Xiaomi’s “Iron Hoof”

Author | Wang Jinwang

Produced by | Leifeng.com Industry Group

Lei Jun said that Xiaomi's model is "Internet + Manufacturing".

This obviously refers to the current Xiaomi, a company that is different from the Xiaomi when it was first founded in 2010 and was busy struggling for a mobile phone screen and a contract manufacturer.

In the past ten years, Xiaomi has caught up with the entire life cycle of smartphones at the right time. From its inception to its heyday, and then to today's near saturation, smartphones have made the mobile Internet a success and also made Xiaomi a success.

However, Xiaomi is not just a mobile phone manufacturer. At least in the eyes of this well-known investor who had already listed Kingsoft Software on the Hong Kong Stock Exchange and had been immersed in investment banking for many years, Xiaomi should have a bigger picture.

"In fact, many people don't understand Xiaomi," Lei Jun said in an interview with "China Entrepreneur".

In the past few years, Lei Jun has repeatedly emphasized that "Xiaomi has never been a company that only makes hardware." In fact, Xiaomi almost became the next Tencent when it was first established.

Even after finally choosing the smartphone track, Xiaomi has repeatedly branched out into the ecosystem, home appliances, the Internet of Things, and real estate...

"Internet + Manufacturing" is just another example of Xiaomi's crazy growth that breaks the routine.

Xiaomi is Xiaomi because of smartphones.

In fact, when Xiaomi was first founded, it also seized another opportunity, IM (instant messaging).

On October 19, 2010, a student team from the University of Waterloo in Canada developed a software called Kik Message.

This is an instant messaging tool that allows users to directly connect with their contacts based on the local address book and enables free SMS chat . Within two weeks of its release, the number of registered users exceeded 1 million.

At that time, the Xiaomi team, which originally planned to make smartphones and paid close attention to the mobile Internet industry, was the first to pay attention to this software. Only one month later (December 10, 2010), the first generation of MiTalk was born.

When MiTalk was born, Xiaomi did not have any mobile phones. But that didn't matter, because MiTalk was directly launched on the Android and iOS application markets at the time. For the Xiaomi startup team, which had many great people from Google at the time, working on such a mobile phone software was naturally a piece of cake.

However, few people in the Xiaomi team at that time could foresee that this would be a business as large as Xiaomi's main business - smartphones.

Since the launch of MiTalk, the number of users has almost doubled every week. In just a few months, the number of users has reached 1 million, which gave Lei Jun hope that MiTalk could become the next generation instant messaging tool.

However, Lei Jun was worried at the time whether Tencent would follow suit.

Lei Jun had three ideas at the time, which are described in detail in Xiaomi's officially authorized biography "Forward":

If Tencent uses QQ to compete with MiTalk, Xiaomi still has a chance, because QQ's experience on mobile phones is too heavy and does not conform to the short, flat and fast user experience of the mobile Internet;

If Tencent did not make any strategic mistakes and chose to use the exact same product form to compete with MiTalk, Xiaomi would have a 50% chance of winning only if it could give MiTalk a year to get ahead.

If Tencent comes up with an identical product within a year, then Tencent's comprehensive resources will be 10,000 times that of Xiaomi, and Xiaomi will be in a completely disadvantageous position. By then, Tencent will throw all its engineering and promotion resources at Xiaomi, and Xiaomi's chance of winning will be zero.

As a result, Tencent did not make any mistakes in this step, and followed up quite promptly, even gathering heavy forces to push the line at the critical moment.

Why did this 13-year-old listed company care so much about this "small product"?

The reason is that instant messaging is Tencent’s “basic foundation” and Tencent cannot afford to lose it.

While Xiaomi was preparing for MiTalk, Zhang Xiaolong, who was living in a remote corner, started to develop the same product internally with a small team of less than 10 people. After two months of internal development, WeChat was officially launched on January 21, 2011.

What follows is a close combat for users.

In the following period, the pressure on the server caused by user growth put great pressure on the two companies. They transferred their core teams to start a large-scale battle. The final battle situation is as we can see now - QQ and WeChat became the two "basic plates" of Tencent's ecosystem, and Xiaomi, which won a lot of attention with MiTalk, finally turned to its "main business" of making smartphones .

Just imagine, if Tencent had entered the market later, or if Xiaomi had enough ammunition, Xiaomi might no longer be the Xiaomi it is today, and might have become the next Tencent.

