Aug 19, 2013

    Xiaomi wants Apple comparisons to end

    TWO years after its high-quality, budget smartphone won over millions of Chinese fans, Chinese technology firm Xiaomi Tech wants to make more money from online shopping and games than it does from selling its handsets.

    Xiaomi is better known globally as China's answer to Apple, an image that billionaire Lei Jun has fostered since he founded the company in 2011 by dressing in the black tops, jeans and sneakers favoured by the late Steve Jobs.

    Mr Lei has since expanded his wardrobe options and Xiaomi sold more smartphones than Apple in the second quarter in China, the world's biggest smartphone market, according to the latest data from IT industry consultancy Canalys.

    Xiaomi's low prices, however, mean its profit margins are thin and that's why Mr Lei now wants to expand into China's mobile-Internet business, estimated to hit around US$30 billion (S$38 billion) by 2015.

    "Xiaomi looks a bit like Apple but is really more like Amazon with some elements of Google," he said in an interview in Beijing, dressed in a blue shirt, blue jeans and brown shoes.

    "The mobile phone is only the carrier," he added. "Microsoft used to sell Windows in a box with a CD in it. Does that make Microsoft a paper-box company?"

    The popularity of Xiaomi is indisputable: Its flagship smartphone, the Mi 2S, was the most popular phone in China during the first half of the year, according to local benchmarking company Antutu.

    Xiaomi's latest smartphone, the Hongmi, sells for US$130, much lower than the US$770 price tag of the iPhone 5 or the US$470 for the latest Galaxy model by Samsung Electronics, the market leader in China.

    In the second quarter of this year, Xiaomi was ranked sixth by market share, one notch above Apple, but this lead is likely to be short-lived as the United States firm may release a cheaper emerging-market smartphone next month.

    But Mr Lei, 43, said it was high time for the Apple comparisons to end, and the rivalry with local tech giants Alibaba, Baidu and Tencent Holdings to start.

    Xiaomi currently makes around 20 million yuan (S$4 million) a month in revenue from its mobile-Internet platform, which includes a game centre, an online marketplace and a social-messaging app that competes with Tencent's popular WeChat.

    Mr Lei estimated that mobile-Internet revenue may rise to as much as 150 million yuan a month by the end of next year, as Xiaomi develops what he called its software ecosystem.

    He declined to give details, but said Xiaomi had the hardware it needed to expand into online services.

    "Xiaomi selling mobile phones is like Amazon selling Kindles," he added.

    Industry experts warn that Mr Lei's big ambitions may be dwarfed by the size of his competitors and their already-established mobile-Internet offerings.

    Most Chinese consumers are accustomed to free downloads and won't pay for software, making it difficult for companies to make money that way, said Mr Michael Clendenin of Shanghai-based IT consultancy RedTech Advisors.

    "Apple has a great ecosystem, but that's created to keep people on their hardware. Not the other way round," he said.

    "If Mr Lei believes in creating a great phone and then trying to use it as a Trojan horse to dethrone Tencent and similar companies, I think he's got quite a battle ahead of him," he added.