Forty-five billion dollars. A five-year-old company that openly sells its phones at close to cost is now the most valuable private startup on the planet, worth more than Sony, after raising $1.1 billion this week. It moved 61 million phones this year and became the world’s third-largest phone maker back in October. Everyone keeps calling it the “Apple of China,” and I think that label gets Xiaomi almost exactly wrong.
The round was led by All-Stars Investment with DST, GIC and Yunfeng alongside, and the jump in valuation is the real story: $4 billion in mid-2012, $10 billion in 2013, $45 billion now. Nobody writes that check for a phone maker that has publicly capped its own hardware margins in the low single digits. They are paying for the thing wrapped around the phone, and whether that thing is real is the only question that matters at this price.
That thing is Lei Jun’s plan to invest in and incubate a hundred hardware startups, provide each with capital, design help, and access to Xiaomi’s online firehose of well over a hundred million monthly visitors, and have them build out a smart home that orbits the phone. It is already moving: a stake in Roborock for robot vacuums earlier this year, the Yeelight smart bulbs, a pile of power banks, on and on. The phone is the hub everyone keeps in their pocket, and every other gadget is an accessory that deepens the habit and feeds back data.
I am not sold yet, and the reason is margins. A rice cooker is a one-time purchase that cooks rice and then sits there; it does not throw off the recurring value a phone and its services do. “Ecosystem” is also exactly the word you reach for when you need to justify a multiple no pure hardware company could ever carry, and right now, something like 94% of Xiaomi’s revenue still comes from selling phones. The hundred-company web is real as a count and thin as a profit line. It is mostly a promise.
Quietly, this year Xiaomi also stood up a subsidiary to start designing its own chips, which is the kind of vertical-integration move a company makes when it does not want to rent Qualcomm forever. I am not getting into the silicon plan here, because there is nothing to show and it could be years before there is, but it is the clearest tell that the $45 billion is priced on what Xiaomi might become rather than what it is. The company also paid $3.6 million for the mi.com domain this year, the most anyone has spent on a domain in China, which is a small and very on-brand flex.
Forty-five billion for a company that swears it will never make real money on its main product is a bet that the phone is a trojan horse for everything else. Maybe it is. But the ecosystem is wide and shallow on profit, the global push that started with the Mi 3 and the Hugo Barra hire is barely a year old, and the chip ambition is a press release with a subsidiary attached. I think Xiaomi is far more interesting than “Apple of China” and a lot more fragile than $45 billion. Both are true at once. Over the next year or two, India decides which one wins.