This was the closest Xiaomi has ever been to becoming an "Internet giant". Perhaps Lei Jun would not have thought that in the next few years, he would need to explain to people countless times: "Xiaomi is an Internet company, not a company that only makes hardware."

After failing in its instant messaging business, Xiaomi eventually returned to its originally planned main business of smartphones.

As a well-known investor in the Internet circle and targeting the global market, Lei Jun has his own unique understanding of the business model of smartphones.

He summarized the smartphone business model as "triathlon" - hardware + software + Internet.

To use Lei Jun's words to explain, " Integrating software, hardware and the Internet can open up new paths and achieve 'dimensionality reduction attack' ."

Looking back now, the "triathlon" proposed by Lei Jun is exactly the same as Steve Jobs' "closed system perfection theory" for making smartphones.

However, it was with this business model that Lei Jun "persuaded" a startup team and eventually brought Xiaomi into the top five in the world. In the third quarter of this year, Xiaomi's global smartphone shipments surpassed Apple for the first time, ranking third in the global market.

Also in the past few years of making smartphones, Xiaomi, which is a bit different in the eyes of its peers among mobile phone manufacturers, has done another thing right - the Xiaomi ecological chain.

At the end of 2013, Lei Jun made a decision - to incubate a smart hardware company through investment.

The "triathlon" model proposed by Lei Jun at the beginning of Xiaomi's establishment is not only applicable to smartphones, but also to most smart hardware.

This is how the Xiaomi ecosystem came to be known to everyone.

When talking about Xiaomi's ecological chain, we have to mention another Xiaomi co-founder, Liu De.

Liu De majored in industrial design. He has opened a design company, worked as a university teacher, and studied abroad at a top design school in the United States. After joining Xiaomi, he was mainly responsible for the industrial design of Xiaomi mobile phones. Unlike Lei Jun, Liu De had never done investment before being ordered to build the Xiaomi ecological chain.

After officially taking over the task of building Xiaomi's ecological chain, Liu De formed a small investment team from within the company. Like Liu De, the members of this investment team were composed of engineers and designers, who had only heard of investment but had never done it.

It was this inexperienced investment team that, in just a few years, used an engineering mindset to build a Xiaomi ecosystem. The Xiaomi ecosystem lived up to expectations and carved out its own boundaries for Xiaomi in the Internet world.

Going back to Xiaomi’s original vision, Lei Jun’s initial “focus” for this investment team was “mobile phone peripherals.”

In the early years, Xiaomi invested in or incubated companies such as ZMI, which makes mobile power supplies, Shuomi, which makes data cables, Huami, which makes smart bracelets, and Edifier, which makes Bluetooth headsets. They all follow this idea.

When launching the ecological chain plan, Lei Jun set a goal for Xiaomi to "invest in 100 ecological chain companies within five years."

Of course, not all of the 100 ecological chain companies are "mobile phone peripherals". In addition to "mobile phone peripherals", Xiaomi's ecological chain also has two other circles - "smart hardware" and "daily consumables".

Xiaomi's IoT business was launched almost simultaneously with the Xiaomi ecological chain plan. Xiaomi's IoT business originally originated from a Wi-Fi module.

One day in early 2014, Xiaomi co-founder Huang Jiangji, Gao Ziguang, and Yin Mingjun came to Lei Jun with a Wi-Fi module and said, "We have developed a small Wi-Fi module. As long as this small module is placed in any hardware, the hardware can be immediately controlled by a mobile phone and connected to our IoT network."

On the spot, they also gave Lei Jun a demo using mobile phones and light bulbs.

After that, Yin Mingjun's entrepreneurial team was acquired by Xiaomi, and Xiaomi's IoT department was initially formed.

Xiaomi's IoT business was not going smoothly at the time. After repeatedly hitting a wall in its attempts to collaborate with home appliance manufacturers, they finally applied the Wi-Fi module to the air purifiers of Xiaomi's ecosystem company Zhimi.

In a sense, Xiaomi's IoT and ecological chain are naturally complementary. The ecological chain provides space for IoT to land, and IoT provides higher value and significance for the ecological chain. This also led to Xiaomi's relatively closed ecology.

In the following years, Xiaomi's ecological chain used the two sharp knives of "efficiency" and "cost" to make a mark in the Internet world, and this mark was called the "Xiaomi model."

