As Xiaomi Sells Out of New Flagship Phone, Bin Lin Talks About the Disruptive Chinese Start-Up’s Approach (Video)

Xiaomi co-founder Bin Lin was in many ways the perfect speaker for our Dive Into Mobile conference. Xiaomi is one of the most interesting corporate stories from the transformative global spread of smartphones, but its quick ascent is not widely known about outside of China.

The company, which is just two-and-a-half-years old but already has sold more than five million phones and employs 1,700 people, has disrupted the Chinese home handset market by making and selling top-of-the-line smartphones direct to consumers for a fraction of the expected price.

Today, Xiaomi launched its second major phone, known as the Xiaomi Phone 2, or the Mi-2. A run of 50,000 units sold out in two minutes and 51 seconds.

While companies might shy away from literally naming one of their phones a “me too,” the new Xiaomi phone has much in common with Apple’s iPhone 5, including the size and shape of the handset, the way application icons tile on the screen in Xiaomi’s modified version of the Android Jelly Bean OS, and the look and feel of the built-in camera application.

But Lin was quick to pull his iPhone 5 out and show that the (slightly larger) Mi-2 has a better display — 720 by 1280 with a pixel density of 342 pixels per inch.

Sitting on a red couch (instead of our signature D conference red chairs) at the hotel to which we had evacuated for Hurricane Sandy, Lin told me about his company’s plans for the Mi-2 launch as well as its long-term strategy.

As we spoke on Monday, Lin seemed remarkably unstressed on the eve of his company’s big launch. That’s because Xiaomi phones are offered only online and typically sell out in a matter of minutes to fans who apparently follow the company’s progress like they would a rock band.

In fact, last week, a block of 300,000 of the older Mi-1s model — that is, a phone that everyone knew was a week away from being outdated — sold out in only four minutes and 15 seconds.

Xiaomi released just 50,000 phones for order today and said it would have 250,000 more available in mid-November.

To date, Xiaomi has sold 3.5 million Mi-1 units and 1.8 million of the between-upgrades Mi-1s. That’s only a single-digit percentage of the Chinese smartphone market, where as many as 200 million smartphones are expected to be sold this year.

The base model for the Mi-2 costs just $230. Lin said Xiaomi spends “almost that price” to manufacture the phone, but that the company doesn’t mind its low margins because it is pursuing a strategy similar to Amazon’s Kindle Fire.

Xiaomi doesn’t spend any money on retail and barely any on marketing. Instead, the company corresponds with fans on Weibo and in forums, asking for their product feedback and sometimes incorporating it.

Xiaomi creates its own hardware and its own modified-Android software, and expects revenue to flow in from e-commerce in the future.

“As we see huge adoption of smartphones, we see e-commerce getting more mature, with logistics and payment systems,” Lin said. “As we get more adoption of software, the money will come after.”

E-commerce is the specialty of Xiaomi co-founder Lei Jun, who founded Joyo.com, which is now Amazon.cn. Meanwhile, Lin is the software guy, having most recently led Android development in China as an engineering director of Google. Others from the seven-member Xiaomi founding team include a Motorola hardware expert and a Microsoft development director.

That unified approach has a familiar precedent in Apple, though Lin noted that Xiaomi is not yet at the point where it custom-designs its own chips.

As for what Xiaomi will do next, Lin said that the company is working to expand internationally and sees Taiwan and Hong Kong as its most likely targets, given their similarity to China. He also acknowledged rumors about Xiaomi building a set-top box, saying that kind of personal computing device might be a natural extension.

But for now, Xiaomi’s approach is really quite simple, Lin said. “The strategy is to build top-end handsets. That’s what we’re good at.”