Xiaomi’s success may have also been its downfall

At the start of 2015, Xiaomi co-founder Lin Bin rung in the new year with a lengthy open letter that celebrated two major milestones: The company had sold 61 million smartphones in 12 months, and it had lured $1.1 billion from investors. Xiaomi is starting 2016 with more humility. After four years of surpassing nearly every sales benchmark it set for itself, the Beijing-based company is now breaking with tradition by declining to reveal its annual smartphone shipments, most likely because it didn’t hit its goal of selling 80 million. After correctly predicting the smartphone industry’s price war, and creating a groundbreaking business model, Xiaomi has become a victim of its own success. The company increasingly looks like every other Android phone maker out there—because its competitors have successfully copied Xiaomi in a race to provide the cheapest, fastest-to-market device out there. Xiaomi’s executives, led by charismatic co-founder Lei Jun, correctly bet that most consumers would view Android smartphones as largely indistinguishable from one another, leading to a price war. In order to keep prices as low as possible, Xiaomi pioneered the idea of selling phones primarily online, directly to consumers. The company relied on a flash sales model to help predict demand (and build up hype), and sold just one or two devices to benefit from bulk pricing on components.