Dear Us Fans!
Thank you for your interest and support for Xiaomi. In reading this letter, I hope you will not only see a rapidly growing and thriving company, but more importantly, you will understand how we pioneered a dazzling, innovative business model built on trust and courage.
In this letter, I would like to share with you my personal thoughts on Xiaomi and why we are struggling.
We're not just a hardware company, we're an internet company built on innovation. Xiaomi is an internet company that makes smartphones and other smart devices. Our mission is to continuously produce fantastic products at reasonable prices to enable everyone in the world to live a more comfortable life through innovation.
Every day of the last eight years, the idea of building a friendly relationship with our users and being the most trusted company in their hearts has driven us to constantly innovate and insist on quality and efficiency. As a result, we have achieved more and more breakthrough successes.
We founded Xiaomi in April 2010. At the time, myself and the co-founders had the simple idea of creating a smartphone that we would personally desire. Of the 8 co-founders, six of us are engineers and two are designers. We are all passionate about technology.
"Dazzling products" and "reasonable prices" go hand in hand. They are inseparable. The only way to win the hearts of our users is to produce fantastic products that exceed their needs and offer them all at an affordable price. Innovation and fantastic design are in our DNA. Our engineers are obsessed with pushing the boundaries of technology and are constantly working on every little detail to ensure that they fully meet the needs of our users. We have the courage to break with tradition and constantly evolve, and these key factors contribute to maintaining the trust and appreciation of our users.
We are working to create a bold innovative culture that is not limited to technology. We are innovators not only in smartphones, including materials, displays, processors, but also in the look and design, where we have won more than 200 awards recognised around the world in the last few years. We also have a unique 'triathlon' business model and have built a diverse inter-company ecosystem. We have a unique engagement model with our online users and a highly effective retail strategy for both online and offline users. The spirit of innovation runs deep in everything we do and encourages us to bravely paddle into uncharted waters.
We are currently the fourth largest smartphone company in the world. We have created a number of smart hardware products that are category leaders in their respective fields. We have built the world's largest IoT platform with over 100 million connected devices. In addition, we have 190 million MIUI users who actively use our innovative Internet services every month.
What makes us even prouder is that we have completely transformed the industry in which we operate. We have rapidly embraced and delivered quality improvements on smartphones in China, putting the growth of mobile internet penetration on a firm footing. The rapid development of mobile payments, e-commerce, social networking and short-form video in China can largely be attributed to the breakthrough that has brought the mobile internet into the homes of hundreds of millions of people. China is now the world's largest smartphone market with a strong and fast mobile internet industry behind it. We believe our contribution to this is widely recognised. Good companies make profits, even better ones succeed by winning people's hearts. We are even more proud to be a tech company with a rare strong 'fan camp'. We have a huge global 'We Fans' community of passionate users who are loyal to our brand, present on our platform and actively contribute to the development of our products with their feedback and ideas.
After a successful comeback, the Xiaomi business model has proven itself again
As a young internet company, Xiaomi has faced many challenges. In 2016, smartphone sales declined. It was clear to us that, because we had grown rapidly in the early years, we did not have a solid enough foundation to tackle all the challenges we faced at the time. We deliberately slowed down our growth to focus on strengthening three key aspects of our business, namely innovation, quality and inventory management. In 2017, Xiaomi successfully delivered on these aspects and returned to growth.
As far as we know, there has never been a smartphone company other than Xiaomi that has been able to bounce back from a sales slump.
This was a turning point for Xiaomi. This experience was invaluable for us. We have strengthened our leadership, increased our knowledge, broadened our technology base, improved our supply chain and productivity.
More importantly, we have tested our business model and it has stood the test of time.
Xiaomi is more than just a hardware company. We are an internet company built on innovation. While the hardware business is essential to building our user base, we don't want them to be our main source of profit. We deliver excellent external product appearance and quality and close to cost price by selling through highly efficient online and offline retail channels. We then provide them with comprehensive online services.
This is our unique 'triathlon' business model, which includes hardware, new retail and internet services.
Xiaomi's results so far show how strong and resilient this model is. Within 7 years of its founding, our annual revenue has surpassed RMB 100 billion, achieving a growth rate unmatched by many traditional companies.
The increase in efficiency is due to a reduction in operating costs, in particular sales and marketing costs. Xiaomi's unique business model ensures the excellent quality and affordability of our products, which are the foundation of our users' trust in us.
We promise that our net profit margin on total hardware will never exceed 5%
In the early years of Xiaomi's creation, we had a big dream: to make the whole business world more efficient.
For example, a shirt made in China for 15USD can sell for up to 150USD. That is a staggering 10 times the profit margin. For a pair of shoes it could be 5-10 times, for a tie 20 times. The list is endless.
