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In a nearly 5,000 square-foot ballroom at the Venetian Hotel in Las Vegas, Nevada on a Thursday morning in early January, Xiang Wang walked onto the stage to represent a young company that had been in the limelight for the past six years: Xiaomi.
As senior vice president for global business and intellectual property strategy, Wang is one of the people responsible for introducing the company to new markets. And on this day, at the 2017 Consumer Electronics Show, he was there to make perhaps the company’s most ambitious pitch to date: selling Xiaomi to the U.S.
“Most of you may know Xiaomi as an innovative smartphone company,” he said, addressing attendees that included media from around the world. “But we are so much more than that.” Wang highlighted the company’s involvement in smart TVs, internet services such as gaming, video, and financial products, as well as its work with connected devices. And while Xiaomi has already expanded beyond China into 20 countries worldwide, including India, it elected CES to educate the American public and press about what it does, even though there are no current plans to really set up shop in the country.
Innovation for everyone
“Xiaomi is a six-year old company, and it’s reached a certain scale…Although there are a lot of people that know about Xiaomi, there are those that don’t fully understand Xiaomi,” explained Donovan Sung. As the director of product management, he oversees the creation of new products that are designed to appeal to specific markets, such as an air purifier for China and India. “We’ve reached a certain point in China and other global markets, and we want our story to be told in one of the most influential markets in the world,” he said, describing why Xiaomi is making its inaugural appearance at CES.
To underscore its presence, the company not only set up a booth in the Las Vegas Convention Center, it also introduced three new products, including a white-colored Mi Mix smartphone, a wireless router, and a “very thin” modular Mi TV 4. The message was simple: Xiaomi is about innovation for everyone.
“We worked tireless to ensure the fruits of technological innovation are available to the widest possible spectrum of people,” Wang stated. “Now, we have a slogan within our company that’s called ‘Always believe something is about to happen’. We try to make everyone believe that. It’s happening now.”
It’s this mission that Xiaomi believes will help it avoid being typecast as a phone company. Looking at its product catalog, one can notice how it bucks the trend of technology companies in the U.S. in that it not only produces phones, TVs, and internet routers — Xiaomi’s core offerings — but also sells connected devices, including rice cookers, air purifiers, virtual reality headsets, headphones, drones, robots, and more.
Sung further explained his company’s goal: “Break the statement apart: We take some very cool technology…and put it into our products. ‘Everyone’ means everyone — we want to make it affordable, not that it’s cheap, but at a very affordable price. We want it to be everywhere, more than just China, India, and the more than 20 countries globally…including in the U.S.”
“World’s most successful incubator”
Hugo Barra, a well-known technologist, joined Xiaomi four years ago from Google, where he led development of Android. His hiring was seen as a major accomplishment for the Chinese technology company since Barra would introduce new thinking to help it grow.
That growth wasn’t just in terms of the number of markets Xiaomi operated in, it was also about the products. And although the company limits itself to making three main devices — TVs, smartphones, and routers — it has licensed its brand and resources to third-party partners to grow its ecosystem. Today, it has incubated over 77 companies and sold more than 50 million connected devices so far. At CES this year, Barra described Xiaomi as the “world’s most successful incubator.”
The company hasn’t stopped thinking about how it can use technology to improve the lives of its customers, and a big staple of this is its Mi Home application. Similar to Apple’s HomeKit, Xiaomi’s program consolidates the controls of all connected devices into a single interface, so you can manage lighting, water, air purification, and more.
“When it comes to [the Internet of Things], we would describe the evolution of the internet in three stages: there’s the PC era of internet where people used computers. And the second stage was the mobile era, starting around 2010, [which is] when Xiaomi sold smartphones. We think around three years ago was when the third era occurred, which is the IoT era,” Sung explained. “In many ways, Xiaomi saw this opportunity earlier than competitors. We saw a whole host of IoT startups rise up in 2014, but Xiaomi was prepared in 2013. We foresaw a future where not only your computer or smartphone would be connected, but other devices, like televisions, air purifiers, etc. would be as well. We use an interesting method to tackle the ecosystem: Our entire team is filled with former engineers of Xiaomi turned investors.”
Sung said that Mi Home is the first company product many customers will interact with, and it showcases the potential of Xiaomi. The app is available on both Android and iOS, which means that no matter what smartphone or tablet someone has, they’ll be able to use it to manage a Xiaomi-branded connected device.
“There’s a lot of people trying to play in this industry right now,” Sung shared. “All of our Mi ecosystem products are not made by Xiaomi, but our partners. We let our ecosystem companies build them. For each particular product category, we pick a company that we think is going to be a winner and invest in it. We provide them everything, not just funding, but help them with distribution, give them the Mi brand, sell them in our stores, help them raise money, and help hire experienced managers. In most cases, we don’t take a lot of equity — 15 to 25 percent — making them feel they have a large ownership of their company.”
