The Billion-Yuan Bet: Lei Jun and Dong Mingzhu's 'Battle of Models'

Prologue: An Awards Ceremony Set "On Fire"

On December 12, 2013, in Beijing, backstage at the CCTV China Economic Person of the Year awards ceremony, the air smelled of hairspray and the restrained perfume characteristic of successful people. Lei Jun and Dong Mingzhu were assigned to the same dressing room for the first time.

One was the "it boy" of the internet, the founder of Xiaomi, dressed in his signature T-shirt and jeans, looking like a programmer who had just gotten off a plane. The other was the "iron lady" of traditional manufacturing, the chairwoman of Gree Electric, in a well-tailored suit, exuding a powerful aura. Although they were about to share the stage to receive an award, they were clearly from different worlds, with almost no interaction, like two species from different planets.

The director of the show, trying to create some drama, suggested half-jokingly before they went on stage, "Mr. Lei, Ms. Dong, you two represent two different models. How about some interaction on stage, like... making a bet?"

This seemingly spontaneous suggestion was like a match that instantly lit a volatile fuse. Both Lei Jun and Dong Mingzhu were, at their core, extremely competitive and confident people.

After walking onto the magnificent stage, the atmosphere quickly heated up under the skillful "flame-fanning" of the host, Chen Weihong.

Lei Jun launched the first "attack." He declared that the asset-light, high-efficiency internet model represented by Xiaomi was the future, and that within five years, Xiaomi's revenue would definitely surpass Gree's. He turned to Dong Mingzhu with a challenging smile and said, "If I can't do it, I'll lose one yuan to you."

One yuan was a popular, slightly playful way of making a bet in the internet circle.

But Dong Mingzhu was clearly not playing along. She immediately showed the toughness and dominance of the manufacturing queen. She practically snatched the microphone and retorted without any weakness, "First, that's impossible. Second, if you want to bet, it won't be for one yuan. I'll bet a billion with you!"

"A billion!"

Those two words exploded like thunder in the studio. The entire audience was in an uproar, and even the host was momentarily speechless.

The smile on Lei Jun's face froze. He clearly hadn't expected Dong Mingzhu to be so unconventional, escalating a joke into a "bet of the century." But on live television, in front of hundreds of millions of viewers, he had no way out. He had to accept the challenge.

And so, a bet with a stake of one billion yuan was born, dramatically. On one side of the bet was Xiaomi, a three-year-old "no-factory, no-store" internet brand. On the other was Gree, a home appliance giant with an annual revenue of over a hundred billion yuan, the pride of Chinese manufacturing.

From the moment it was born, this bet transcended the personal grievances of the two entrepreneurs and was given a far deeper meaning by the media and the public—it was a "battle of models" for the future of Chinese business.

Act I: The Battle of Models: A Philosophical Duel of "Light" vs. "Heavy"

When the bet was first made, public opinion was almost unanimous that Lei Jun was "crazy."

In 2013, Gree's annual revenue was as high as 120 billion yuan, with profits exceeding 10 billion. Xiaomi, although growing at an astonishing rate, had just surpassed 31.6 billion in annual revenue. There was a huge gap of nearly 90 billion between them. To close this gap in five years seemed like an impossible task to everyone.

But Lei Jun's confidence was not born of impulsiveness. His confidence came from his absolute faith in the "internet model" represented by Xiaomi.

Gree's model was a typical traditional industrial era model:

• Heavy assets: Possessing huge industrial parks, sophisticated production lines, and tens of thousands of industrial workers.
• Multi-layered channels: Products had to pass through thousands of agents and distributors across the country, like a long river with markups at every level, before finally reaching the consumer.
• High marketing costs: Requiring an annual advertising budget of billions to "master the core technology" on CCTV to maintain brand popularity.

Xiaomi's model, on the other hand, was a brand new internet era model:

• Light assets: Having no factories of its own, outsourcing all production to contract manufacturers like Foxconn, and focusing on R&D and design.
• Zero channels: Selling products directly to users through online platforms like the Mi Store, cutting out all middlemen.
• Zero advertising: Relying on the MIUI community, social media, and the "word-of-mouth" of fans for promotion.

Lei Jun firmly believed that Xiaomi's model constituted a "dimensional reduction" attack on Gree in terms of "efficiency." Although there was a huge gap in current revenue, Xiaomi's growth was exponential. He believed that time would prove everything.

Dong Mingzhu, on the other hand, firmly believed that the essence of business was product and quality. She believed that the foundation of manufacturing lay in R&D, production control, and deep cultivation of channels. Xiaomi's "light and fluffy" model, with no factories and no advertising, was just a castle in the air, a clever trick that could not stand the test of time.