Before the emergence of Xiaomi's ecological chain, BAT was the three mountains in front of all Internet entrepreneurs. Wu Xiaobo once wrote in "Tencent Biography":

There is even a saying circulating in the venture capital community:

When an entrepreneur explains his project to investors, he must answer a question: Will Tencent do this project? Or, if Tencent enters, how can you ensure that you will not be "killed"?

Lei Jun also said, "While we are developing IoT, we are also trying to get around the three giants of BAT."

IoT+ ecological chain has allowed Xiaomi to bypass the "three mountains" and open up a new battlefield. Especially with the rise of concepts such as smart home and industrial Internet in China, in the eyes of other Internet entrepreneurs, Xiaomi has begun to become a mountain that they want to "bypass".

Ninebot, a leading company in the field of self-balancing scooters that was recently listed on the Science and Technology Innovation Board, is also one of the smart hardware companies that Xiaomi's ecosystem invested in early. In the early years, Gao Lufeng, the founder of Ninebot, revealed in an interview with the media:

Xiaomi, which was thinking about the layout of its ecological chain at the time, had already looked at all our competitors. In other words, if Xiaomi did not invest in us and invested in others, we would be very passive, so we began to actively contact Xiaomi.

Eventually, Xiaomi invested in Ninebot. On October 19, 2015, the first product of the two companies' collaboration, the Ninebot Balance Scooter, was priced at 1,999 yuan, once again breaking the industry's pricing rules.

Regarding Xiaomi's statement in its prospectus that its net profit from hardware products will not exceed 5%, opinions vary. Some believe that Xiaomi is killing the survival and innovation space of its domestic peers with its low prices; others believe that this is the rise of another ambitious Chinese company.

When I was reading the book "Xiaomi Ecosystem Battlefield Notes", Leifeng.com saw this sentence in the preface written by Lei Jun for this book:

Xiaomi aims to be the "catfish" of China's manufacturing industry.

In the following years, Xiaomi invested in or incubated nearly 300 companies, building Xiaomi's territory in the Internet world. Xiaomi, the "catfish", also quietly swam into the home appliance field.

Unlike other mobile phone manufacturers, Xiaomi has always been a restless mobile phone manufacturer.

Before establishing the Xiaomi ecological chain, Xiaomi had already made routers and smart TVs. Among them, the soul of Xiaomi TV is Xiaomi's eighth co-founder, Wang Chuan.

In fact, Wang Chuan was not part of Xiaomi's founding team, nor had he ever drank millet porridge with Lei Jun. However, Wang Chuan was another person who had achieved financial freedom before joining Xiaomi.

Wang Chuan is also a hardware expert who "brings capital into the team".

In 2012, before joining Xiaomi, Wang Chuan saw the market opportunity of smart TV. At that time, Apple and Google had already launched TV boxes, and Wang Chuan's Duokan Technology also began to develop this product for the domestic market. This product was finally launched in November of that year and was named Xiaomi Box, becoming Wang Chuan's first "gift" to Xiaomi.

Xiaomi’s smart TV was launched one year later than the Xiaomi Box. At that time, smart TVs were more commonly known as Internet TVs.

Like many other Internet trends, the Internet TV trend also attracted a number of powerful players in 2013.

On September 5, at Xiaomi's 2013 annual press conference, Xiaomi TV was officially unveiled and priced at 2,999 yuan.

However, even in China, Xiaomi is not the only company that wants to make Internet TV. It is not uncommon for mainstream domestic TV manufacturers to jointly launch Internet TVs with Internet manufacturers.

On September 3, iQIYI and TCL jointly launched "TV+", with the classic version of TV+ priced at 2,999 yuan;

On September 10, Alibaba and Skyworth jointly released the first Internet TV - Skyworth Coocaa 55K1 and 42K1, which are equipped with Alibaba TV operating system and Skyworth Tianci system;

…

In addition, there was also LeTV, which was very popular at that time.

The Super TV S40 released by LeTV in May was priced directly at 1,999 yuan. On September 23, LeTV announced that it had reached in-depth cooperation with Tencent for X60, and LeTV TV Super TV X60 was sold by Yixun, a comprehensive e-commerce platform under Tencent, through the method of "centralized purchasing and underwriting".

