By Paul Carsten
BEIJING, Aug 16 (Reuters) – Two years after its
high-quality, budget smartphone won over millions of Chinese
fans, domestic tech 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
Inc, 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.
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 Lei now wants to expand into China’s mobile
Internet business, estimated to be worth around $30 billion by
2015 from roughly $9 billion in 2012.
“Xiaomi looks a bit like Apple but is really more like
Amazon with some elements of Google,” Lei said in an interview
in Beijing, dressed in a blue shirt, blue jeans and brown shoes.
“The mobile phone is only the carrier,” Lei said. “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’s cheap yet sleek handsets 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 $130, much
lower than the $770 price tag of the iPhone 5 or the $470 for
the latest Galaxy model by Samsung Electronics Co Ltd
, 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 U.S. firm is expected to unveil its
redesigned iPhone in September and may also release a cheaper
emerging market smartphone.
TROJAN HORSE?
The 43 year-old chief executive said it was high time for
the Apple comparisons to end and the rivalry with local tech
giants Alibaba Group Holding, Baidu Inc and
Tencent Holdings Ltd to start.
Xiaomi currently makes around 20 million yuan ($3.27
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.
In the first half, that figure was equivalent to less than 1
percent of monthly revenue, company data shows.
Lei estimated 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 specific 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 Lei’s big ambitions may be dwarfed by
the size of his competitors and their already established mobile
Internet offerings.
Most Chinese consumers are also accustomed to free downloads
and won’t pay for software, making it difficult for companies to
make money that way, said 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.
Xiaomi has been valued at up to $10 billion, while Tencent,
China’s largest Internet company by revenue, has a market
capitalisation of $88.6 billion.
Baidu, the owner of the country’s biggest search engine, is
worth $49.5 billion while the impending IPO of Alibaba, the
country’s leading e-commerce company, may value the firm at more
than $100 billion.
Tencent’s social messaging app WeChat is used by over half
of all Chinese smartphone users and Alibaba’s Taobao is one of
the world’s top 20 most visited websites. Sina Corp’s
Weibo is the dominant microblogging platform, making it hard for
Xiaomi to compete in all these segments, Clendenin said.
“If Lei believes that 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.
($1 = 6.1196 Chinese yuan)
(Editing by Miral Fahmy)
