Struggling smartphone-maker Xiaomi bets on smart gadgets

BEIJING — On a recent afternoon in northern Beijing, Chinese 20-somethings lean over a long blonde-wood table in a retail store, examining colourful smartphones and fitness bands.

The white walls and spare space recall an Apple Store, but on display is a wider and more curious range of products: “Smart” rice cookers, hoverboards, robot vacuum cleaners, bathroom scales and air purifiers.

A tall salesman in a bright blue T-shirt said they are planning to soon cordon off an area to demonstrate Xiaomi drones.

The brightly lit store is one of 36 locations across Greater China operated by Xiaomi, a Beijing-based smartphone-maker that has been frequently touted as the “Apple of China”.

But Xiaomi has a very different strategy: Instead of meticulously designing products in-house, guided by the technical and aesthetic vision of a Steve Jobs-like figure, Xiaomi is investing in dozens of Chinese hardware start-ups, branding the devices with the Xiaomi label, and selling them in stores and through its website.

The gadgets can be operated using a Xiaomi smartphone — a classic Internet of Things play — and are typically priced near the low range of competing products.

The strategy is familiar enough: Hook customers on an operating system — Miui, a heavily customised version of Android — so they will stay loyal to the brand and keep buying more products.

Mr Liu De, who runs Xiaomi’s new ecosystems products division, said the business will pull in 10 billion yuan (S$2 billion) this year — splitting profits with Xiaomi’s hardware partners — and double that next year. He accepts that this is a “very ambitious goal”.

Xiaomi badly needs a second act. A couple of years ago, the company was China’s top smartphone seller and for a time the world’s largest unicorn after Uber. But its dominance has proved fleeting because consumers have moved upmarket. A unicorn is a start-up company valued at more than US$1 billion.

“They want to get more premium phones and are willing to pay more,” said Ms Jessie Ding, a China market analyst at Canalys. “However, Xiaomi’s specs have not changed much over the past two years.”

Meanwhile, competition from domestic phone makers has intensified, knocking Xiaomi into fourth place.

The company is trying to claw its way back, by pushing into other markets. India is a particular focus because, like China five years ago, most consumers want value for money, said Mr Tarun Pathak, a market analyst at Counterpoint Research. But he said it will not be long before Indians, too, will want better phones.

Xiaomi earlier this month also opened its first Mi Home retail store in Singapore, in Suntec City.

Later this month, Xiaomi will launch a premium smartphone with a screen that curves around the side, like a Samsung Edge, according to people familiar with the plan. A smart watch is also expected to debut later this year. If the new phone does not jumpstart sales, Xiaomi’s growth prospects may rest with Mr Liu and his ecosystems division.

To date, Mr Liu said his team has invested in more than 60 start-ups, largely founded in the past three years, and remains a minority shareholder in most of them. Xiaomi also offers input on product design and marketing. Chief among the start-ups is Huami, the fitness band maker.

Headquartered in Beijing, the company also has a Silicon Valley engineering office and more than 300 employees.

In the United States, it has launched the pricier Amazfit fitness tracker. It resembles a wristwatch adorned with a jade-pendant-like sensor — evoking traditional Chinese jade jewellery — while tracking steps and calculating calories burned.

Most of the products in the Xiaomi ecosystem have a similar modern aesthetic, with simple colours, rounded edges and minimally fussy dials or buttons.

Part of the sales strategy involves persuading consumers to buy things they do not know they need.

Unveiling the smart rice-cooker this spring in Beijing, Mr Liu displayed a chart with two coloured lines indicating, respectively, optimal stickiness-sweetness and optimal texture-colour. Where they cross, he explained, is perfect rice.

Customers using Xiaomi’s cooker can scan the bar code on rice packages to detect grain variety and other information, and select from literally thousands of combined heating options to cook peak rice.

Xiaomi’s sleek white bathroom scale has an LED dial that is not visible until you step on the scale. It also uploads your weight to a smartphone through an app, allowing you to track weight gain or loss over time.

“China is set to embrace a consumption boom over the next 10 to 20 years, we see that crystal clear,” said Mr Liu. “What Xiaomi aims to do is to feed these surging demands by introducing products with good quality at a relatively cheap price.”

The company’s focus, he added, is on consumers in China’s second-and third-tier cities, especially those between the age of 17 and 35. BLOOMBERG