Back then, the young Xiaomi TV was not a unique product, and it was not even outstanding. However, it was this seemingly unremarkable "cub" that has persisted from that turbulent era to the present day and has become a key product that determines Xiaomi's status in the industry today.

In the past 2019, Xiaomi TV shipments exceeded 10 million units, but LeTV is no longer the same LeTV as before.

It was precisely because of the great success in Xiaomi TV that when Xiaomi made a big move into the home appliance field in 2019, Wang Chuan once again took to the battlefield.

On May 17, 2019, Xiaomi adjusted its organizational structure and announced the establishment of the Large Appliances Business Unit, appointing Wang Chuan as the president of the Large Appliances Business Unit, responsible for the business development and team management of large appliance categories such as air conditioners, refrigerators, washing machines, etc. in addition to televisions.

Before Xiaomi officially announced its entry into the field of large home appliances, it had already entered the field through its ecological chain:

• On March 11, 2017, Xiaomi's ecological chain company Yunmi launched the Yunmi Internet Smart Refrigerator, and then Yunmi launched the Internet Washing Machine;

• On August 10, 2017, Xiaomi, which started out as an air purifier manufacturer, released the 1.5P full DC inverter air conditioner;

• …

At the Xiaomi TV launch conference in April 2019, Lei Jun mentioned again that "the large home appliance business is an important part of Xiaomi's AIoT strategy and one of the core pieces of the blueprint for sustainable development in the next 10 years."

Regarding Xiaomi's entry into the home appliance industry, many industry insiders contacted by Leifeng.com said that for Xiaomi, which wants to build a smart home industry chain, making home appliances is also expected.

Are there any barriers for Internet manufacturers to make large home appliances and white goods?

Leifeng.com learned from senior experts in the home appliance industry:

Smart home appliances are actually an intersection of the home appliance industry and the Internet industry. In this field, Internet companies have more advantages than traditional white appliance companies in terms of technical difficulty and market promotion.

In terms of specific production and manufacturing, Internet companies can completely seek OEM solutions; from the perspective of product design, they still have a certain gap with the leading companies in the home appliance industry that have 20 to 30 years of industry experience. What they are mainly eroding now is the market share of small and medium-sized home appliance companies.

After Xiaomi's large home appliance division was established, in less than a year, it launched almost all home appliance products including "air conditioners, refrigerators, washing machines, kitchen and bathroom appliances" through the two brands of "Xiaomi" and "Mijia". It even released the Xiaomi Internet Air Conditioner at the end of the year. I was really worried for Miss Dong.

In 2013, at the CCTV Economic Figure of the Year Awards Ceremony, when Lei Jun and Dong Mingzhu made a "1 billion bet", there was a dramatic conversation:

Dong Mingzhu: If all the factories in the world are closed, will you still have sales?

Lei Jun: I think Mr. Dong is trying to sow discord. Xiaomi uses the best factories and the best supply chain...

Dong Mingzhu: (What if) my (factory) doesn’t make it for you?

Lei Jun: What we emphasize today is the specialization of labor. Those who run factories should do their best to run them, and those who make products should focus on making products...

Dong Mingzhu: Then I’ll sell you the air conditioner.

Lei Jun: You can consider it.

What Ms. Dong didn't know was that Lei Jun said at the time that what could be considered was not just "Xiaomi selling air conditioners", but also "Xiaomi opening a factory".

When recalling this "bet" which was largely arranged by the program team, Lei Jun admitted: (At that time) I was indeed a little inflated.

The reason for the “expansion” is that Xiaomi benefited from the transition from feature phones to smartphones in the first three years after its founding, and has been in “crazy growth mode” ever since. Its mobile phone sales and company valuation have soared like a balloon. By 2014, Xiaomi’s mobile phone market share had already ranked first in China (third in the world) with 12.5%.

At the end of 2014, after Xiaomi completed another round of financing of US$1.1 billion, its valuation reached US$45 billion, a 180-fold increase in five years.

The reason for admitting that it has "expanded" is that after three years of rapid growth, Xiaomi began to encounter growth bottlenecks, its growth rate slowed down, and it even began to be questioned.

The Wall Street Journal quoted people familiar with the matter as saying that Xiaomi failed to meet its sales forecast of 80 million smartphones in 2015, and investors began to question the company's valuation of $45 billion.

