Quartz's latest interview with Hugo Barra, the former head of Google Android that has been leading Xiaomi's engineering ascendance to relevancy, explained more about Xiaomi's strategy of selling the smartphones at cost and going after the long-term service businesses, which I discussed briefly in my previous article. The country here mentioned is India but the strategy applies to all emerging countries in SEAsia that Xiaomi is actively breaking in.
Here I quote some relevant Q&A's:
You are going to build your own platform here?
We are China’s third largest e-commerce company. We sell our own products from our own website.
Selling Xiaomi products alone makes you China’s third largest e-commerce company?
Soon the second. We are going to pass JD soon.
So how come you can’t seem to get enough Xiaomi phones to Indian customers who clearly can’t seem to get enough of them?
We are here not to sell phones and dominate. We are here for the long run, and we want to brand ourselves into the fabric of this country. We need to start small, we need to listen, iterate. We probably could sell 10 lakh (1 million) phones at one go—I’m not sure, but we probably could. But just imagine the burden that comes with supporting that many phones all at once.
Is it true that when the lifecycle of a Xiaomi product begins, you sell it at cost and make money as the cost of components come down?
We sometimes sell it at cost, sometimes a bit above cost and sometimes a bit below cost. We don’t make that many products. If you look at our portfolio, it’s very small. And we really build products that we think can sell for a long time.
Why do you need your own e-commerce business to sell your products?
Because it becomes an integrated experience. You can log on to our website with the same username and password that you use to set up the Mi account on your phone. You feel like you are home the whole time. If you have a problem, you are talking to our people. You can track your order on our website. We like to have control over the complete experience for a customer.
This reminds me also of another serious article in Chinese trying to value Xiaomi as a smartphone company. It obviously came away with the conclusion that its rumored new round valued at $40~50B is simply not possible. But just like valuing Amazon, which was founded in 1994 and still isn't displaying any interest in showing a positive bottom line consistently, with its net profits doesn't make sense, valuing Xiaomi as a smartphone company probably is also a wrong way to go.
Whichever growth capital funds or venture funds are in talks with them, you can be assured that they're definitely not valuing the company as a smartphone manufacturer. Better comparables might be Tencent (WeChat), JD.com or even Alibaba.