Xiaomi is likely to be the biggest smartphone maker you’ve never heard of.

The company – often dubbed “China’s Apple” by analysts – has had a rapid rise in 2014, coming out of nowhere to knock Samsung off the smartphone top spot in China and propelling itself to number three smartphone vendor globally, according to IDC.

Investors are flocking to put money into Xiaomi, a company that was only founded in 2010. It raised more than $1 billion in the latest round of funding, according to the Wall Street Journal, giving the Chinese company a $45 billion valuation – bigger than Uber, Netflix andTwitter.

But how has Xiaomi risen so far so fast?

Razor-thin margins

Xiaomi’s success has been driven by the Chinese market where it sells over 90 percent of its smartphones and is the number one player.

The company is known for its high-spec smartphones, which can take on its premium rivals such as Apple and Samsung, but sells at less than half the cost. This comes at a price for Xiaomi which has an approximately 3 percent margins on its phones, analysts said.

“Xiaomi has changed the game because it has such a strong image of affordability but with equally strong functionality for the phone,” Can Huang, senior research analyst at Mintel, told CNBC by phone.

Xiaomi headquarters in Beijing, China

Edmond Lococo | Bloomberg | Getty Images
Xiaomi headquarters in Beijing, China

But Xiaomi is not worried about margins. Shipping their flagship Mi4 smartphones are a way to give users a platform to use the company’s software.

“Sometimes we call Xiaomi the Chinese Apple and that gives you a hint about how it is perceived. They have a long term strategy on building an ecosystem and pathway through the hardware to get the software to closely interact with people’s lives,” Huang said.

Online-only selling

Xiaomi has run a forum since its inception where consumers and developers can post and chat. This allows Xiaomi to quickly act on feedback and has led to them releasing updates for their software every couple of weeks to keep their offering up-to-date.

In addition, the company also sells their phones in China and India, its second-biggest market, through online-only channels, keeping the cost base down and appealing to a tech-savvy audience.

Xiaomi also operates its own app store – like Google Play or Apple’s App Store – keeping users in its ecosystem.

Earlier this year, Xiaomi announced it was entering 10 new markets including Brazil and Russia. But analysts said that as the Chinese smartphone maker looks to expand aggressively into new countries, the strategies that helped it succeed in its home market might not work elsewhere.

Rising costs

Xiaomi sold 26.1 million smartphones in the first half of 2014, soundly beating the 18.7 million full-year 2013 figure, and this was largely due to its online sales channel in China.

In India, Xiaomi’s devices are sold through ecommerce website Flipkart, despite a brief ban earlier this month. But the strategy of web-only sales might not translate across other markets, and trying to work out the right sales strategy could increase the company’s cost base, analysts said.Screen Shot 2015-07-04 at 3.07.51 pm

Personally i am a big xiaomi fan too, being the owner of a redmi 1s i have had a phenomenal experience.



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