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Changing the name of the game: Xiaomi charges toward IoT

Posted: 07 Jan 2015 ?? ?Print Version ?Bookmark and Share

Keywords:Xiaomi? IoT? smartphone? mobile Internet?

Xiaomi has recently announced a windfall of $1.1 billion from investors from its latest round of funding. According to Reuters, this "cements [Xiaomi's] status as one of the world's most valuable private technology companies at a valuation of $45 billion."

Investors love Xiaomi because it represents a new generation of CE companies. Unlike Sony, Sharp, Panasonic or even Samsung, Xiaomi attracts the investment community because the hardware vendor, masquerading as a "mobile Internet" company, comes without baggage.

Xiaomi has no factories, no physical retail stores and no inventory. Xiaomi only sells on the Internet, with no third-party distribution.

More important, Xiaomi's founders grasp the flexibility and nimbleness enabled by the Internet. Xiaomi typically produces its phones in small batches and launches over the Internet. Between batches, the company continues to perfect its new product and trim costs. Sometimes, it also upgrades parts by switching suppliers.

Building a unique brand

The company's online strategy has also worked well with Chinese consumers. As consumers saw Xiaomi's new phones getting snatched up in a matter of minutes and quickly sold out on the Internet, they've become that much more eager for Xiaomi's newest model.

Sure, Xiaomi is manipulating mass market psychology, masterfully. This has helped the company build its brand. But it isn't just marketing that enabled Xiaomi to get where it is today.

It's a mistake to underestimate the company's technology prowess. Xiaomi is not the cheap, me-too smartphone company that the rest of the world expected from Chinese brands several years ago. Xiaomi has successfully built a reputation for quality smartphones packed with reliable parts and components that were hand-picked by Xiaomi's capable engineering team.

Reuters stated that Xiaomi, at $45 billion, is worth nearly three times the market capitalisation of Lenovo Group Ltd, the world's No. 1 PC maker, and more than quadruple the $10 billion valuation it garnered during its last financing round in 2013.

Clearly, Xiaomi is a smartphone vendor. But by styling the company's business model as "a mobile Internet company," Xiaomi has become a darling among investors. As one Chinese electronics industry source pointed out to us, "As you know, the market value of an Internet company is much higher than a traditional hardware company."

Participants in the latest round of funding include private equity funds All-Stars Investment, DST Global, Hopu Investment Management and Yunfeng Capital, as well as Singapore sovereign wealth fund GIC, CEO Lei Jun stated.

Xiaomi in IoT

A bigger question for Xiaomi now is: What next? Now that Xiaomi has become, in less than three years, the world's third-largest smartphone vendor, after Samsung and Apple, what should we expect in 2015 and beyond?

I popped this question to several industry sources in China. They all pointed to the Internet of Things (IoT) as Xiaomi's next conquest.

Xiaomi's TV

Xiaomi's TV

Xiaomi has been dabbling in the development and marketing of a number of products, besides smartphones, in China. These include portable batteries, WiFi routers, over-the-top (OTT) boxes, TV, tablets, smart wristbands and air purifiers. As a source in China told us, "So far, they have great market response" for all these products.

The same source quoted Jun Lei, CEO of Xiaomi, saying that "Xiaomi will duplicate the success of its smartphone business with more than 100 other devices."

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