Who is Xiaomi? Why Does It Dare to Cap Its Hardware Profit at 5%?
In today’s rapidly evolving tech landscape, Xiaomi has metamorphosed from a disruptive smartphone startup into a global technology titan, with a formidable presence in smart hardware, the Internet of Things (IoT), and a bold entry into the electric vehicle sector. To truly comprehend who is Xiaomi and the forces driving its ambitious expansion, one must return to a foundational document: the 2018 open letter from Chairman and CEO Lei Jun to potential investors, penned for the company’s Initial Public Offering (IPO). Sourced directly from the IPO prospectus homepage, this letter provides the seminal framework for understanding the company’s core identity, its disruptive business philosophy, and the long-term strategy that continues to guide its “journey to the stars.”
Who is Xiaomi, and What Does It Fight For?
The following analysis is adapted from the letter by Chairman Lei Jun in Xiaomi’s IPO prospectus, dated May 3, 2018, and aims to answer the fundamental question of “Who is Xiaomi.”
I. The Founding Mission: Becoming the Coolest Company in Users’ Hearts
The letter leaves no room for ambiguity regarding “Who is Xiaomi.” It firmly establishes that Xiaomi is not merely a hardware manufacturer but an innovation-driven internet company. Its mission is succinctly captured in an eight-character mantra: to persistently create good products with “Amazing Quality, Honest Pricing.”
The letter sheds light on the company’s humble, product-obsessed beginnings. Lei Jun revealed, “My partners and I had only one simple idea: to make a smartphone that we ourselves would love and find cool.” This founding team, composed largely of engineers and designers, embedded a deep-seated “enthusiast” or “feverish” DNA into the company’s culture. This ethos directly fuels the drive of Xiaomi’s engineers, whom Lei Jun described as being “obsessed with delving into technologies and products no one has attempted before… determined to ensure every product we launch far exceeds user expectations.” This relentless pursuit of technological innovation and quality is the primary answer to who is Xiaomi from a product standpoint.
II. The Business Efficiency Revolution: A Deep Dive into the “Iron Triangle”
To understand who is Xiaomi in the broader business landscape, one must see it as a radical challenger to conventional commerce. Lei Jun voiced a poignant critique of systemic inefficiencies: “I could never understand why the enormous losses from intermediate business operations should be borne by users?” He highlighted egregious examples, like a $15 shirt retailing for $150, questioning the status quo.
Xiaomi’s response was a declared “profound business efficiency revolution,” operationalized through its unique “Iron Triangle” business model. This triple-threat strategy is a tightly integrated loop:
- Hardware: Designing high-performance, well-crafted products.
- New Retail: Pricing these products astonishingly close to the BOM (Bill of Materials) cost and selling them directly to consumers through a highly efficient, blended network of Mi Home stores and online platforms, drastically cutting out intermediary margins.
- Internet Services: Monetizing the large, loyal user base acquired through hardware sales by offering a rich suite of software and internet services, from themes and apps to cloud storage and entertainment.
The most audacious public declaration of this philosophy is Xiaomi’s promise: “From 2018 onwards, Xiaomi’s annual comprehensive net profit margin for its overall hardware business will not exceed 5%. Any excess will be returned to our users.” This was not a temporary marketing tactic but a core tenet of its philosophy. Lei Jun justified this by stating, “We firmly believe that pursuing product experience is more promising than chasing one-time hardware profits; honest materials and fair pricing ultimately win more hearts than multi-layered distribution markups.” This commitment builds an unparalleled level of user trust, which the company identifies as the very foundation of its model.
III. Resilience and the Global Open Ecosystem Strategy
Xiaomi’s journey validates the resilience of its model. The company faced a significant challenge in 2016 when its market share declined. However, instead of panicking, the management team undertook a strategic “deceleration” to solidify its foundations in supply chain, quality control, and product delivery. By 2017, Xiaomi had engineered a remarkable turnaround, a feat Lei Jun termed a “baptism by fire.” He noted that this period proved crucial, stating, “Our business model has been tested and fully validated.”
A key differentiator in answering “who is Xiaomi” is its approach to growth. “Xiaomi will never build a closed business empire,” Lei Jun asserted. Instead of vertical integration, Xiaomi pioneered an “ecosystem chain” strategy. It acts as an investor and incubator for a network of independent companies—over 90 at the time of the letter—sharing Xiaomi’s values and benefiting from its expertise, brand access, and supply chain. This strategy allows for rapid, asset-light expansion into diverse product categories, from smart air purifiers to electric scooters, creating a rich and resilient global open ecosystem. The success of this model is evident in its international replication; Xiaomi quickly rose to become the number one smartphone player in India and a top contender in numerous other markets across Europe and Asia.
IV. Engineering Culture and the “Journey to the Stars”
At its core, Xiaomi is a company dominated by an engineering culture. The letter positions engineers as the heroes of the narrative. “The dream of our engineers is to continuously explore advanced technologies and make them accessible to as many users as possible,” Lei Jun wrote. This focus extends beyond smartphones to foundational technologies, including its in-house Surge chipsets and the MIUI operating system, which boasts hundreds of millions of monthly active users.
This technological drive is underpinned by a powerful sense of purpose: the democratization of technology. For Lei Jun and Xiaomi, “The greatest form of equality is equality in everyday life experiences: allowing everyone, regardless of skin color, belief, origin, or education, to equally and easily enjoy the better life brought by technology.” This vision of “tech for all” is the moral compass that guides the company’s expansion into affordable, high-quality products across dozens of categories.
This amalgamation of engineering ambition and a human-centric mission fuels Xiaomi’s “journey to the stars.” The letter concludes with a visionary statement: “We have already changed the lives of hundreds of millions. In the future, we will become part of the lives of billions of people around the world.” Every strategic move, from dominating the IoT landscape to its high-stakes venture into the electric vehicle market with Xiaomi Auto, is a step towards realizing this expansive vision, continually redefining the answer to who is Xiaomi.
