is slowing down in its key home market."
Shirky says the Xiaomi strategy for China can be extended to other countries that also have fast growing middle and lower middle classes.
But that doesn't mean it will be easy. In India, Xiaomi ran into controversy over data that its phones sent back to the company in China. And many companies are trying to imitate the leader, Shirky says.
"They clearly have a strategy for winning—it's the the same strategy they have in China," he says. But, "there are now Indian brands and French brands copying Xiaomi."