As we ring in the New Year and many of us head for the International Consumer Electronics Show in Las Vegas next week, we pause to note the dramatic changes among key players, not to mention the game itself, being played in the global consumer electronics industry.
Xiaomi, a company that won't be present at CES, is scoring heavily.
Earlier this week, China's Xiaomi announced a windfall of $1.1 billion from investors in its latest round of funding. As Reuters reported, this “cements [Xiaomi's] status as one of the world's most valuable private technology companies at a valuation of $45 billion.”
Mobile Internet company
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.
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 says that Xiaomi — at $45 billion — is worth nearly three times the market capitalization 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, chief executive Lei Jun said Monday on Weibo.
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 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.”
Must lead, not follow
So, how will Xiaomi pull that off?
Xiaomi showed its hand earlier this month by investing over $200 million in a Chinese home appliance company, Midea. The move is billed as a part of Xiaomi's smart home push.
Guangdong-based Midea produces a host of home appliances, including air conditioners, refrigerators and kitchen appliances. Midea is reportedly investing 15 billion RMB ($2.4 billion) in smart home research and development over the next three years.
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