Xiaomi, The ‘Internet Services Company’ that Isn’t 

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May 31, 2015 by ...

Xiaomi is an ‘internet services’ company which makes practically nothing on ‘internet services’. Lei Jun, Xiaomi’s king capo, plays to the image of Xiaomi being a well rounded firm with its fingers in many pies. He is smart and does this to raise Xiaomi’s valuation when they go IPO. The fact, however, is that Xiaomi is essentially a smartphone manufacturer.

The hype

Xiaomi shot up the cell phone leaderboard to number one in China this year. Lei Jun enjoys that cred, but claims his firm has more depth. According to him, phones are merely the packaging, but Xiaomi really sells internet services.

Lei Jun’s math must be as good as his English as the only question I can ask is , ‘Are you ok?’

The facts

Last year Xiaomi supposedly made $566 million in net profit. This is nothing to sneeze at but in light of their $12 billion in sales it means Xiaomi’s margins are microscopic. Of course this would be expected if Xiaomi where a ‘phone’ company, but they claim they are not.

MIUI makes little

Part of Xiaomi’s specious ‘internet services company’ claim is that they make cash off the MIUI OS. According to them, this is a ubiquitous marvel of modernity which is used in over 50 countries. Of course they play down the fact that the vast majority of those users are Chinese students and the like. But while spoil such a beautiful stat with such ‘details’. 

Being a net services company, Xiaomi should derive a modicum of cash from those services. Having consumers in so many places should mean their coffers spilleth over with ‘dead presidents’, or in China’s case, a dead dictator.

The facts however, prove this to be untrue. Recall that Xiaomi had revenue of $12 billion and profits of $566 million. Their ‘services’ via MIUI were almost non-existent. If they are to be believed, the OS made around $4.9 million per month in sales or about .005 of the total. 

According to this skeptic, numbers such as this do little to prove that Xiaomi is but a cell phone tout.

Why it matters

Some may be asking why this matters. Xiaomi does sell phones and other things so what’s the harm in calling them a service company?

The reason is simple. A services company, especially in Info tech, will have a higher valuation. Phone hawkers don’t tend to make a lot of cash, just ask Sony and Blackberry for proof. In other words, it’s in Lei Jun’s interest to paint his corporate canvas in the allure of IT and not just handsets.

Based on their own accounting, Xiaomi is just another Chinese firm that assembles or produces things. It is a reseller much like Walmart and SAMs. Like I said, this makes them amuck less compelling firm so why get hung up on such things, right? 

The facts tell the tale. We can hype Xiaomi all we want and paint them in ‘Apple red’, but they are what they are. A super large producer of gear which very strongly resembles that of industry leaders which operates on Liliputian margins. It’s claims of being a service company carry as much weight as claim that they innovate. Absent more compelling proof, they are neither.


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