Xiaomi’s business model isn’t about selling handsets, except insofar as those handset sales lead to recurring service revenue later on. So said Xiaomi global VP and former Android VP Hugo Barra in an interview with Reuters. The executive for the device maker was commenting on a drop in its smartphone sales in China, explaining that they wouldn’t impact the company’s long-term profit growth.
Barra explained that Xiaomi “could sell 10 billion smartphones and [the company] wouldn’t make a single dime in profits,” speaking to Reuters, adding that Xiaomi is essentially giving away its smartphones “without making any money,” because ultimately it “care[s] about the recurring revenue streams over many years” rather than immediate margins on hardware.
Xiaomi is also focusing increasingly on other categories, including smart-home device sales, and, as suggested by Barra, revenue driven by software and services. Smartphone sales, once its core strength, dropped 12 percent globally last year, and IDC stats suggest its Q3 sales in China for the devices will be down 45 percent.
The company doesn’t need to IPO or even raise funds privately, however, Barra told Reuters, and is looking forward to CES where it’s participating for the first time, and where it’ll unveil a new product.
It sounds like Xiaomi’s approach has more in common with Amazon’s hardware strategy than with Apple’s, even though when it debuted it seemed poised to threaten the latter, especially in markets like China. Dwindling hardware sales also aren’t great for service revenue potential long-term, it’s worth noting, but Barra and Xiaomi are probably hoping other device categories and overall installed base can carry that weight regardless of smartphone device sales performance.