In a subsequent interview with the media, Lei Jun also revealed that Xiaomi has proposed "respecting the manufacturing industry" since 2016, and began to make up for the hardware on a large scale and was determined to take root in the manufacturing industry.

After three years of remedial lessons, Xiaomi's smart factory finally appeared in Lei Jun's tenth anniversary public speech this year.

Lei Jun said that in order to build this factory, Xiaomi has invested in 110 companies making smart equipment in the past three years.

At the end of the year at MIDC 2020, some details of Xiaomi's smart factory were gradually announced:

Except for the placement machine, most other production equipment is Xiaomi's self-developed equipment.

In addition to loading and unloading, all other operations in the first phase of the factory have been made intelligent, with an automation rate of 63%. After optimizing the whole machine assembly and packaging links at the end of the year, the automation rate was increased to 75%.

Also at the end-of-year conference, Xiaomi's three-year plan and overall planning for the smart factory were revealed:

• In 2019, we will carry out automated construction, replacing manual labor with robots and automated construction;
  

• In 2020, we will carry out networking construction and collect and apply data through comprehensive networking;

• In 2021, we will carry out intelligent construction to achieve intelligent decision-making based on data and knowledge.

How big is the gap from making mobile phones to building smart factories?

Leifeng.com learned from relevant practitioners in intelligent manufacturing:

Automation is only the initial stage of smart factories. Currently, the technologies related to automated production lines are relatively mature. As long as you find the right people and have sufficient funding, it is no longer a threshold.

Promoting smart factories cannot reduce the cost of Xiaomi mobile phones. The mobile phone industry is a very fast-changing industry. The special machine tools for producing mobile phone shells or related spare parts often need to be updated every three to six months. The cost of production equipment in this regard is very high. Even smart factories are not cheap, so Xiaomi's smart factories should currently be used more in high-end mobile phones with longer market cycles, such as the Xiaomi Mi 10 Ultra.

The imagination space of Xiaomi's smart factory is based on Xiaomi's collection of feedback on user needs, opening up a closed loop of consumer demand, R&D and manufacturing, similar to Alibaba's Rhino Intelligent Manufacturing.

Lei Jun founded Xiaomi when he was in his forties. He once said that changing the manufacturing industry is Xiaomi's ultimate dream.

Now, the 10-year-old Xiaomi is using the Internet to change the manufacturing industry, and is also using the manufacturing industry to change Xiaomi.

If a hardware company is incubated within Xiaomi, the company's focus will inevitably be reduced, which will be fatal to its development.

Lei Jun had this thought in the early stages of Xiaomi's growth.

Therefore, there is a saying "Don't build an aircraft carrier, build a fleet", and there is the Xiaomi ecological chain.

However, looking back on the tenth anniversary of Xiaomi's establishment, you will find that through investment and incubation, Xiaomi has rushed forward and backward to open up a vast territory for itself beyond mobile phones.

We can see that in addition to smart hardware such as mobile phones and speakers, Xiaomi also:

In the home appliance industry, when “feature phones” are transformed into “smart phones”, we should seize the opportunity and compete for the bonus period across industries;

In the manufacturing industry, relying on its own supply chain advantages and Internet genes, and taking advantage of policy support, it has increased its efforts;

Even in the real estate industry, in smart homes and smart communities, the combination of "Xiaomi + ecological chain + Kingsoft Cloud" can be seen.

Xiaomi once officially announced that during the Internet of Things cycle, Xiaomi has a "1+4+X" strategic layout.

In fact, the real Xiaomi seems to have no boundaries.

Just like the great Genghis Khan, wherever his "iron hoof" goes, it becomes the territory of the empire.

If you are interested in the Internet of Things, smart hardware, robots, news tips or coverage, please add the author on WeChat (please indicate the company, position, and name when adding WeChat): 18210039208.

references:

[1] Keep Moving Forward, CITIC Press, Fan Haitao.

[2] Tencent Biography, Zhejiang University Press, Wu Xiaobo.

[3] Exclusive interview with Lei Jun: You don’t understand Xiaomi, Chinese entrepreneur, He Zhenhong.

[4] On the tenth anniversary of Xiaomi, Lei Jun officially admitted that he had lost to Dong Mingzhu: I was too arrogant at that time, NetEase Technology, Cui Yuxian.

[5] Smart Home 2020: Home Appliance Giants Turn Defense into Offense, Leifeng.com, Wang Jinwang.