Xiaomi gets love and hate in India

The Chinese company has attracted a lot of attention and ire for its strategy of selling its hugely desired phones in small increments in India, leaving hundreds and thousands of buyers angry and disillusioned. Is there a method to this madness?

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The Redmi 1S, Xiaomi's budget smartphone

Perhaps no brand in India has ever engendered such strong feelings of love and hate in such a short period of time as the supernova otherwise known as the Chinese phone maker Xiaomi has. 

Love, because of the way it has floored the country and its phone-loving citizens with its super-value smartphones which is scheduled to upend the entire playing field in a year's time. Xiaomi first unleashed the Mi3 a few months ago—a phone armed with a 5-inch 1080p display, a robust 2.3GHz Qualcomm Snapdragon 800 processor, 2GB of RAM, and 16GB Internal memory, as well as a 13MP rear-facing and 2MP front-facing shooter. The fact that it is priced at around US$200 makes it a bonafide bargain compared to anything with those specs, including the Nexus 5 (perhaps the cheapest of the lot at US$470).

Xiaomi itself was floored by the over 90,000 Mi3s that were sold in five flash sales since the launch on July 23. The last sale saw 20,000 units vanishing in 2 seconds.

A week or so ago, it similarly offered Indians the Redmi  1 S—a worthy competitor to the Moto E thanks to its 4.7-inch 1280 x 720 (HD) IPS display and a 1.6 GHz quad-core Qualcomm Snapdragon 400 processor with Cortex-A7 core and 1 GB RAM—in exactly the same process. Around 20,000 of them were scarfed up in 4.2 seconds via Flipkart, not surprising considering the phone’s US$100 price tag. 

No other phone maker has done as well in such a short period of time in India. The last phone to have such a glittering career (albeit stretched out over a period of time and with larger numbers sold) was the Motorola Moto G, and even this phone took several months to achieve traction rather than the manic, insta-success that seems to greet every Xiaomi sale. 

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But, as an accompaniment to this rosy picture of cash registers ringing, lurks another one steeped in bitterness, despair and yes, even hate. For hell hath no fury like a smartphone buyer spurned, especially in a country like India where people are very serious about their phones and buy them at full price rather than being given one at a rebate by their telco provider which is what happens by-and-large in North America. 

When Motorola decided to use an internet-only sales strategy to flog the Mi3, 200,000 anxious, salivating prospective buyers registered to get a shot at buying the phone. It was the same story with the Redmi 1 S, where 180,000 registered people left heartbroken with no phone. Some users were anguished and then angry that the phone simply vanished from their shopping carts in some kind of cruel, cyber-swami trick. Others just couldn't load it onto their carts. 

Soon, that rosy glow of warm satisfaction that we consumers (especially of phones) know so well upon securing a much sought after, attractive and economical product that is also crucial to conduct life's necessary functions (such as playing Subway Surfer or discussing Priyanka Chopra's love affairs or the Brangelina wedding) was nonexistent. Hate slowly began to seep into an organ that was producing so much love for a Chinese company in India. Cruise through any of the Indian phone specific blogs on the internet and you'll see what I mean. So much so that the firm scrambled to offer freebies such as micro SIM adapter and screen protectors in order to fill what analysts begin to call a 'trust deficit.'

Xiaomi's Winning Formula

So what happened? How could a company that was poised to reap so much goodwill end up also attracting venom? Was it all purely an unfortunate accident?

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Xiaomi VP-International Hugo Barra (right) with Xiaomi CEO Lei Jun

Many have accused the company of consciously suppressing sales to drive up demand and create a buzz. Xiaomi's response to this accusation is a little ambiguous. On one hand it says that it was simply floored by the unexpected and voracious demand exhibited by the Indian market. Still, you would imagine that the company could have easily brought more phones to sell. But Hugo Barra, Former vice president at Google and current VP-International at Xiaomi, told the Economic Times that this wasn't really possible since India's calibrations for hardware and antennas are different from those in any other country. This meant that it was simply not possible to bring in units from other countries like China and Taiwan.

This isn't the only reason that can explain the curious phenomena of the huge mismatch  between supply and demand. To understand this, one has to come to grips with the unusual type of company that Xiaomi is, very different from how most phone brands operate. 

For one thing, it steers way clear of glitzy ad campaigns of the kind that Indian local heavyweight Micromax is wont to embark on, (Hugh Jackman is the Indian company's global ambassador). What Xiaomi instead does rely on is good buzz—on blogs and social media sites—a healthy bit of word-of-mouth. It has been so successful at this that it has even overtaken Samsung recently to become China’s largest smartphone maker. Dribbling out phones is also a good way to test the market—imbibe dos and donts before beginning the real onslaught.

Then there's the magic of Moore's law (where the number of transistors on an affordable CPU would double every two years) which Barra says, in a conversation with techinasia is what allows Xiaomi to sell phones at cost today and recoup it a year down the line because of the uncontestable fact that the cost to produce the same phone will drop in price in the future. And orchestrating sales in spurts through an online storefront helps the company to manage inventory and working capital which can be a nightmare for a relatively new brand.

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The Mi3

At the end of the day, Xiaomi isn't even really interested in profiting from the phones, says Barra. Like Gilette or any self-respecting App on the Net, it too wants to use the razor-to-blades model of generating cash. "We are not looking to make profits out of selling our phones. Our phones are just the starting point. We will make our money in the long run from an ecosystem around our devices. Like Amazon who built Kindle, Fire Phone, and invested in technology to boost its core ecommerce. Similarly, our phones are just a means to an end, and not the end," Barra explained to techinasia.

Xiaomi may not be looking to make profits off its phones but it sure seems to do so pretty easily anyway (Question to Self: Is this company for real?). According to PC World, the Mi 3 costs US$157 to make. "I think they are making at least US$100 of profit with the Mi 3," estimated Minatake Kashio, Fomalhaut’s director to PC World, after factoring in distribution costs. An iPhone it is not, but a hundred bucks and a forty percent margin per unit of anything is something I know for a fact that many corporate chieftains will weep with joy to experience. 

At any rate, the razor-blades model has allowed the company to rake it in via their online storefront in China where customers can buy different user interface themes for their phones (by purchasing Xiaomi's 'Mi' credits), T Shirts, headphones, even the company's toy rabbit mascot—in other words, pure marketing gold, and yes, pure cash. It also makes money from its highly customizable MIUI firmware that is based on Android.

In fact it is this open-ecosystem that Xiaomi has spawned that has attracted hordes of customers to it, gratified that they can finally do something about many of the features in their smartphone that they aren’t too crazy about. 

Of course, nothing will happen if a brand’s after-sales-service is crap, so Xiaomi will only be as good as it can deliver on this front. (Nothing hurts a company as much as one of its broken phones on the mantelpiece staring back at its owner saying, 'Hey Stupid, shouldn'—t have bought me!')

As long as Xiaomi keeps itself well-oiled in this department and its phones prove their sturdiness and not fall apart in a matter of months or a year like a few Indian and many Chinese brands are known to, it may just have a shot at repeating its China glory in India as well. 

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