The ¥1999 Gamble: The 'Nuclear' Debut of the Xiaomi Phone

Prologue: A Launch with No Budget

In the high summer of 2011, the Xiaomi office was a mix of tension, excitement, and the faint smell of heated circuit boards. Their first child, the Xiaomi Phone 1, was about to be born.

At this point, Xiaomi had already amassed 500,000 loyal fans in the enthusiast community through MIUI. But in the broader mass market, it was still a "nobody."

Li Wanqiang, the co-founder in charge of marketing, knocked on Lei Jun's office door. He held a preliminary plan for the launch event and cautiously asked, "Mr. Lei, what's our marketing budget for this launch?"

Lei Jun was examining an engineering sample of the phone. Without looking up, he uttered two words: "Zero budget."

Li Wanqiang thought he had misheard. "Zero? Mr. Lei, how can we hold a launch with a zero budget? The venue, materials, media, guests... everything costs money."

Lei Jun finally looked up, placed the phone on the table, and looked at Li Wanqiang with burning eyes. "A'li, we are going to have an unprecedented launch. We will do it in a purely internet way, without spending a single cent on advertising, without a single celebrity endorsement. Our only weapon is our product. We are betting everything on the product."

This launch, which would later be hailed as a classic, thus began in the most "frugal" way possible. All media invitations were secured by Xiaomi employees making calls and sending emails one by one. The venue was chosen at the relatively cheap 798 Art District in Beijing. Even the clothes Lei Jun wore on stage were sourced by Li Wanqiang from Vancl, a 29-yuan black T-shirt and a pair of jeans—cosplaying Steve Jobs' classic look at the lowest possible cost.

The entire company, everyone, placed their bets on one thing: the product itself, and the insane price that was about to blow the audience away.

Act I: "Standing in the Corner" Outside the Supply Chain Giants' Doors

From the very beginning of the product definition, Lei Jun had set an unshakeable tone for the Xiaomi Phone 1: born for enthusiasts, it had to have top-of-the-line specs.

"We are going to make the highest-spec smartphone available on the market at the time. Performance is our religion," he said in an internal meeting.

Thus, a "luxurious" list of components was born: Qualcomm's top-tier dual-core 1.5G processor at the time, Sharp's best 4-inch LCD screen, a whopping 1GB of RAM, an 8-megapixel camera... every single one from the world's top suppliers.

However, when the head of hardware, Zhou Guangping, took this list to negotiate with these international supply chain giants, full of confidence, he was treated like a fraud and turned away at every door.

"Xiaomi? Never heard of you. How many units can you order in a year? A hundred thousand? Two hundred thousand?" The suppliers' eyes were filled with disdain and suspicion.

At Sharp's headquarters in Japan, the person in charge even refused to meet them, leaving Zhou Guangping's team to sit on a cold bench in the conference room for hours. Qualcomm explicitly stated that its latest chips would be prioritized for major clients like HTC, Samsung, and Motorola, who shipped tens of millions of units a year.

To these lofty supply chain "empires," Xiaomi was just an unknown "workshop" that had appeared out of nowhere. Why should they sell their best "ammunition" to you?

After hitting a wall, Lei Jun decided to step in himself. He leveraged all the connections he had accumulated over the past two decades at Kingsoft and in the investment circle. Like a devout "pilgrim," he visited the global vice presidents and even CEOs of these suppliers one by one.

In Japan, in South Korea, in the United States, Lei Jun and his "all-star team" repeatedly pitched Xiaomi's dream and business model. He knew that talking about dreams alone was not enough. He played his trump card—MIUI's data.

"We are not a company starting from scratch," Lei Jun said, opening his laptop to show them the user data from MIUI's backend. "Before we even have a single piece of hardware, we already have 500,000 weekly active core users worldwide. They are our first and most loyal buyers."

In the end, two factors won over these supply chain giants: first, the top-tier credibility represented by Lei Jun and his "ex-Google, ex-Microsoft, ex-Motorola" star-studded founding team; and second, the certainty represented by MIUI's 500,000 real and fervent users.

These giants, with a "let's take a gamble" attitude, agreed to open up their top production lines to this "upstart" from China.

With the supply chain secured, the hardware foundation of the Xiaomi Phone 1 was finally in place. It now had the heart of a champion, with top-tier specs that were unmatched at the time.

