Chinese Android startup offers low-cost, high-spec handsets

China's Xiaomi launches handset based on its Android-based operating system, MIUI, with hopes of achieving reach of Google and Apple. But it may be embroiled in ongoing patent disputes, analyst notes.
Written by Mahesh Sharma, Correspondent

A Chinese tech startup offering its own Android-based operating system (OS) has launched a high-specification, low-cost handset with the hopes of reaching 1 million users by year-end, which a market analyst has lauded as innovative but warned the company may get drawn into the ongoing patent disputes.

A unique business model has emerged in China where mobile Internet company Xiaomi, on Monday launched a feature-rich, cheap handset optimized to run on the company's Android-based OS, MIUI.

The mobile phone, MI-ONE, features a 1.5GHz dual-core processor, 1GB RAM and costs 2,000 RMB (US$313.4). The company has accumulated 500,000 users on the MIUI platform since it was founded late-2010.

The rapid rise from OS developer to handset manufacturer marks only the beginning, said Xiaomi's co-founder and president, Lin Bin, whose vision for the company is to have the reach of Google or Apple.

"Unlike traditional handset manufacturers which make handsets, sell them and make money, our business model gets started when the user buys the handset," Lin said. "In many respects it's like an Internet company and we've added mobile Internet. It's a coincidence we picked Xiaomi, where MI stands for mobile Internet. We envisage a community of Internet users to use our Internet products every day."

He hopes to crack the 1 million user milestone by year-end and said the key to the company's success has been MIUI's weekly release cycle, which rapidly responds to customer feedback via the Internet and user forums.

Lin explained: "The users download the ROM refresh onto their phones and give feedback. We collect the feedback and come back next Friday, launch a new version and we keep doing that again and again.

"We are improving the OS using our user base of half a million today. We're taking a very different approach. It's very Internet-driven...and evolving very fast."

The weekly release cycle also addresses a key criticism of the Android ecosystem: version fragmentation, where manufacturers and carriers are unable to update their devices at the same pace as Google's rapid release cycle.

MI-ONE goes on sale today and is available for purchase only on the Internet and within China.

For the moment, Xiaomi is ignoring the global market in favor of China, which Lin described as a "free market" because handsets are not locked to a particular carrier or SIM card.

"Anybody can buy any handset and plug in a SIM card from any carrier," he said. "It gives us a unique opportunity to build a great handset, with the best features and highest quality."

"In future we'd consider the international market, but what we're really focused on is building good quality handsets and not worried about volumes we're selling," he added.

Innovative but patent threat looms
Gartner analyst, C.K. Lu, said Xiaomi was more innovative than other Chinese whitebox vendors for a number of reasons: producing a high-spec, cheap handset; integrating the best features of the Apple iOS and Android OSes; and adopting a western-style public relations and marketing strategy.

However, ultimately, Lu placed the startup in the same category as other Chinese companies which replicate successful American businesses, such as Qu Qu which modeled after Facebook.

The lack of true innovation could potentially see Xiaomi drawn into patent disputes with the likes of Apple and Microsoft, he said.

"I'm more concerned about the patent perspective because it's not really an inventive OS," the analyst noted. "It's a small company so nobody will pay attention for now, but if you really get [sufficient] share of the market, maybe Apple and other manufacturers will go after you."

This threat could be neutralized by Google's recent acquisition of thousands of mobile and wireless patents via the Motorola purchase, which Google CEO Larry Page had described as a move to protect Android and its partners.

However, Lu said it remains unclear the lengths Google is willing to take to protect vendors, especially smaller companies such as Xiaomi.

This issue also highlights a wider conflict of interest in the Motorola buy: Google is no longer an independent software developer and may alienate other handset manufacturers that sustain Android today.

According to Lu, there will be no changes in the next couple of months or even a year, but vendors such as HTC and Samsung will reconsider their long-term commitment to Android.

"I don't see lots of changes immediately because they don't have other choices. Android is the strongest ecosystem in the market right now," he explained. "Big vendors like Samsung and HTC will have to think about second choices because if more vendors join the Android ecosystem, it's getting difficult to differentiate, other than being the cheapest."

"I believe HTC has its own plan to do an in-house OS," he revealed.

This uncertainty for manufacturers indicates a wider power shift in the mobile industry that has played out over the last decade, where software companies have wrested the dominant position from hardware manufacturers.

Lu added: "The OS owners like Google, Microsoft and Apple actually control the market through their ecosystem.

"So carriers and hardware manufacturers will be in a more difficult situation to control price or supply, and be under more control from the OS developers."

Mahesh Sharma is a freelance IT writer based in Australia.

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