Xiaomi’s Mi Band is so far one of the highest-selling wearables, or smart hardware products in general, in China. It announced shipment of 6 million units in June 2015, less than a year after its launch.
However despite having the Xiaomi logo on it, the activity tracking wristband was designed and made by Chinese startup Huami in which Xiaomi and Shunwei Capital Partners, the venture capital firm co-founded by Xiaomi CEO Lei Jun, made an investment when it was founded in early 2014.
The product itself is comparable to average activity trackers on the market. So the better-than-average sales are believed driven by Xiaomi’s involvement: 1) its brand, 2) the company’s low-cost pricing strategy (at a RMB79 (US$13) listing price, one tenth of that for a Fitbit Flex), and 3) its strong distribution capability.
Huami is Xiaomi’s exclusive partner in wearables. After the wristband it has rolled out a smart scale, a pair of smart running shoes together with the leading sports apparel brand Li-Ning, and more recently AMAZFIT, a button-size fitness tracker.
But Xiaomi isn’t and will never be the controlling shareholder in it, according to Huami. Shortly after announcing one million unit shipment milestone, the startup introduced new investors including Sequoia Capital that joined its US$35 million Series B funding round, valuing the startup at US$300 million.
Xiaomi’s online stores would later add more smart hardware products made by startups like Huami. They would be called “ecosystem members” of Xiaomi.
But not all of them use Xiaomi’s Mi brand. Reasons are unclear. Most that have got on board had been barely known to Chinese consumers before they joined Xiaomi family.
Xiaomi plans to sign up some one hundred “ecosystem members” , buying stakes in them, selling their products on its well-established online stores and at its recently launched physical retail store chain, and letting some use its Mi brand. The company has also made clear that it’d not self-develop competing products, only self-producing the existing, smartphones, smart TVs and routers.
Not only startups, Xiaomi also wants traditional hardware manufacturers to be its “ecosystem members”. The biggest disclosed investment deal so far is a US$200 million investment in Midea, one of the leading home appliance makers, for a 1.3% stake. Midea has launched a connected air conditioner together with Xiaomi. As to startups, Xiaomi reportedly took 30-ish% a stake in a couple of startups.
It has reached one fourth of the goal, with offerings ranging from connected health devices to home appliances.
The company is also developing chipset solutions and other projects such as a crowdfunding site to engage startups at earlier stages.
The Xiaomi Model
These “ecosystem members” function as white label manufacturers. But Xiaomi’s ambition isn’t limited to be a retail business. The company had made it clear from early on that their approach was to gain a large user base through low-cost hardware sales and make bigger profits from software.
So it’s not surprising that it requires every device made by its “ecosystem members” to be either running a variation of MIUI, a regularly-updated Android-based firmware, or be able to be controlled by the Xiaomi Smart Home app, and store their user data on Xiaomi’s Cloud platform.
Through the Xiaomi Smart Home app, consumers are also able to purchase all smart hardware products or related offerings by Xiaomi or “ecosystem members”. The app can do more; for instance, it will remind the owner of a Mi Water Purifier to replace the filter based on the total time the device has been running. And he or she is able to buy one within the app.
Xiaomi has been making revenues from the software layer of its smartphones through mobile games, advertising and paid apps/items through. It is expected the company will figure out ways to monetize the expanding user base of smart hardware. More than 10 million devices had connected to its platform as of June 2015, according to Xiaomi.
A Proven Model Attracting Followers
Though we don’t see the sales growth of smart hardware products in China is as fast as that of smartphone in the last few years, it is believed by many, thanks partly to Xiaomi management’s preaching, that Xiaomi model will win out in the next round of fights for users and revenues.
Meizu, a veteran smartphone maker that has been left far behind by Xiaomi, is slowly catching up with a model similar to Xiaomi’s.
LeTV and Qihoo 360, starting from an online video streaming site and an online security service, respectively, now are very close to Xiaomi in business model.
LeTV began making set-top boxes in 2012 and smart TVs in 2013, initially planning to sell hardware products to video viewers. In early 2015 the company unveiled Leie, a subsidiary dedicated to smart hardware products. The new company has launched smartphones, a connected bike, a 3D viewer, portable bluetooth speakers, a video transmitter, among others. LeTV is even developing a connected car. Different from Xiaomi, LeTV doesn’t count on third-party startups to make hardware products.
LeTV has begun making advertising revenues from EUI, the Android-based operating system running on its smart TVs and smartphones.
Qihoo 360 first tapped into smartphone sector in 2012 with the setup of an online store to sell smartphones co-branded with Chinese smartphone makers such as Huawei and TCL. But the project ended up in disputes with Huawei. Qihoo would later began to develop small gadgets and then gave smartphone another try by establishing a joint venture with phone maker Coolpad. It has also invested in a number of hardware startups.
QiKU, the smart hardware brand Qihoo unveiled in May 2015, has had Pressy-like Android buttons and video monitoring cameras. QiKU phones are running 360 OS, a custom Android system.
Zhou Hongyi, CEO of Qihoo 360, has made it clear that their hardware products would be sold at the lowest cost possible in exchange for a fast-growing user base. The company announced to give away some one million units of its Android buttons in 2014. And recently it announced to give away some video monitoring cameras which previously was priced the same as Xiaomi’s.