- Sep 17, 2013
- 1,492
I can see why Lei Jun doesn’t want to be called the Steve Jobs of China. If you look at his history, he’s more like a quasi-Bill Gates with a hint of Jeff Bezos, with Marc Andreesen tendencies, and only a soupçon of Steve Jobs.
Look at his history:
- 1992 to 2007: he joined as an engineer and rose to president and CEO of Kingsoft in six years. This is a company that does word processing and antivirus software, gaming distribution, and even ecommerce. That’s the quasi-Bill Gates.
- 2000 to 2004: Lei Jun founds Joyo.com, an online bookstore, within Kingsoft, and eventually sells it to Amazon.com. That’s the Bezos connection.
- 2008: Having resigned Kingsoft in 2007, Lei Jun becomes chairman of UCWeb. It’s a mobile browser that now has over 500 million users and was recently acquired by Alibaba. Sound like a mobile Netscape?
- 2007 to 2010: Lei Jun oversees over 70 funding rounds for his portfolio companies. Surely, that rings of Marc Andreesen’s Andreesen Horowitz.
- 2010: He founds the now world-famous smartphone manufacturer Xiaomi, which may be raising funds at a US$40 billion valuation next year. Lastly, Xiaomi is constantly compared to Apple.
Remember, reading about Steve Jobs is what got him into being a tech entrepreneur in the first place. I would not be surprised if his team reverse engineered Steve Jobs’ identity and career and are now replicating it in Xiaomi fashion. That’s what makes Lei Jun a compelling and polarizing figure. He’s calculating.
Don’t forget Lei Jun’s connections too. Tencent, progenitor of WeChat, invested in Kingsoft. Alibaba acquired UCWeb. Robin Li, CEO of Baidu, is a personal friend. These are the big three of China. For Valley heads out there, that would be like a founder getting investment from Facebook for his first startup, getting one of his web projects acquired by Amazon, and then being chummy with Larry Page of Google. Lei Jun is arguably the most well connected entrepreneur in China. So, the recent PR hullaballoo around an air purifier that Jack Ma teased Lei Jun about is only something Lei Jun can do. Think about him in the context of the surrounding ecosystem that he is in (and that he creates). A case in point is WiWide.com, a startup that Xiaomi funded, and which got funding from Tencent last week.
Lei Jun is more than just a Chinese Steve Jobs, he actually looks more like every single Silicon Valley hero all wrapped into one. Maybe that’s what makes him worth US$9.1 billion. Or, as our own Paul Bischoff notes, he might be worth even more than Jack Ma.
Lei Jun’s numbers
When you follow the money, you really start to see the whole story of what makes Lei Jun tick. User numbers, revenues, and investments show an evolution.
First, Kingsoft. Lei Jun joined in 1992 after university. He began as an engineer but rose up to CEO in six years. Within Kingsoft, from 2000 to 2004, Lei Jun built up Joyo and sold it to Amazon for US$75 million. After that, he spent years bringing Kingsoft to its IPO in 2007, after which he resigned. He came back to Kingsoft in 2011. The return is often paralleled to Steve Jobs’ second coming to Apple. Here’s Kingsoft’s revenue numbers since IPO in 2007:
From 2008 to 2011, Kingsoft’s revenue stagnated. Upon Lei Jun’s return in 2011, Kingsoft aggressively pursued a mobile and cloud strategy (Nadella anyone?). As revenues indicate, this was the right play.
Lei Jun’s taste for mobile success continued when he joined UCWeb, China’s now top mobile browser, as Chairman. UCWeb dominated the mobile browser market share and was eventually acquired by Alibaba, which valued the company at a record-breaking US$3.8 billion. UCWeb’s first year after release saw 200 million new users and within four years it already hit 500 million users. Gaining 200 million users in one year is staggering.
With UCWeb’s solid rise and Kingsoft’s second coming, it seems Lei Jun stumbled on a formula for growing Chinese businesses. By 2011, Lei Jun invested in over 20 companies in China. In total, his portfolio raised over US$1 billion from venture capitalists. He continues to invest today via the Shunwei Fund. Shunwei invests in Lei Jun’s three favorite categories: ecommerce, social networking, and mobile. All of his accumulated investments over the years set him up perfectly to found Xiaomi and succeed with it.
Only Xiaomi
On the Daring Fireball blog, John Gruber’s Only Apple essay makes the point that weaving software, services, and hardware seamlessly en masse is something only Apple can do. This got me pondering, what are the things that only Xiaomi could do? Upon closer look, Xiaomi pursues an Amazon strategy with Apple tactics and skin.
- Apple skin: Lei Jun wears a black shirt and blue jeans, quotes “One More Thing”, and mimics Apple icons.
- Apple tactics: Xiaomi uses flash sales to manage inventory, generate hype, and stoke demand. The tactic also shows how Xiaomi wants to do things its own way. Similarly, when Apple released the iPhone exclusively with AT&T, it forced all the carriers to abide by Apple’s rules. And so both Apple and Xiaomi are shifting the dynamic between telco, manufacturer, and consumer.
