In the leadup to what is expected to be the largest initial public offering (IPO), Xiaomi founder Lei Jun has revealed how he believes the company sets itself apart. With an expected valuation of around $65 billion to $70 billion, the 48-year-old's company has grown over the years to become one of the most well-known Chinese handset makers. That's in no small part due to its involvement across nearly the whole of the consumer electronics spectrum. Projects ranging from the recently launched Black Shark gaming phone and other devices to its smartwatch endeavors, which are primarily handled by Huami Corporation. All of those efforts have culminated in a company that is currently the top brand in the world's largest emerging market in India. That's in addition to being the fastest growing smartphone vendor in its home country – even if it has lost the title of top seller in that region.
The executive explains that strategy to be very straightforward. Instead of following others in the smartphone industry, he says, the business model used is centered around the value of the brand and its products. Called "tipping," the underlying premise of that is to offer hardware at as close to a zero profit margin as possible. That's a business model that the company has followed since the beginning. In fact, it was all but set in stone before the company even launched its first handset and Lei believes that should be built into Xiaomi's underlying policies as a protection against straying from it. Where the company really makes its money, the executive continues, is in the monetization of what he calls "complementary services." That means that it isn't really until the company's users take advantage of the after-sale software or features included with any of its given devices that Xiaomi makes a substantial return. For example, when users stream video on their Mi-branded smartphone, use the built-in browser, or other online services, the company makes a profit. The hardware itself only returns a gain of between 1 and 2-percent, if a return is gained at all.
The strategy also extends into returns based on brand recognition, loyalty, and trust. The values of the company build brand power that translates to sales of Xiaomi's other branded products. That includes more than 70 items that many wouldn't associate with a smartphone and tablet manufacturer – such as pens, air purifiers, pillows, robotic vacuums, and more. The general result of that no-overhead strategy is that the company is able to offer top-of-the-line hardware at a much lower cost than its competitors. Through all of that, it has still turned a substantial profit. So Lei Jun may very well be onto something with his strategy for running things.