Alibaba Leads US$650M Investment in Chinese Smartphone Maker Meizu

Alibaba Group has decided to invest US$590 million into Chinese smartphone maker Meizu, the two companies announced today. Another US$60 million in funding came from Haitong Kaiyuan Investment. It’s only six months since Meizu announced its first outside investment.

Meizu was one of the first smartphone brands in China. Since launching its first Android phone in 2009, Meizu has received plaudits for its customized Android system and finely designed hardware from both the smartphone industry and consumers.

Although Xiaomi began making Android phones several years later, it is now far more successful in branding and sales. Huang Zhang (aka Jhon Wang), founder of Meizu, accused Xiaomi of stealing their business secrets as Xiaomi’s CEO Lei Jun had once visited Meizu as a potential investor. Xiaomi’s approach to software development, hardware design and user engagement strategies in its early days was remarkably similar.

But now there are two major differences between the two companies: (1) Xiaomi’s operating system keeps updating regularly, and generates revenues through paid services and advertising, and (2) Xiaomi has successfully expanded from smartphones to a variety of smart hardware products, from smart TV to wearables to smart home devices. Instead of producing every hardware product in-house, the company plans to expand to a hundred categories by investment or acquisition.

Pressured by upstart competitors like Xiaomi, Meizu decided shift strategy and sought outside investment in 2014. Over the year, the company launched low-cost phone models similar to Xiaomi’s and iPhone’s 5S, unveiled a smart hardware plan Liftkit (software enabling third-party smart gadgets to interact with its smartphone OS Flyme), and introduced two rounds of outside investment.

Before making smartphones, Meizu was one of the largest MP3/MP4 player makers in China (see this article for more on the subject).

Alibaba has been making efforts to get into smartphones. In 2012 the company launched a custom operating system Aliyun, or YunOS, with a dozen Chinese smartphone makers having adopted it. Alibaba claims a total of 10 million phones loaded with YunOS have been shipped as of October 2014.

Alibaba announced a similar partnership with Meizu in late 2014, with the two companies subsequently initiating talks on potential investment, according to Alibaba. The two companies and Chinese home appliance giant Haier jointly announced the “Meizu Smart Ecosystem” to take on the Xiaomi-Midea partnership last month.

Following the investment, Alibaba will provide Meizu with resources in e-commerce, data analysis, online payments, operating system and other internet/mobile services, and Meizu will help with Aliyun promotion, software and hardware customization, offline sales and marketing (as it owns many retail stores across China), according to the announcement by the two companies.

Editing by Mike Cormack (@bucketoftongues)