Recent speed bumps
Although Sung touts the success of Xiaomi’s incubation program, should expansion to the U.S. occur, Mi Home likely won’t be the thing that Americans will be exposed to first. It will be the phones. Xiaomi’s 50 million connected devices are tailored to the Asian markets, so it doesn’t necessarily make sense to bring them into the U.S. The next logical step would be to introduce the phones, but even that is fraught with difficulty because of the extensive competition and other struggles that Xiaomi faces.
In January, the company announced it would no longer disclose sales figures and admitted that it has moved too quickly. This revelation came days after Wang and Barra’s appearances at CES. The company’s market share in China has slid significantly, placing it fifth among the top smartphone makers in the market in 2016. Xiaomi had previously assured investors that shrinking smartphone sales wouldn’t impact the company.
“Basically we’re giving [handsets] to you without making any money… we care about the recurring revenue streams over many years,” Barra once told Reuters in an interview.
Sung described Xiaomi’s three-part revenue model and said that while phones are an important entry point for customers, “Xiaomi sells phones close to cost.” He explained: “We’re starting to sell quite a lot of ecosystem products, smart home IoT products, and internet [services] revenues. When you put all three together, I wouldn’t necessarily compare Xiaomi to any particular company. Xiaomi is in many ways quite unique.”
He believes that, among many things, Xiaomi’s internet services are something people should pay close attention to. The business unit, which encompasses games and mobile payment apps, saw its revenue double, according to a company chief executive, Lei Jun. Although specifics were not provided, based on 2015 numbers reported by Reuters last year, internet services probably generated north of $1 billion for the company.
Additional efforts being made to attract new customers include opening up more than 1,000 Mi retail stores over the next three years, with 200 planned this year. Xiaomi already has 54 stores — three of which have surpassed $14.5 million (RMB 100 million) in gross merchandise volume (GMV) in 2016. The Mi Home stores bear a striking resemblance to Apple Stores in the U.S., and it’s here that the company hopes to reinvigorate smartphone sales. Before, customers purchased devices online, but now they can peruse Xiaomi’s selection at a mall or any offline retail shop, without the typical markup.
“Because we control the experience in our [Mi Homes], we’ve been able to get the cost of the channels close to online, if not lower. That means we can continue to launch our products at the very, very amazing prices, even offline…this is going to be a very unique offline strategy for us.”
No U.S. expansion plans…yet
While the company made its presence known at CES, there are no definitive plans for when it will be bringing its massive product line into the U.S. But that’s not to say that it hasn’t begun testing the waters — last year following the Google I/O developer conference, Xiaomi launched its $69 Mi Box Android TV device and also began selling headphones and battery packs through an online store.
It’s more about making sure that the right product exists for the market, according to Sung. “When we enter the U.S., we really want to make sure that we come with the right product at the right time,” he said. “The way we do marketing is with a community-oriented approach. We’ll work with our users and hear their feedback. If you look at our marketing and [public relations], we talk a lot about our specifications on every product we launch. We try to make sure it uses some technology that hasn’t been used before.”
Analyst Patrick Moorhead of Moor Insights & Strategy cautioned it might not be as simple as Xiaomi hopes. “Americans will respond well only if [Xiaomi] can demonstrate why it’s better to buy all of their connected devices. So far, they have not demonstrated this, and Americans are a very skeptical bunch, particularly when they’ve never heard of a company’s name before.”
And the U.S. market is absolutely saturated with Android phone makers, including Samsung, LG, HTC, Huawei, ZTE, and Motorola, so how does Xiaomi plan to compete? Sung said that a big part of the strategy involves timing: “When we enter the U.S., we really want to make sure that we come with the right product at the right time. The way we do marketing is with a community-oriented approach. We work with our users and hear their feedback. If you look at our marketing and PR, we talk a lot about our specs for every product we launch. We try to make sure it uses some technology that hasn’t been used before.”
Moorhead believes Xiaomi is in a tough spot: “The company anyway is caught in the middle between the giants like Apple, Samsung, and Huawei and smaller, new name brands.” But he thinks the company also has an advantage: “They are a very fast company who attempts a good experience and passes most of the profit on to the consumer.”
Bringing the Mi brand to one of the largest markets in the world has been made more difficult with the loss of Barra, who announced soon after CES that he was leaving to return back to the U.S. because he felt homesick. Days later, he revealed he was joining Facebook to lead the social networking company’s virtual reality efforts. Xiaomi has tapped Wang as Barra’s replacement.
There remains a bit of work left to do on Xiaomi’s part before it crosses the Pacific to take on the U.S. market, but when it does, 2017 will be remembered as the year it officially made its pitch to investors, journalists, and perhaps most importantly, customers.