On Tuesday, around the time some 100,000 pre-registered Indian consumers were going berserk trying to get their orders through for Xiaomi's Mi 3 platform on e-commerce local heavyweight Flipkart's website, the Chinese budget handset maker was living up to its image of the Apple of the East back in Beijing.
A plush event to launch the flagship smartphone Mi 4 at which founder, chairman and CEO Jun Lei was clad like the late Steve Jobs, in the iconic black top and blue jeans, had many things common with an Apple launch gig — including the celebrated 'one more thing...' slide that the Cupertino, California-headquartered cult handset maker has been accustomed to unveiling in the run up to a product launch.
The reliance on Apple imagery pretty much ended there, though. Especially when Jun didn't leave anyone guessing as to who he was targeting with the Mi 4 (pronounced as me 4) launch. "Our product really is better than the iPhone," Reuters quoted Jun as saying. "Even our white colour [phone] is whiter," he joked.
If that wasn't enough, vice-president Hugo Barra, Xiaomi's prize catch from Google who heads its global business and is leading the charge into emerging markets, let on that he was "sick and tired" of the Chinese handset maker (pronounced as Shao-mee) being labelled an Apple copycat. The Mi 4 (16 GB) is priced at $320 in China, against $854 for the iPhone 5s which debuted there early this year.
The Apple halo certainly works — especially when the promise is an iPhone-like product at much less than half the price. Some 10,000 Indian consumers who succeeded in wrapping their hands around the Mi 3 earlier this week certainly felt it was worth the wait — and the money. (The Mi 4's base model is more expensive than the Mi 3 by roughly Rs 5,500, has a superior camera, higher RAM and a better processor and screen resolution.)
Priced at just under Rs 14,000 and loaded with top-end features that rivals are offering at over three times that price, the frenzied demand for the Mi 3 with its Apple-like interface led the to the Flipkart website (capable of handling 3 million customers daily) crashing.
Twitter was abuzz. Newspapers headlined the event (the online sale binge and the website crash) and buyers talked about it. "I was lucky I got it. At that price, it is a great product," says Chander Sharma, 38, a Delhi-based private sector executive.
"We are super-excited," says Manu Jain, Xiaomi India head. Adds Michael Adnani, vice-president, retail, Flipkart: "We are working with Xiaomi to ensure that the purchase experience lives up to our promise."
Creating A BuzzThe hype and buzz sit nicely on Xiaomi, a four-year-old Chinese company that has seen a meteoric rise and is now hailed as the world's fastest growing handset vendor. Valued at over $10 billion, it is already the sixth largest smartphone vendor globally. And it harbours big ambitions — to sell 68 million handsets in 2014 and 100 million in 2015. In 2013 it sold 18.7 million. Business Insider calls it the next Samsung.
A few days ago, Samsung reported disappointing earnings and shrinking margins globally for the second quarter of 2014, partly due to competitors like Xiaomi. In a price-sensitive market like India, experts expect the leaders — volume players like Samsung and desi brand Micromax — to get hit the most by Xiaomi's India thrust.
If Apple is in Xiaomi's cross hairs in China — where in 2013, it overtook the iPhone maker — in emerging markets like India where the American handset maker has still to make an all-out assault, the Mi 3 maker hopes to get a head start on the real McCoy.
The strategy is clear-cut: package the product like Apple, offer high-end features to rival not just Apple but other high-end smartphones on memory, storage, battery et al — and, best of all, price the product at audacious levels.
The Chinese AppleXiaomi's calling card clearly is that "we'll give you an Apple-like phone at a fraction of the price".
From product design to packaging, Xiaomi has copied Apple's playbook page by page. Like Apple, its zany marketing ploys — online-only retail and word-of-mouth no-advertising strategy — stand out.
If Apple's strategy is to build an exclusive premium product, price it high and build an entire ecosystem, like iTunes, around it to keep customers hooked, Xiaomi too wants to do most of that — expect that it wants to be unabashedly mass market.
Xiaomi wants to combine quality with quantity, operate on wafer-thin margins, use consumer feedback to constantly upgrade its product and offer an array of apps and services around its products to keep customers hooked.
Like, as Jun suggested, the Amazon Kindle which is priced at near cost and monetizes with volumes and other services and products it sells.
China, the world's most efficient factory, wants to move up the value chain. Its government is pushing its companies to think brand and innovation, so far scarce in China.
From automobiles to consumer electronics, companies like Geely (which audaciously acquired Volvo of Sweden) and Lenovo (which bought IBM's desktop and server business) are snapping up established global brands to play the brand game. Xiaomi is perhaps the purest homegrown effort in that direction.
Founded in April in 2010 by serial entrepreneur Jun along with ex-Googler Bin Lin and six others, the privately held company is backed by big venture funds, including IDG Capital, Qualcomm, and Temasek.
It has also been luring some top talent from global technology companies, the biggest of them being Barra.
First Stop India"For us, it is the biggest market outside of China," says Bin, also the president of Xiaomi. In many ways India will help shape Xiaomi's emerging markets and global strategy.
