Xiaomi, the four-year-old high quality chinese phone manufacturer, has found just such a sweet spot, and as a result is taking the smartphone industry by a storm. Pundits claim that Xiaomi is just a Chinese copycat of Apple, and not without some reason. Some point to Xiaomi’s product introductions, which are eerily just like Apple’s.  Others point out the strong similarities between Xiaomi’s operating system (named MIUI) and Apple’s iOS. What’s more, Xiaomi’s products rank among the best in the industry in terms of performance.
So far from being a copycat, Xiaomi presents a knotty disruptive challenge to the largest smartphone manufacturers. As it continues to expand in developing economies by marketing to the emerging middle class, it remains sheltered from the competition by its margins and the way it makes products profitable. Sooner rather than later, as it continues to propagate its new business model, this disruptive competitor is going to change how this industry works.

Xiaomi is one of the fastest-growing tech companies in the world. It’s the sixth-largest handset maker on earth and No. 3 in China, behind Samsung Electronics and Lenovo Group, according to research firm Canalys. Xiaomi’s recent growth is impressive, and its potential is even greater. In 2013, the company says, it sold 18.7 million smartphones almost entirely from its own website, bringing in $5 billion in revenue. Earlier this year, Lei set an internal goal of selling 40 million smartphones in 2014, then raised it to 60 million. In a financing round last August, venture capitalists gave Xiaomi a $10 billion valuation, about on par with 30-year-old PC maker Lenovo and Silicon Valley darlings Dropbox and Airbnb. At the same time, Xiaomi has branched out from smartphones to tablets, the large-screen HDTVs, a set-top box and home router, phone cases, and portable chargers.

While the phones and tablets have obvious echoes of better-known products from Apple and Samsung, they’re not clones. Xiaomi’s Mi 3 smartphone, its flagship, is appropriately light and thin (8.1 mm), with nicely beveled curves. A color-popping display from LG and a high-performance Qualcomm (QCOM) processor give buyers the same components they’d find in other top-of-the-line phones. The device runs MIUI, Xiaomi’s own version of the Android operating system. Regular software updates, which come at the end of each week, often incorporate ideas from users.

Xiaomi’s real invention is its business model. It sells online, never in stores, and avoids conventional advertising, devoting only about 1 percent of its revenue to marketing. Instead, the company relies on China’s social networks, Weibo and WeChat, and the free press Lei gets as a national tech hero. The money Xiaomi saves on marketing lets it buy top-notch components while keeping retail prices down.

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