- Amazon strategy: Loss leadership
If people really want to compare Xiaomi to a foreign company, you can say it looks a bit like Apple. But it’s really more like Amazon with some elements of Google. So take these three companies together and it’s easier to clearly understand what kind of company Xiaomi is. Xiaomi selling mobile phones is like Amazon selling Kindles. So you can understand why we sell them for so cheap.
Benedict Evans, in his post on why Amazon has no profits and why it works analyzes Amazon’s cashflow in-depth. His point is Amazon is a loss leader that constantly reinvests into its own market which snowballs into massive growth. For that reason, Amazon has very low and sometimes negative profits. Xiaomi is the same. Look at Xiaomi’s smartphone sales, revenue, and funding transposed.
Since 2010, Xiaomi’s growth has been explosive. Every year, it has doubled its revenue. And in 2014, if the second half of the year matches its first half, it will have tripled its smartphone sales. But despite this growth, it is likely Xiaomi’s profits will not dazzle. Xiaomi is on an investment and acquisition warpath. As the CornerPlay blog notes, Xiaomi’s revenues come overwhelmingly from its smartphone sales. It’s a key argument against Xiaomi’s claim that it resembles Amazon since it makes no money on services, but it misses Xiaomi’s incoming empire.
The below chart only lists 17 companies that Xiaomi acquired or invested in. Xiaomi claims it has 25 companies already plugged into its ecosystem. Since 2012, Xiaomi has participated in deals amounting to over US$3 billion (mainly involving the companies in the chart below). It plans to invest US$1 billion into smart TV content and another US$1 billion into cloud services. In many of these deals, Xiaomi leads the investment or acquires the companies outright. This four-year-old smartphone startup already has dominion over a multi-billion dollar empire. And the amassing will not abate. This is quintessentially Amazonian.
Amazon applies the majority of its profits to expanding its fulfillment capacity, servers, and areas that generally expand Amazon’s business. Likewise, Xiaomi acquires and invests in software companies in key areas, with the purpose of expanding its future business. It also plans to invest or participate in incubating over 100 hardware companies in China. This even includes Silicon Valley companies like Misfit.
But all of this is only the beginning for Xiaomi. As Robin Chan, investor in Xiaomi, notes:
Xiaomi is an extension of the Lei Jun ecosystem.
Xiaomi tomorrow
Leveraging its Amazon-esque business model, an Apple face, and a burgeoning startup ecosystem, Xiaomi seeks to do multiple things at once:
- Dominate China’s smartphone market in sales and market share
- Become China’s most recognizable international lifestyle brand
- Become the number one global smartphone brand
- Unite all of China’s giants and aspiring technology innovators into a contiguous ecosystem (under the Xiaomi umbrella via Lei Jun’s connections)
- Hit US$100 billion in valuation and then in revenue (ignoring profits along the way)
Achieving the top spot for global smartphone brands will be difficult. Xiaomi is fraught with intellectual property issues and doesn’t have a strong stock of patents. Its recent ban in India, caused by a patent dispute with Ericsson, shows the risk involved in each expansion. This will likely drive Xiaomi’s margins down or phone prices up. It will attempt to apply the Chinese strategy of acquiring services and content startups in local markets to create localized empires. Hugo Barra has already confirmed that Xiaomi will start doing just that in India, starting next year.
In terms of competition, Xiaomi will also have to deal with the waning goliath that is Samsung, and the robust innovator that is Apple. It’s highly unlikely that Xiaomi will, in the next decade, achieve profits anywhere near what Apple sees today. But profit is not what interests Xiaomi.
Uniting China is probably the most interesting and understated goal of Xiaomi. At Xiaomi’s 2012 launch event, Lei Jun stood on stage and said this to companies that were copying Xiaomi phones:
We truly hope that these copy cats can please be more supportive to domestic brands. They should keep focusing only on [copying] iPhone, Samsung, HTC, and Nokia.
Although this seems facetious at first, it’s imbued with nationalism. It comes from a place that is entreating the ecosystem to support local domestic brands. Even the name, Xiaomi, is a nationalist reference. Thus, Xiaomi is in a profoundly unique place to unite China’s tech ecosystem with its links to the big three, its diverse investments, and its product platform. With that at its core, there is really nothing to stop Xiaomi from becoming a US$100 billion company in China alone. And if it succeeds in its global plan in the next decade, US$100 billion in revenue will not be far off.
All of this can only come from a Chinese man who is a jack-of-all-trades, from Steve Jobs to Bill Gates. And it looks like he is not stopping there. With the release of the air purifier, his company attempts to emulate Tony Faddell’s Nest. With rumors of an electric car, Xiaomi might even want to be part-Tesla. Elon Musk, eat your heart out.
And Xiaomi does all this, as its slogan reminds, “just for fans”.
