SMARTPHONES: Xiaomi Sub-Brand Looks to Rice for Crackle

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Bottom line: Xiaomi’s new Mi Ecosystem of smart appliances and devices outside its core smartphones are unlikely to gain much traction due to its limited resources and mediocre product designs.

Xiaomi rolls out high-tech rice cooker

Smartphone maker Xiaomi, a former headline grabber whose star has faded over the last year, is steaming back into the news this week with its launch of a new sub-brand that’s part of its attempts to build an ecosystem of interconnected products and services. The new sub-brand, called Mi Ecosystem, looks interesting conceptually and appears to be targeting more ordinary home appliances like rice cookers, which is the first official product carrying the new name.

The only problem is that this kind of ecosystem play has become a buzzword not just in China, but also throughout the world. Everyone is trying to figure out how to make smart devices that can talk to their owners and with each other to run homes more efficiently. Apple (Nasdaq: AAPL) was one of the earliest companies in the space, and in China nearly all of the big Internet companies now have partnerships with appliance and device makers in a bid to develop similar smart products.

All that said, I’m hardly convinced that Xiaomi has the resources to succeed where even Apple, its former role model, has had difficulty finding a strong audience. Xiaomi’s decision to develop a separate brand for the business, called Mi Jia in Chinese, looks catchy at least from a marketing perspective. But Xiaomi has learned from experience in its core smartphone business that savvy marketing can only get you so far, and you really need to have outstanding products to succeed in the cutthroat world of high-tech gadgets.

The new sub-brand launch has attracted relatively strong and positive media attention for Xioami, a rarity these days for a company that used to be a regular fixture in the media for its cool and trendy image. The company was in mostly negative headlines last year, including a scandal involving its air purifiers and technology snafus that delayed its latest smartphone and caused it to badly miss  its 2015 sales target.

The headlines around this new sub-brand look designed to divert attention from the stumbling smartphone business, and the centerpiece and launch product for the new brand is a high-end, wi-fi equipped rice cooker costing 999 yuan ($150). (English article; Chinese article) Xiaomi points out the cooker costs 40 percent less than a comparable Japanese model, and says it will go on sale in China on April 6.

Non-core Investments

Xiaomi spends most of the rest of the announcement talking about its investments outside its core business, which we’re now learning consists of smartphones, wireless routers and smart TVs. It says it has invested in 55 companies making products outside those core areas, and that products from many of those will be included in the new sub-brand. Among its invested companies, 7 have reached annual sales of over 100 million yuan, while 2 have even topped the 1 billion yuan mark.

So, now that we’ve looked at all the basics, it’s time to wrap up by saying what this news means for Xiaomi. In terms of media coverage, the fact that Xiaomi got relatively positive buzz appears to show that media are less interested in reporting all of Xiaomi’s various missteps, which bodes well for the company’s image. Part of Xiaomi’s early rapid rise was fueled by the nonstop upbeat early coverage of the company, and its equally rapid fall was also partly due to obsessive coverage after the many small missteps began.

But at a more fundamental level, I’m really not convinced yet that Xiaomi and its partners have the product design capabilities to match their big aspirations for this Mi Ecosystem initiative. None of Xiaomi’s non-core products have really generated much buzz so far, and I really don’t expect them to contribute to its business anytime soon.

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