September 16, 2013, 11:45 AM

A web-only mobile phone maker outsells Apple in China

Web-only Xiaomi updates its mobile operating system based on suggestions from fans.

Frank Tong

Senior editor, China

Lead Photo

Xiaomi’s mobile phone and its mascot

While Apple Inc. fans line up around its stores to get the latest iPhone, Chinese phone maker Xiaomi, which sells exclusively online, draws a crowd to its web site every time it releases a new handset. When it introduced its first phone, Mi-I in 2011, consumers placed 300,000 orders in two days and a later release drew 200,000 orders in just 45 seconds, the company says.

Xiaomi, founded in 2010, sold 7 million handsets in 2012 and generated revenue of $2 billion. In the first half of this year, the Beijing-based company sold 7 million handsets and projects 2013 sales will hit 15 million phones and $4.1 billion in revenue.

Its Internet-centric marketing philosophy has turned the 3-year-old company into a major competitor in China’s hot smartphone market with much larger global competitors. According to Canalys International, a research company, in the second quarter of 2013, Xiaomi had a 5% share of China’s smartphone market, compared to 17.6% for top brand Samsung and 4.8% for Apple.

But founder and CEO Jun Lei does not compare Xiaomi to device makers like Samsung and Apple. “We are an internet company, not a phone maker,” he says.

Indeed, the Internet is at the center of Xiaomi’s business. It sells its Mi phones exclusively on Xiaomi.com, typically selling 200,000 handsets a week. The company arranges production based on the orders received, which means it’s never left with unsold inventory. The phones are produced by Foxconn, a major electronics contract manufacturer, which also produce iPhones for Apple.

Customers may have to wait up to a month to receive the latest version of a Xiaomi phone, but they get a phone that analysts say has many of the features of a Samsung or Apple device for a much lower price.  For example, Apple sells the iPhone 5 on its China web site starting at 5,288 yuan ($864), while Xiaomi’s new Mi-3 handset costs 1,999 yuan ($327). The company name means “small rice” in Mandarin and its logo “MI” is an abbreviation for “mobile Internet.”    

And Xiaomi uses the web to do more than take orders. The company has built a web site for its “Mi fans” where 4 million registered users can find updated applications and learn about technical innovations from other users. Some 200 fans clubs in major Chinese cities organize online and offline activities. Xiaomi invites fans to submit feedbacks and suggestions. Based on that feedback, Xiaomi updates the MIUI operating systems of the Mi phone every Friday, encouraging more suggestions as consumers see they can contribute directly to designing the next-generation product.

Fans’ enthusiasm shows up on China’s online social networks. After Xiaomi released it Mi-3 phone in this month over 1 million fans clicked “Like” on Xiaomi.com and posted 470,000 comments in just several days.  On the popular Chinese social network Weibo, 1.6 million fans follow Xiaomi’s official account. In contrast, Apple does not have an official account on Weibo.

Xiaomi is moving to build on its early success. The company announced in late August the hiring of Hugo Barra, a Google Inc.’s former head of Android product management, to lead global expansion. At the same time, the company unveiled its newest Mi-3 phone at 1999 yuan ($327) and a 47-inch Smart 3D TV, called Mi-TV, for less than $500. 

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