Xiaomi CEO, Lei Jun, once said that his company didn’t expect to profit from Xiaomi phone but from services(source in Chinese). He must refer to services on MIUI, the custom Android system built for Xiaomi phone.

MIUI announced 15 mn users at the end of 2012. A recent report (source in Chinese) says that the monthly revenues Xiaomi made from MIUI had surpassed 10 million yuan ($1.6mn). Revenue sources include gaming, revenue shares from paid search, paid theme designs and app downloads.

It is said that the games center launched as recently as last September has become a considerable revenue contributor. The company, partnering with game companies, released custom editions of popular games or did game debut on the platform. The games center has unshered in 3-4 mn MIUI users  and the number is expected to grow fast, according to Hong Feng, co-founder of Xiaomi and head of MIUI.

The app market within MIUI is estimated to be another revenue driver. It contributes 10% of the total revenues, according to the same report.

Paid search revenues shared with search services is an important income source for most platforms, such as UC Web, with considerable user bases and traffic.

Xiaomi invited designers and launched paid theme designs. Though users protested it accusing Xiaomi of being greedy, minor revenue has been generated there.

Xiaomi acquired Duokan, a software company that developed digital reading and video platforms in 2012. Duokan Read, a reading platform, has been selling licensed books. I speculated that Xiaomi expected Duokan to become an iTunes for Xiaomi in order to monetize digital content. Of course, gaming, digital content as well, is higher-margin business.

MIUI vs. iTunes

It’s interesting that Apple, who makes profits mainly from hardware sales, once said they’d operate iTunes, also a software platform, at break-even.

Though Apple doesn’t offer breakdown of iTunes metrics, a research report estimates that iTunes inclusive of Apple’s own Software(content sold through Apple’s mobile devices) generates as much as 15% operating margin on gross revenues. That’s over $2 billion a year”. As Apple management said in 2011 that App Store was run “a little over break-even”, we dare to say Xiaomi’s must be higher when users get used to paying for anything, gaming, e-books, video, music and so on, if Xiaomi would really count on content sales as Lei Jun said.

The margin for app sales in iTunes could be 2% and music be 1%, according to the same report. But we know margins from games must be much higher.

image: asymco.com

Xiaomi shipped 7.2 million phones in 2012 and eyes 15 million for this year. If at the same rate, MIUI’s monthly revenue could surpass 21 million yuan. iTunes revenue has quintupled in seven years. How about Xiaomi’s number in seven years?