Xiaomi: The Apple, Samsung, and Amazon of China

Xiaomi's rise to the top of China has been built with the best strategies of Apple, Amazon, and Samsung.

Sep 1, 2014 at 12:00PM

Smartphone maker Xiaomi has become somewhat of a phenomenon. Despite being founded just four years ago, the upstart handset manufacturer has risen to the dominate the Chinese market, surpassing global giants like Apple (NASDAQ:AAPL) and Samsung (NASDAQOTH:SSNLF) in the process.

The company has often been called the "Apple of China" but that's somewhat disingenuous. Although it appears to borrow heavily from Apple's designs, the company's strategy is equal parts Samsung and Amazon.com (NASDAQ:AMZN).

One more thing
The similarities between Xiaomi and Apple are extensive, but largely center around its image and branding. Many of Xiaomi's products bare an uncanny resemblance to Apple's equivalent devices -- not only does its tablet, the Mi Pad, look like an iPad, but its name is only one letter removed.

Xiaomi uses a heavily modified version of the Android operating system -- called MIUI -- that replaces many of the traditional Android services with its own. Its most recent update to MIUI includes a major visual overhaul -- one that leaves it looking like Apple's iOS 7.

Xiaomi's CEO has a tendency to wear a black shirt and blue jeans -- Steve Jobs' iconic look -- and, in a recent presentation, borrowed the phrase, "One more thing ... ." Notably, it was the only slide in the presentation written in English.

Affordable devices
While it seems to take its design cues from Apple, the company uses a sales strategy that's much closer to Samsung's.

Rather than offer strictly high-end handsets and tablets, Xiaomi's products appeal to everyone. Its flagship handset, the Mi4, retails for around $320, while its 7.9-inch Mi Pad starts at under $250. Xiaomi's willingness to target the low end appears to have taken a toll on Samsung's business. When the Korean tech giant turned in disappointing earnings earlier this summer, it blamed low-end competition, particularly in China.

For now, Xiaomi remains largely contained to China. But by offering smartphones at affordable prices, it could eventually overtake Samsung in other emerging markets, such as India and Brazil.

The Kindle Fire strategy
Yet the most salient of comparisons may be to Amazon -- its digital goods and tablet business, specifically.

The use of MIUI is instrumental in Xiaomi's business model -- the only way to profit from high-end hardware sold at bargain prices is with the sale of digital goods and services. By stripping Android of Google's services, and replacing it with its own, Xiaomi can use its hardware to generate long-term revenue from its users.

This is the strategy Amazon has long relied on for its Kindles and Kindle Fire tablets. Over the years, Amazon has worked aggressively to reduce the price of its Kindle e-readers, hoping that more buyers would consider purchasing its digital books.

Its Kindle Fire tablets are likewise priced aggressively. They also run a version of Android -- Fire OS -- that strips out Google's services in place of Amazon's. Owners of Amazon's Fire tablets must (without significant tinkering) purchase apps, movies, and music through Amazon's respective digital storefronts, rather than Google's.

The best ideas
Xiaomi's success is hardly surprising -- it as an amalgamation of some of the best ideas in tech. Apple's image, combined with Samsung's bulk sales and Amazon's approach to software has proven to be a winning formula.

Will it last? That remains to be seen -- but it's worked quite spectacularly thus far.

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Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Amazon.com, Apple, Google (A shares), and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

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Jun 12, 2015 at 5:01PM

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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