As Stratechery pointed out, it’s conventional wisdom that Xiaomi is an Internet services company. That selling smartphones at break-even prices is merely a gateway for selling profitable services. Except this might all just be a marketing ploy, because Xiaomi does make money from hardware, and quite a lot of it.
As much as 92% of Xiaomi’s 3.46 billion yuan profit (or $566 million US dollars) is from hardware. That’s profit, not revenue.
Let’s start with how Xiaomi’s CEO, Lei Jun, describes the company:
We’re actually an Internet company. We’ve already got a business in mobile phone hardware and we want to add to that an Internet platform. We can earn money from that, once it’s established. People just don’t get it. The mobile phone itself is only the carrier. Microsoft used to sell Windows in a box with a CD in it. Does that make Microsoft a paper box company? The box and the CD are only the carrier. If people don’t understand this, they can’t understand [Xiaomi].
Wouldn’t Microsoft be a paper box company if paper boxes actually generated 92% of its profit? If people cared more about the paper box than whatever’s inside?
An Internet company might be what Lei Jun wants Xiaomi to be one day, but right now it’s squarely a smartphone company.
Read Full Article