So what can Indian consumers expect? A better buying experience, says Jain, the India head.
Adds Bin: "The most important goal over the next six months is to learn about everything — hardware, software, product features and themes — that Indian consumers need."
An R&D centre is an immediate priority to enable Xiaomi to customize products to Indian users' needs.
Xiaomi will also bring in its theme stores, which will help users customize the device's look and feel. In China users can choose from thousands of themes, including Ironman and Stone Age.
In India, Xiaomi has one around Taj Mahal. Many more based on Bollywood, sports, religion are on the horizon. With Mi 3 already available in Hindi, it hopes to be available in at least the top eight Indian languages, starting with Bangla and Tamil.
Along with the Mi 3, Xiaomi will also make available the Redmi 1S (smartphone), Redmi Note (phablet) and the Mi Power Bank (battery).
"We want to bring all the core products that we build to India. We want to find an Indian recipe by making variations for the Indian market from what we have learned in China. For instance, cash on delivery works brilliantly here but does not work in China at all," says Bin.
After-sales service is a key focus area. Xiaomi has two exclusive stores in Delhi and Bangalore, which promise a 24-hour turnaround and the target is two hours; such outlets will grow in numbers.
As will the 36 multi-brand service centres. The aim is to have a support footprint in top 50-100 cities.
Xiaomi could not have timed its India entry better. Smartphone sales, as a percentage of all mobile phones sales, have risen, from under 2% in 2009 to over 30% by 2014.
Also, a growing percentage of smartphones are being bought online — from almost nil in 2009, e-commerce accounts for around 10% of sales and is likely to touch 20-25% in the next two-three years, estimates Jayanth Kolla, co-founder, Convergence Catalyst, a consultancy firm.
The ChallengesWill Xiaomi be able to live up to the hype and sustain the buzz in a highly competitive market?
To be sure, there are challenges, and one of them is spelt out by the India head of another Chinese handset maker, Gionee.
"As we are a Chinese brand, there is a stigma that we have to suffer," says Arvind Vohra, head, Gionee India.
Also, in a country like India where internet penetration is still low (19% against 46% in China), Xiaomi's e-tailing model may be limited in its reach, says Anshul Gupta, principal analyst, Gartner India.
Xiaomi for its part is relishing the challenge. "I've been in Google and Microsoft. Great companies, but I have also seen their mistakes when going into different countries. We want to be a global company that lives really close to consumers worldwide," says Bin.
Make that a global company with global size and scale. Jun, a celebrity in China's tech circle with over 8 million followers on Sina Weibo, China's version of Twitter, is not short on ambition: he wants Xiaomi to be a Fortune 500 company soon.
Operating only in China, last June it went ahead of Apple to become the sixth-largest smartphone vendor in the world's largest mobile phone market. By October 2013 it climbed to No 5 and currently is at No 3.
If Xiaomi is achieving a cult status of its own, it's not without reason, the biggest being its disruptive product and pricing strategy. Look no further than the Mi 3 for proof of this, which compares well with specs of rivals, and even offers more than a couple of its pricier rivals (see Comparison with Rivals).
How does Xiaomi do it? The big gambit of course is to push volumes and work on wafer-thin margins. Unlike other handset vendors, it sells each model for a slightly longer period (up to 18 months against 12-16 months by others), giving it headroom to sell more.
Inventory costs are kept low by releasing smartphones in batches of 200,000-300,000, often selling the entire lot within hours. Also, Xiaomi sells its product only online (in China it has its own e-commerce website), keeping distributor and retailing costs in check.
A Delhi-based senior executive at a handset MNC estimates that from Samsung to a brand like Gionee, the retailing-distribution-marketing margin could range between 20% and 40%, a cost that Xiaomi saves on.
The Apple avatar of course helps in creating a buzz at minimal cost. Reportedly, while Samsung spends over 5% of its revenues on marketing, Xiaomi manages with just 1%. Chinese brand Gionee spends close to Rs 150 crore annually on marketing in India, a cost Xiaomi is unlikely to match.
In China, Xiaomi relies mostly on bloggers, local social networks like Weibo and WeChat and rides on its co-founders' tech hero status to get press and connect with people.
Like Apple's Fanbois, it has built a huge online following called Mi-Fans. And it harnesses their feedback to seek critical design and feature inputs. Based on such feedback, every Friday it releases a new version of its operating system — a customized proprietary Android — called MIUI. This not only keeps development costs low but also builds stickier Mi-Fans.
So how does Xiaomi stand out from other Chinese smartphones that are imported and then branded by Indian owners? Kolla points out that unlike say Karbonn or Micromax, Xiaomi is an end-to-end handset maker with robust in-house R&D for hardware and software. An e-store that offers apps and multimedia services, the e-tailing strategy and a cult following are the other differentiators.
Stacking up the iPhone and the Mi 3 may be like comparing apples with oranges but for now Xiaomi clearly has a shot at being the (affordable) apple of the eye of the Indian consumer.
