If It Quacks Like a Duck

When someone ditches the likes of Microsoft, News Corp, and China Mobile to join The Mobile Revolution, then you know the change is seismic and it’s for real. . Moreever, a smart phone is no longer a phone. We no longer use smart phones for calling, as it increasingly becomes a machine for all seasons.

Since it’s unlikely that everyone would splash big on an iPhone, many insiders believe cheap smart phones to be the future, especially in a developing market like China. Netease is putting out a smart phone priced under 1000 Yuan. Even before that, other Chinese companies are already releasing products of their own.

Of course, this has not been news for some time. Xiaomi was the first into the fray, and millions of phones have been sold since its inception in 2010.The success of Xiaomi has increased the celebrity of the company’s founder Lei Jun.

But before Xiaomi’s financing effort that resulted in the company being able to Raise more than 200 million dollars with a valuation of 4 billion dollars, controversy struck. Zhou Hongyi, the founder of 3721.com and Qihoo 360, opened fire at Lei on Sina Weibo, the Chinese twitter.

Zhou has made one accusation after another, faulting everything from Xiaomi’s product quality to its marketing schemes. Lei has been forced to return fire in order to defend his and Xiaomi’s reputation; he even put out a detailed list of Xiaomi’s cost in order to refute Zhou’s charge.

Zhou has always been a contentious figure. Most people agree Zhou’s attack on Lei is aimed to generate publicity for AK47, Qihoo 360’s own low priced smart phone. Yet several of Zhou’s lines of attack are hard to brush aside, even for a master of public relations such as Lei.

Lei’s has repeatedly claimed that selling hardware is not a lucrative trade, which is why Xiaomi must build an ecosystem, not just a product. These claims have been thoroughly debunked by Zhou, whose calculation that Xiaomi makes close to 800 Yuan per phone is pretty much on target.

After Zhou tore apart the emperor’s clothes, it seemed that Xiaomi is no different from other Chinese electronic makers. Previously, I have argued that focusing on marketing gimmicks instead of building stellar products is a sure fire way for Chinese companies to dig their graves. Maybe Lei has a long term plan for an ecosystem after all, but from afar Xiaomi is at best a Shanzhai product with better marketing.

Of course, there is nothing inherently wrong with Shanzhai products. Many claimed that with the coming of smart phones, Shanzhai is a dying art. But the success of Xiaomi has shown, contrary to popular belief, Shanzhai is alive and well.

In fact, one could argue Shanzhai is a natural part of the commdization and democratization of smart phones. In addition, as this hilarious post demonstrates, the very things that limit Shanzhai (product quality, after sale services, marketing, to name a few) have invigorated Shanzhai maker to come up to a great deal of creative prodcuts, much like Jonah Lehrer predicted.

The bottom line is, shanzhai for shanzhai’s sake is good; you know you are building a commodity that is to be sold cheaply. What’s truly harmful is masquerading Shanzhai as something that it isn’t. Unless proven otherwise, that is exactly what Xiaomi is doing.