It has always been difficult for me to understand why businesses are so inefficient. Why should consumers bear the cost of inefficiency? Cost cutting efforts tend to focus on reducing production costs, which account for about 10% of total costs. Rarely do companies seek to eliminate inefficiencies in sales, marketing and operations, which account for 90% of total costs.
Xiaomi has the intention and commitment to reform the industries in which it operates by improving cost efficiency.
At the beginning of 2011, at the first annual employee meeting, I told over 100 employees and their families that we wanted to make a smartphone with the best performance and user experience and sell it for only 300USD. At the time, similar smartphones cost more than 600 USD.
The big companies have focused on producing quality products and selling them at better and better prices so that consumers get what they want for their money.
As Xiaomi continues to evolve, we ask ourselves: what remains constant in this ever-changing business world?
Our response is that consumers have consistently expected fantastic products at great prices.
Many of our users tell us that when they browse the Mi Store or go to a Mi Home, they can buy any of our products with complete confidence because they know they are the best quality and the best price. When I hear that, I know that our efforts and energy are paying off and that is our ultimate goal.
Our customers' trust is the foundation of our business and efficiency is the soul. As long as we keep working to keep the trust of our customers, our business will do well. A company that can achieve worldwide efficiency will be able to survive through many economic cycles, will constantly seize new opportunities in the industry and will be highly successful in the long term.
The principle of "amazing products, affordable pricing" is translated into action. Here, we would like to promise our current and potential customers that from 2018 onwards, the total net profit margin of Xiaomi's hardware company should not exceed 5% per year. If net profit exceeds 5%, we will return it to customers.
We believe that a sustainable, high-quality user experience is more important than one-off hardware gains. The pursuit of efficiency is more important than short-term profits. We are confident that maintaining reasonable profits will be the inevitable industry trend. The unreasonable pursuit of higher profits will not be sustainable.
That is why I would like to stress that we are committed to maintaining the long-term interests of our customers and our company, which in return creates value for our shareholders.
To achieve efficiency, our ultimate commitment is not to let the net sales of our hardware business exceed 5%. We know it may take time for everyone to fully embrace our ideals. However, time is on our side. Our persistent determination and its implementation will eventually help us achieve our dreams.
Building an open ecosystem on a global scale, our opportunities know no borders
Today we are introducing ourselves to you as we prepare to embark on another leg of our journey. We believe that the possibilities of our global business are only limited by our imagination.
We are building an open ecosystem on a global scale, not a fenced garden. For everyone on Earth to live a better life through innovation, one "Xiaomi" is not enough. We need to partner with at least one more "Xiaomi" to build a rich and vibrant new global business ecosystem.
With our unique ecosystem model, we have already mobilised many like-minded entrepreneurs. We are not alone. Together, we have created a comprehensive range of products that are present alongside our smartphones, including mobile peripherals, smart hardware and lifestyle products. Today, Xiaomi has investments in more than 90 IoT and lifestyle product companies and together we have transformed many industries. Our ecosystem will only get bigger in the future.
We are changing industries not only in China, but also in other countries around the world. Among the more than 70 countries and regions where we are present, we are the number one smartphone market share leader in India and among the top 5 smartphone companies in 15 countries. We continue to prove that Xiaomi's business model can expand globally at a rapid pace.
Building a global ecosystem has given Xiaomi more opportunities for long-term development, pushing our boundaries and further strengthening our foundations. In an age of massive amounts of data and artificial intelligence, we believe the vast amount of data generated by our ecosystem will enable us to better understand our customers' needs and give us an edge to deliver better products and services.
A technical mindset is in our blood. It's the spirit that drives us to work tirelessly to discover the latest technologies to benefit as many of our users as possible and to be the coolest company in our customers' hearts. We believe that everyone in the world has the right to a better quality of life through innovation. Fundamentally, the Internet is about transparency, efficiency and equality. We want to make it possible for everyone, regardless of gender, ethnicity, religion, nationality or education, to benefit from the advances of technology.
This is the goal that I and all Xiaomi employees work tirelessly towards.
Thank you for your interest in Xiaomi. Together, I believe we can create a paradigm shift in business efficiency and use technology to improve the quality of life for many.
Integrity in business, enthusiasm in technology, bringing happiness to people's lives, our mission knows no boundaries and we're just getting started. We have changed the lives of hundreds of millions of people and will be part of the lives of billions more on the planet in the future.
Good things only happen to good people. Please join us on our journey! Always believe!
Yours sincerely:
Xiaomi CEO (Founder, Chairman and CEO of Xiaomi)
