Another hit for Lei Jun

Despite its focus on tech geeks, Xiaomi is winning over a broader public with its high-end smartphones

Boxes upon boxes of toy racing cars are piled against a wall in Lei Jun's office. His face full of excitement, he controls a red car through an app on a Xiaomi smartphone as it runs circles on his carpet.

"We plan to install a WiFi camera on the car and sell it for 199 yuan ($31, 25 euros)," says Lei, founder and CEO of Xiaomi Corp, a smartphone producer in Beijing.

While it might appear as if a grownup is playing an innocent children's game, it's anything but. From the car to the app to the smartphone, it's all part of Lei's plan to attract the one customer who would appreciate this synchronicity of electronic devices: geeks.

"We do not target our products at the general consumers, but at geeks, who are interested in experiencing advanced technology and trying new products," Lei says.

It's a unique market focus for Lei, who says he is a fan of the late Steve Jobs and values products more than sales revenue. Yet, despite the niche target, Xiaomi and its high-end smartphones are making waves with the broader public.

While many Internet giants are currently busy developing smartphones, Xiaomi, established two years ago, is one of the nation's leaders in the smartphone sector. Baidu and Qihoo 360, for example, have collaborated with mobile phone brands such as Changhong Electric, based in Sichuan province, to produce smartphones.

Xiaomi's DNA, as Lei puts it, is "the only one that is involved in three important operations: R&D of software, production of hardware and provider of services."

Beginning in October, Xiaomi has sold more than 3 million units of the Mi-One smartphone through June 12, surpassing all domestic producers. Lei expects to see more than 5 million sold this year.

In Lei's opinion, Xiaomi is different from its competitors because many have different business models. Most importantly, "other companies are not fully devoted to the smartphone sector", he says.

A lack of total focus on the sector is what will eliminate Xiaomi's competitors, Lei says.

"The problem is that the smartphone is not their primary business," he adds. "It is our major business, and the only business, which we have been doing for two years. That is where we find our confidence."

Xiaomi's success follows on the heels of big hits for Lei. Led by Lei, Kingsoft Corp became a leading Chinese software developer of office software suites. He later founded Joyo.com, which he then sold to Amazon.com. Not satisfied with success, he established Xiaomi with six partners in 2010.

Lei has also become a prominent angel investor and is widely involved in many Internet sectors. He says his two roles of CEO and investor are complementary.

"As an investor, I only care about the major strategy of the startup and leave the execution to others. As a CEO, you have to help your company grow every day and you can feel it, which is a great feeling," he says. "On the other hand, the really good thing about being an angel investor is that you can get involved in many other businesses."

Lei has invested in a number of Internet companies in China, many of which have been successful. Success stories include Vancl, an online seller of apparel, and UCWeb, an Internet browser producer for mobile devices.

Lei says he drew from some of the experiences he had in working with his investments, admitting that Xiaomi's e-commerce model is based on the model at Vancl. And despite branching out with his investments, he says he is determined to focus solely on Xiaomi.

"I used to focus on too many things at the same time when I was in Kingsoft. It distracted my attention and energy. A winner should be highly focused," Lei says.

Xiaomi has grown in two years from a company of six employees to 1,400. The company is currently planning to move to a larger office on the outskirts of Beijing. It recently announced that it received $216 million (176 million euros) in investments from "leading international investment firms", though the firms were not disclosed. Lei says the money will mainly be spent in R&D, overseas businesses and after-sales services.

He also says that Xiaomi's overseas expansion will begin later this year. He expects the company to sell 100 million units in 2016, half of which from overseas markets.

Lu Chun-kuan, a senior research analyst with Gartner, an information technology research and advisory firm in the United States, says that Xiaomi has been successful in the Chinese smartphone market by a valuable smartphone that has smart features such as allowing users to customize the phone's internal memory and offering an intuitive mobile messaging app. But over the long run, Xiaomi's development is in doubt.

"With lack of patent, brand awareness and channel reach, we believe them to be limited in local market. Especially in global markets, the population of accepting phones through Internet and self-help to flash ROM, is still small and not able to sustain their business model," he says.

Wang Ying, an analyst with Analysys International, a consultancy in Beijing, says that Xiaomi should increase its efforts in offline stores to cover more third- and fourth-tier markets.

"Xiaomi will have difficulties expanding to third- and fourth-tier cities, where the market is experiencing a change from regular mobile phones to smartphones and are more demanding of high-quality and low-price products. Xiaomi's pricing is suitable for lower income consumers in these cities," Wang says.

Contact the writers at linjingcd@chinadaily.com.cn and suzhou@chinadaily.com.cn

(China Daily 07/20/2012 page13)