It’s no secret that Xiaomi wants access control of content or services for mobile and, more recently, smart home. It’s also well-know that, unlike the custom Android systems developed by many older phone makers like HTC’s Sense that are more for better user experience, MIUI is part of Xiaomi’s business model from day one. Compared with the one-time gain from hardware sales, the company’s bigger ambition is in the software that will bring in increasingly more revenues in the long run — That’s why the hardware products by the company are sold at relatively low prices.

Xiaomi has launched MIUI 6, the sixth edition of the customized Android system, or ROM, pre-loaded in its hardware products and available for download. The major updates include,

(1)  It enables, with Xiaomi Cloud service, cross-platform syncing between Xiaomi devices, smartphone, tablet, smart TV, set-top box, and smart WiFi router.

(2)  It has “deeply” integrated security technologies from Tencent, Kingsoft (where Xiaomi CEO Lei Jun serves as the Chairman of the Board) and LBE (a Chinese Android security solution provider) for security and privacy. (Tencent and Kingsoft are allied powers that oppose Qihoo in Internet security.)

(3) It saves battery life and data usage.

MIUI has been making revenues, through advertising and paid services, from in-house built services, such as browser and app store. MIUI has also begun integrating third-party Internet services as the default options for local business listings, WiFi hotspots, package delivery, among others. It’s only a matter of time before the company takes commissions or transaction fees from those third-party services. Some of the services are from companies Xiaomi or its CEO Lei Jun have invested in that Xiaomi’s user base may bring them income too.

So, it’s no wonder the latest updates include cross-platform syncing, security service, battery & data conservation. It is widely received in China that productivity services like those, especially when they are offered for free, help fast build a large user base. And monitizing such a user base is only a matter of time. Qihoo, with its free online security service and web browser, is a successful case on PC. A flock of productivity apps have joined the global land grab in mobile Internet market, and some such as Cheetah has begun monetization.

By the end of 2013 when its users were about 30 million, MIUI’s monthly revenue reached RMB30 million (about US$5 million) — ARPU (average revenue per user) is one yuan. It’s safe to say MIUI can make at least one yuan per user per month in the long run. Hong Feng, lead of MIUI and former Googler, said in an interview earlier this year that the total users would reach 100 million by 2015 Spring Festival (early 2015) (article in Chinese). Easy math.

 

Source: Company

Source: Company

The Software User Base

MIUI has a dedicated team of more than 300 engineers that has been releasing new features and updates regularly. The system is compatible with more than 200 Android phone models and only some 50 were done by the company’s own engineers. The other 170+ were by volunteers, some of who are making a good living bringing MIUI into more Android devices. Xiaomi pays them based on an assessment system the company has come up with

Over 80% of the total MIUI installs were in Xiaomi phones shipped as of July 2014. The rest 10 million or so are in the other 200+ non-Xiaomi Android devices. Hong Feng said in the aforementioned interview that they realized the number of users who were capable of installing a third-party Android ROM into their phones couldn’t be much bigger than 10 million.

To lower the bar for those who don’t own Xiaomi devices, the company developed Xiaomi System, an Android launcher that is supposed to carry as many MIUI features or services as possible. Two months since the launch, Xiaomi System had got 1 million downloads. Almost all were downloaded from Xiaomi’s own website — Xiaomi wouldn’t be willing to pay other Android stores in China to promote its apps.

Also, MIUI, available in more than two dozens of languages, may reach more countries way faster than the physical Xiaomi phones or other hardware products.

Arms Race Has Begun.

As I mentioned, both the monitizing-a-user-base-gained-from-free-productivity-services model and the Xiaomi’s, which could be harder considering the difficulty in making hardware products, are well recognized in China.

When Meizu, a well-regarded consumer electronics maker in China, developed Flyme, a custom Android system for its smartphones, the company didn’t seem to have the Xiaomi model in mind. Instead, Meizu founder Huang Zhang, aka Jhon Wong, accused Xiaomi for stealing their phone design and business plan. Meizu now is far behind Xiaomi. One of the reasons, according to Meizu founder, is they didn’t raise funding from outside investors that they couldn’t expand as fast as Xiaomi.

At the same time they must be aware of the growth of MIUI. The company recently announced that they’d open up the Flyme system to third-party phone makers and developers. Flyme thus will be available in other Android phones and more apps will be created for the platform. The company began partnering with local software companies such as Wandoujia which provides mobile search for it and possibly share future revenues from search marketing with them. Flyme will launch a new version on September 2, two weeks after the MIUI’s.

Huawei, now one of the top Android phone makers in China, recognized the power of Xiaomi from early on and decided to be its challenger — at least to us it appears to be so. Like Xiaomi, the company has developed high-spec & low-cost phone models, and a custom Android system, EMUI, which will launch a major update in September too.

OnePlus, a new Android phone brand founded by a former exec from consumer electronics maker OPPO, has confirmed that they are building a team to develop a customized Android system in Taiwan. It’s first flagship phone, OnePlus One, is loaded with CyanogenMod (CM), an open source Android system that apparently has no business plan like that of Xiaomi.