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Solid smartphone base boosts Xiaomi's CE business

Posted: 28 May 2015 ?? ?Print Version ?Bookmark and Share

Keywords:Xiaomi? IoT? smartphone? VC? cloud?

How Xiaomi became the world's third largest smartphone vendor in a matter of just four years is completely remarkable, to say the least. Well, taking into perspective the fact that its founders grasped the flexibility and speed the Internet brings to the consumer electronics business, they've mastered these elements to change the game in their favour. While the formula obviously worked in the smartphone business, the company has yet to prove whether it can be replicated in other consumer device segments.

Xiaomi's online-driven business model is a well-told story.

The yet-untold story will emerge from the question of if the Beijing-based five-year old company can move beyond smartphones.

Xiaomi's CEO Jun Lei went on the record, saying: "Xiaomi will duplicate the success of its smartphone business with more than 100 other devices."

Textbook business-school investment strategies probably won't cut it. After all, Xiaomi is no Google, at least not yet, who last year bought Nest for $3.2 billion in cash. Xiaomi isn't big enough to hang its growth on M&As, organic growth or more rounds of funding from VCs in diversifying its product portfolio.

Bin Lin

Bin Lin, Xiaomi president and co-founder

In a recent one-on-one interview, Bin Lin, president and co-founder of Xiaomi, explained how Xiaomi plans to expand its product portfolio beyond smartphones and the company's investment strategy.

Although the "100" device categories Lei talked about might be a hyperbole, Xiaomi has thus far invested in some 39 companies, according to Lin. Some investments are in one-person start-ups. Others boast a sizeable engineering team of 100 or more.

Xiaomi have closely worked with these partners to define their products. Those already launched include smart TVs, routers, power banks, air purifiers, digital scales and smart wristbands.

Focus on smartphones

"When we founded Xiaomi, we had a simple business model," Lin said. "Android-based, super-easy-to-use smartphone with very high cost performance was the only thing we were going to do."

Mi TV

Mi TV

A year and a half later, Xiaomi decided to add smart TV to its product line. Xiaomi did this with the wholesale acquisition of Duokan, developer of e-reader and Apple TV apps. Duokan CEO, Chuan Wang, became then the eighth core Xiaomi team-member. Wang has led the team to develop and launch Mi TV and Mi Box in 2013.

The acquisition of Duokan worked. But is this a repeatable model? The simple answer is: not exactly.

In moving into different product categories, "we didn't want to stretch ourselves too thin," Lin stated. "Smartphones are a super, super competitive market" that Xiaomi management can't afford to neglect.

Looks for built-in expertise

So what to do?

Mi band

Mi band

The answer was "to identify companies, or startups, that already have an experienced team," said Lin. The team (or a person) must be very well versed in building a certain technology and product.

After due diligence, Xiaomi usually makes a modest investment and remains a minority shareholder. "The company we invested in continues to hold a majority of the stake" and are responsible for its destiny, Lin explained.

These deals are done "on a non-exclusive basis," he stressed. "We are very open and upfront about this. We might invest in another company, even if it is their competitor in the same field."

A good example is Xiaomi's investments in Misfit and Huami, said Lin. Both are smart band developers. While China-based Huami developed Xiaomi's Mi Band that has proven wildly popular in China, Xiaomi also joined other Chinese companies to invest $40 million in the U.S. wearables startup Misfit last December.

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