Why This Apple Exec Is Wrong About Xiaomi

Jony Ive, Apple's (AAPL +1.05%) head of design, recently lashed out at Xiaomi Tech, the rising smartphone giant often called the "Apple of China". At a Vanity Fair conference, the designer of the iPhone, iPad, and iPod stated that he didn't consider Xiaomi's designs -- which many have compared to Apple's -- to be "flattery". "I think it's theft," he bluntly stated. "And it's lazy."

Source: Apple.

In response, Xiaomi president Bin Lin told China News Service that "one can only judge Xiaomi's gadgets after he or she has used them." Hugo Barra, Xiaomi's VP of international markets, added that the "iPhone 6 is using design language that HTC (NASDAQOTH: HTCCY) has had for five years" in an interview with the Economic Times. Barra also stated that Apple and Ive could not "claim full ownership" to design languages used across the smartphone industry.

Xiaomi has never shied away from comparisons to Apple. On stage, CEO Lei Jun dresses like Jobs with a black turtleneck and jeans, repeatedly references Apple and its suppliers, and even recently borrowed Apple's catchphrase "one more thing" for a presentation.

However, when we dig beneath the surface and compare the hardware, software, and business models of Apple and Xiaomi, the differences become much more apparent.

How Xiaomi's hardware and software is different from Apple's
The Mi 4 isn't really a copy of the iPhone 5s. Plenty of other Android smartphones -- like Sony's (SNE +0.63%) Xperia Z3 and Samsung's (NASDAQOTH: SSNLF) Galaxy Alpha -- also share some of the iPhone 5s' design aesthetics. However, Xiaomi's phones are nothing like the iPhone knockoffs (Android phones in a fake Apple case) which can still be easily bought in China.

Is the Mi 4 a copy of the iPhone 5S? Source: Company websites.

Apple itself has borrowed design aesthetics from its rivals in the past. The iPhone 6's chassis was clearly inspired by Google and LG's Nexus 4, which was launched in November 2013, and HTC's One M7 and M8, which arrived last year. The key difference, however, is that Apple actually packed less impressive hardware into the iPhone 6's chassis than its high-end Android competitors:

Source: Industry and company websites. *Company and online retailer prices.

Although the iPhone's hardware clearly lags behind the competition, it continues to sell well since it is widely regarded as a status symbol. Other companies lacking that advantage -- like Sony, HTC, and Samsung -- are left to deal with Xiaomi, which sells a product with comparable or superior specs for a fraction of the price. Considering how different Xiaomi's hardware is from Apple's, it doesn't make much sense to call it an "iPhone clone."

Xiaomi's MIUI, a custom version of Android, is often criticized as being too similar to iOS, which Ive started designing with iOS 7. Yet those same criticisms are often levied against all forms of Android, including the stock version, Samsung's TouchWiz UI, HTC's Sense, and Sony's Xperia UI. Therefore, if Ive wants to accuse Xiaomi of theft, he really should point his finger at the entire high-end Android market.

L to R: Apple's iOS, Xiaomi's MIUI, and Samsung's TouchWiz UI.

Comparing Xiaomi and Apple's business models
Apple's business model is to make expensive looking phones with average hardware, then sell them at high margins. Xiaomi's business model is to sell expensive looking phones equipped with high-end hardware at low margins. That business model is clearly working -- Xiaomi became the world's fifth largest smartphone maker in July, and toppled Samsung as China's top smartphone maker in August.

Both companies spend a lot less on marketing than its rivals. Last year, Apple only spent $1.1 billion, or 0.6% of its revenue, on advertising. Xiaomi spends around 1%, while Samsung spends around 5%. Apple gets by with less ads thanks to its established reputation, while Xiaomi relies more on word of mouth advertising via the Internet. Apple's brick-and-mortar stores help it maintain its reputation, but Xiaomi mainly relies on online retailers which release its phones in limited batches to inflate demand.

Xiaomi has its own app marketplace in MIUI, which generated $4.9 million monthly from over 30 million users at the end of 2013. The marketplace offers Android apps, games, and customization themes for MIUI, and is aided by the fact that Google is mostly banned from selling paid Play apps in the country. In that regard, Xiaomi is a bit more like Amazon, which sells Kindles at razor-thin margins to generate revenue from digital purchases.

The Foolish takeaway
In closing, I'm not stating that Xiaomi is a great innovator -- it's clearly inspired by companies like Apple, HTC, and Samsung. But it's a bit reckless to accuse Xiaomi of theft, especially when Apple's iPhone 6 was also "inspired" by similar improvements. We should also remember that HTC and Samsung were called "copycats" for years, before they carved out their identities with more memorable designs.