Xiaomi reportedly confirmed the acquisition of Duokan, a startup with offerings related to e-book and online video. To many it’s not a surprise. It is a member of Lei Jun gang as many would tell you. Lei, Xiaomi’s very CEO and an angel investor, joined in a round of funding in Duokan earlier this year and the company’s Android app is a built-in service in Xiaomi phones among several others by Lei Jun gang, Mitalk, YY, UC, Kingsoft services, Vancl and Letao.

It’s not a secret that the video service for Apple TV Duokan developed has something to do with the TV set-top box Xiaomi is releasing today.

Can Duokan become a iTunes for Xiaomi devices?

Duokan, founded in 2010, began with an alternative Kindle system for Chinese reading. Later on the team developed a full package of reading apps and became a content platform, indexing links for e-book downloads and, more recently, selling licensed titles. In early 2011, it partnered with aigo, a veteran consumer electronics maker, to launch Baikan, an e-reading device which didn’t turn out to be welcomed.

I came across an article by Hu Xiaodong , vice president of Duokan, talking about Kindle’s coming to China and his disbelief in mobile reading as a revenue generator.

‘…only 2.91% of money paid on the Internet (in China) is from the mobile end. Mobile payment is at an early stage that consumers need education. In a business environment where demand for mobile gaming, entertainment and education just emerged, how can you expect (revenues) to be driven by that for mobile reading?’

Apart from the unpaid, a big chunk of the revenues from paying users, Hu believes, will keep going to the Three telcos in the coming two or three years as they are still controlling outreach channels. He doesn’t think Kindle will make much change in China soon.

According to Hu, 1.2 mn Kindles in China is installed with Duokan’s solution. iKandou is the destination Duokan provides for Kindle books, for free. Registered users can either download MOBI files or use a Kindle email address to get books sent in. You would not think the books there, from the ones by the latest winner of Nobel Price in Literature to the latest work by J.K. Rowling, are legitimate. Looking at the books that can be downloaded from links its Android app brings over, you cannot tell they are all copyrighted either.

Duokan for Apple TV serves the jailbroken, streaming online videos from major Chinese services, Youku, iQiyi, Sohu Video and the like. It’s also for free.

After all the efforts Lei Jun made faking Steve Jobs, from hardware to software, he must want to build a iTunes-like content ecosystem and make money like how Apple does. Duokan launched an e-book store a couple of months ago. If what Hu Xiaodong at Duokan wrote about was true, they haven’t seen good money yet. Would they wait for Chinese users to pay eventually, or create revenue sources in other ways, just like some Chinese internet players did after having built a huge user base? If it’s the latter, how many Xiaomi phone users do they have at the moment? 3.5mn? Ummm, that’s barely a big number in China fashion. Or, the set-top box will catch on soon? How about that?