This bet was, in essence, a duel between two business philosophies.

Act II: The Five-Year Pact, Their Respective "Journeys"

The five years following the bet (2014-2018) were a period of drastic change for China's economy and tech industry, and also a period of "trials and tribulations" for both Lei Jun and Dong Mingzhu.

Xiaomi, during these five years, was on a wild roller coaster. It had once sprinted to the top of the Chinese smartphone market with its extreme cost-effectiveness, but it also fell into a trough due to supply chain fragility and fierce competition, being ridiculed by the outside world as "a pig that flies, will eventually fall." But Lei Jun, under immense pressure, painfully "made up for his lessons," miraculously reversed the decline in 2017, and led Xiaomi to a successful IPO in Hong Kong in 2018.

During these five years, Xiaomi's business also expanded from a single product of mobile phones to hundreds of smart hardware devices such as TVs, routers, fitness bands, air purifiers, and robot vacuums, building the prototype of a vast "Xiaomi empire" with its "ecosystem" model.

Gree, on the other hand, continued to maintain its absolute dominance in its main business of air conditioning. Under Dong Mingzhu's leadership, Gree continuously emphasized "independent R&D" and "intelligent manufacturing," investing heavily in technology. But at the same time, Gree also fell into the anxiety of "diversification." Dong Mingzhu personally endorsed and promoted Gree's mobile phones, even using her own portrait as the boot screen, but the market response was dismal. Later, Gree tried to enter new energy vehicles and other fields, with little success.

For these five years, both Lei Jun and Dong Mingzhu held their breath, closely watching each other's financial reports. The billion-yuan bet was like a sword of Damocles hanging over their heads, driving the two entrepreneurs and their companies to not slack off in the slightest.

Epilogue: Who Won the Future?

In early 2019, the two companies successively released their 2018 financial reports. The five-year pact had come to its denouement.

The final data showed:

• Gree Electric's 2018 revenue was 198.12 billion yuan.
• Xiaomi Group's 2018 revenue was 174.9 billion yuan.

According to the terms of the bet, Lei Jun lost. Dong Mingzhu won the billion-yuan bet by a narrow margin of 23.2 billion.

After the results were announced, Dong Mingzhu stated in public that the bet with Lei Jun was meaningless because Gree would definitely win. Lei Jun, on the other hand, graciously admitted defeat and publicly stated that the bet had taught him the spirit of excellence in manufacturing from Gree, and he had benefited greatly.

Although Lei Jun lost in terms of numbers, the business community and media generally believed that he was the real winner of this bet.

Why?

First, Xiaomi won an immeasurable amount of brand exposure. By being associated with the industry queen Dong Mingzhu and the manufacturing giant Gree, the three-year-old Xiaomi gained national attention overnight. This five-year-long "free advertisement" was worth far more than a billion.

Second, Xiaomi proved the power of its model with its growth. Although the final absolute value was a little short, Xiaomi had miraculously narrowed the revenue gap with Gree from nearly 90 billion to just over 20 billion in five years. Its astonishing growth rate proved the powerful explosive force of the internet model to everyone. (Note: Just one year later, in 2019, Xiaomi's annual revenue officially surpassed Gree's.)

Most importantly, this bet, in an unprecedented way, sparked a nationwide discussion about "internet thinking" in China. It awakened countless traditional entrepreneurs, making them seriously consider how to use internet thinking and technology to transform their outdated and inefficient business models.

In the end, no one really pursued the one billion yuan. The bet, like a fable, left a deep mark on the history of Chinese business. In a highly dramatic way, it announced a turning point of an era—the internet was no longer just an independent virtual industry; it would become the infrastructure for all traditional industries, like water and electricity, and trigger a profound efficiency revolution.

And Lei Jun, although he lost the bet, won the right to define the future.

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Key Takeaways

1. The advanced nature of a business model may not be fully reflected in revenue scale in the short term: Although Xiaomi lost the five-year revenue bet, its astonishing growth rate and higher efficiency heralded its long-term potential. The fact that it surpassed Gree in the sixth year proved the long-term value of its model.
2. The core of internet thinking is an efficiency revolution, and it can transform all traditional industries: Xiaomi's "asset-light + zero-channel + social marketing" model far surpassed Gree in operational efficiency. This bet was, in fact, a race between two efficiency models.
3. A public 'bet' between entrepreneurs is essentially a PR battle concerning brand voice and model confidence: Through this bet, Lei Jun successfully bundled Xiaomi with the industry giant Gree, greatly enhancing Xiaomi's brand awareness. He lost face but won the substance.