Act II: A Price Born from "Arguments"

With the product ready, only the last and most crucial element remained—pricing.

This was perhaps the most fiercely debated and difficult decision within Xiaomi before the launch of the Xiaomi Phone 1.

According to the market at the time, phones with similar specs from HTC, Samsung, and Motorola were all priced above ¥4000. The company's finance team, after careful calculation, came up with two proposals:

Proposal A: Price it at ¥2499. This price would ensure a decent profit for the company, allowing it to survive first and then seek further development. Proposal B: Price it at ¥1999. This price meant that for every unit sold, the company would make almost no profit, and might even lose money initially.

At the pricing decision meeting, the team was deeply divided. The pragmatic "profit camp" and the aggressive "market camp" argued heatedly.

"We have to survive first! Without profit, how can the company grow? How can we pay our employees?" "If we price it like everyone else, what's the difference between us and the traditional manufacturers? On what grounds can we disrupt the industry?"

The debate raged for several all-nighters, with no conclusion. Finally, all eyes turned to Lei Jun.

Lei Jun was silent for a long time. Then he stood up and wrote four numbers heavily on the whiteboard: 1999.

"We'll price it at 1999," he said, his voice quiet but firm.

"Why?"

Lei Jun explained, "Everyone, what was our original intention when we founded Xiaomi? Was it to be a company that makes huge profits from hardware? No. Our original intention was to use the internet model to make honestly priced, impressive products. We don't have the costs of offline channels, we don't have huge marketing expenses. We will return all these savings to the users. ¥1999 is our sincerity, it is our declaration! This price is enough to break through everyone's psychological defenses. What we want is not a little profit. What we want is to use this 'nuclear bomb' to blow open a whole new market!"

It was a crazy decision. It meant that from its very first day, Xiaomi had voluntarily given up the traditional business model of making high profits from hardware. It was a high-stakes gamble—a gamble on scale, a gamble on the future, a gamble on the belief that the internet model would inevitably triumph over the traditional model.

Epilogue: The Erupting Half-Minute

On August 16, 2011, at 798 Art District in Beijing.

Lei Jun, wearing that 29-yuan Vancl T-shirt, stood on the slightly shabby stage. Like a devout product manager, he nervously introduced each parameter of the Xiaomi Phone 1. The audience, mostly senior MIUI users and media invited by the "zero budget" PR, were all eagerly awaiting the final price reveal.

When all the features had been introduced, Lei Jun took a deep breath and pressed the fateful button on the slide clicker.

On the big screen behind him, three earth-shattering, bright red numbers appeared—"1999."

The venue first fell into a dead silence for about three seconds, as if everyone was doubting their own eyes. Then, the crowd erupted into a tsunami of applause, screams, and whistles. This fervent reaction, a mix of shock, ecstasy, and disbelief, lasted for a full half-minute, the noise so loud that it interrupted the launch several times.

Everyone was completely conquered by this price. It was a "butcher's" price, making the arrogance of all the international brands' "high-price, low-spec" models look like a cruel joke.

At that moment, standing in the center of the stage, surrounded by the wave of sound, Lei Jun knew he had won the gamble.

After the launch, the server for the Xiaomi phone reservation website crashed due to the instantaneous, immeasurable surge of traffic.

"¥1999" has since become a historical landmark in the Chinese mobile phone industry that cannot be bypassed. Like a sharp scalpel, it precisely punctured the huge bubble of high profits in the traditional phone industry, ushering in a new era dominated by internet companies, with "cost-effectiveness" at its core.

And Lei Jun, with this classic launch, achieved legendary status. He wore a cheap T-shirt, emulating Steve Jobs' style, but with a "cost-pricing" model completely different from Apple's, he carved out his own unique path to greatness.

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Key Takeaways

1. Product pricing itself is one of the most powerful marketing strategies: The number "1999" had more impact than any advertisement. It clearly communicated Xiaomi's brand positioning and values and quickly went viral on social media.
2. The core of disruptive innovation is to use a 'cost-price' model to attack the high-margin model of traditional industries: Xiaomi gave up hardware profits and used a "making friends" price to quickly acquire a massive user base. This is a typical "dimensional reduction" attack from the internet world.
3. Returning the saved marketing and channel costs to users is the essence of the internet model: Through online direct sales, Xiaomi cut out all middlemen and passed these savings directly to the final price, thus establishing an ultimate cost-effectiveness advantage.