By Chen Jing

One year ago, if you search "xiaomi" in Chinese, the first result you get would be a kind of crop. Today, however, both Google and Baidu would show you a kind of Chinese smartphone on the top of their search results if you input the same word. The seemingly impossible change indicates that the MI-ONE phone (whose Chinese name is "xiaomi") is creating a miracle in the market. The miracle is continuing. On January 11, MI-ONE, or M1, released 500,000 units for the third round of sales. In the 34 hours from 12:50, January 11 to 23:00, January 12, the 500,000 phones, priced at RMB 1,999 Yuan, were sold out.  

Why can the M1 create such an instant success? Is its popularity a result of ad campaign? Or there is other reason for it? What does the "instant sold-out" of the M1 mean?

Slow delivery: is it hunger marketing?

According to Li Wanqiang, vice president of Xiaomi Technology, on January 11, 100,000 out of the 500,000 M1 phones released for the third round of sales were sold in the first 45 minutes, and more than 230,000 were sold 2 hours later.

Prior to that, on January 4, M1 started its second round of sales, selling out 100,000 units in 3.5 hours. In its first round of sales on December 18, 2011, 100,000 units of M1 were sold out in 3 hours. Together with the 300,000 units preordered in September last year, more than 1 million M1 have been sold so far.

One after another, the M1's staggering "instant sold-out" numbers attract abundant attention for the product, but also put itself in the predicament of supply shortage for a quite a long time. It took the first buyers 40 days from placing orders to receiving the phone.

M1 blames this to its insufficient production capacity, which started at a small scale of 1,000 units per day and increased to 15,000 units per day by December 5 last year. Industrial participants, however, suspects M1 of hunger marketing: by purposely creating the situation of supply falling short of demands, M1 not only makes a lot of news, but also incites consumers to make purchase. Of course, M1 doesn't acknowledge such a hypothesis. Li Wanqiang even revealed Xiaomi's Alipay account that has more than RMB 122 million Yuan in it to prove the authenticity of buyers' enthusiasm.

From another perspective, the shipping speed of the M1 is closely related to its cost control. "A mobile phone is something whose value begins to depreciate since the day it is produced. RMB 1,999 Yuan in last August is greatly different from RMB 1,999 Yuan now", said Yang Qun, analyst of ZGC Counsel Company. Mr. Yang points out that according to industrial estimate, the purchase cost of smart phones of similar level can be RMB 300 Yuan lower after such a span of time. 

Consumers: Why buying M1?

Whether it is because of insufficient production capacity or marketing scheme, one question we can't avoid is: why M1 users are willing to wait for the phone for such a long time? Why are they willing to refresh the "instant sold-out" page time after time for a phone?

The M1's cost-effective is an essential contributing factor of buyers' willingness to pay for the phone. It is the world's first smartphone to sport a 1.5GHZ dual-core engine, which is 200% more efficient than other single-core 1GHZ smartphones. M1's 4-inch LED screen and 1930 mAh battery are often compared to the 3.5-inch screen and 1420 mAh battery of the iPhone 4, which sells at a price twice of the M1.  

Another user-capturing weapon is the internet experience of Lei Jun, founder, chairman of the board, and CEO of Xiaomi Technology. The development and release of the OS of M1 have always centered on the internet, worked closely with third-party development teams, and updated swiftly every week, helping M1 to accumulate 1.5 million fans that consist of the initial purchase power of M1. 

As for sales and distribution channel, the M1 opts for the e-commerce model that is most favored by internet users. All "naked" phones are sold on the e-commerce platform of xiaomi.com and delivered through the Rufengda logistics that is established by Vancl, which is also invested by Lei Jun.

Without bricks-and-mortar stores, Xiaomi can reduce its purchase threshold and save the channel cost, helping it to better control the price.

According to the calculation of industrial professionals after tearing down the phone, the hardware cost of a M1 after tax is around RMB 1,300 Yuan, which doesn't include the cost of operation, R&D, and publicity. In this perspective, the huge amount of sales doesn't mean huge profit for M1. Lei Jun has suggested that M1 intends to operate in e-commerce, cloud services, and software updates, namely, to make further profit through value-added service in the future. However, Xiaomi's most popular software service Mi Talk is being heavily suppressed by Tencent's similar IM software Weixin. Whether Xiaomi is planning in the long run or is it just earning popularity without profit is a question whose answer remains unclear for now.

Service: what about the after-sales service?

At the end of 2011, Xiaomi Technology and China Unicom convened a joint press conference, announcing the official release of a customized China Unicom M1. Lei Jun suggests that Unicom intends to purchase more than 1 million M1 phones. Why would Xiaomi, who is already having difficulty supplying the M1 phone, accept such a huge order from Unicom? One obvious reason is that the partnership would help Xiaomi to extend its sales channel from online to offline. But another important reason not to be neglected is that through the partnership, the M1 will now enter the national after-sales service network of Aisidi, the distributor of Unicom phones.

Would after-sales service become the weak link of M1? On January 15, Xiaomi Technology published a public letter to M1 fans: Xiaomi is doing its best to improve after-sales service. In the letter, Xiaomi promises to increase the number of M1 Homes to 30 in the first quarter of 2012, and accelerate the establishment of repair shops in approximately 100 cities in 25 provinces. As for the after-sales service team, the number of employees has increased from 50 to 150 now, and would increase to 300 in the first quarter of 2013. As for delivery, Xiaomi announced partnership with SF Express and EMS, extending delivery range and accelerating the delivery process.  

Xiaomi's public letter paints a beautiful blueprint, but it would mean that Xiaomi will have to invest large amount of resources and money into its off-line operation. Whether Xiaomi, who doesn't have a prominent position in the supply chain, would be able to realize the blueprint or not remains to be seen. The M1 miracle is underpinned by consumers' substantial demands for high-performance smartphones, but at the end of the day, such demands would be sustained by reliable product experience and after-sales service. In this regard, the future path of M1 is far from smooth.