If Xiaomi Releases a Macbook Air Clone, Apple Won't be the Company to Suffer

By Markets Fool.com

Late last month, the Internet was set ablaze by a report that Xiaomi, the fast-growing Chinese smartphone start-up, planned to enter the laptop market with a device that bore a striking resemblance to Apple's Macbook Air.

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The rumor -- since debunked -- was initially accepted as genuine, and for relatively good reasons: Given Xiaomi's reputation for copying Apple's hardware designs, the idea that it would release a Macbook Air clone was far from surprising. And, given Xiaomi's relatively rapid entrance into the tablet and smart TV markets (in addition to their core handset business), a move into traditional laptops would make perfect strategic sense.

But lost in the discussion surrounding the design of Xiaomi's alleged laptop was the operating system it would run: If Xiaomi did enter the PC market, it almost assuredly wouldn't use Windows. If its success in handsets could be translated into PCs, it could further challenge Microsoft's ecosystem and pressure its hardware partners.

An uncanny similarity
Virtually all of the coverage surrounding Gizmochina's report centered around the laptop's design: With the exception of an orange "Mi" logo, it appeared to be an almost exact replica of the Macbook Air.

It wouldn't have been the first time a company drew inspiration from Apple's ultra thin laptop: With its silver body and black keyboard, Hewlett-Packard's Envy TouchSmart looks strikingly similar.

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Source: HP.com

Source: Apple.com

Despite offering a familiar design, though, HP hasn't managed to steal many Macbook Air customers, if any. Although HP remains one of the largest PC OEMs in the world, Apple's share of the PC market has been growing in recent years.

Some percentage of Macbook Air buyers may be swayed by the design, but operating system is the larger factor. Steve Jobs once explained that when Apple sold a Mac, it wasn't selling a piece of hardware, so much as it was selling a piece of software: "If you look at what a Mac is, it's OS X. It's in a beautiful box, but it's OS X," he said.

With its reliance on Microsoft's Windows, and Apple's unwillingness to license its operating system, HP couldn't deliver a true Macbook Air competitor no matter how hard it tried.

A more important aspect than design
Like Apple, Xiaomi would likely use a proprietary operating system for its laptop, should it ever release one. To date, the company has enjoyed rapid success by offering high-end hardware at an affordable price. Late last year, Xiaomi became China's largest smartphone vendor, overtaking Korean rival Samsung. Xiaomi's Mi phones offer similar hardware, but retail for only a fraction of the price.

Still, Xiaomi is profitable: It earns money on software and services. Technically, Xiaomi's handsets use the Android operating system, but it is a heavily modified version -- dubbed MIUI -- that strips out Google's services in favor of its own. Xiaomi's co-founder, Bin Lin, told The Next Web that Xiaomi sees its hardware only as a platform, rather than a profit source.

Applying Xiaomi's business model to the PC, then, would mean not using Windows -- Microsoft's operating system is not open source, and can not be modified like Android. Xiaomi would have to use a different operating system entirely, perhaps a modified version of MIUI, if it hoped to make money on low-cost, high-end PCs.

Of course, Microsoft doesn't make much money in China
If Xiaomi could capture the Chinese PC market the way it conquered the Chinese smartphone market, it could prove problematic for Microsoft -- at least in theory. Despite the rise of mobile devices, Microsoft still dominates the market for traditional PCs, particularly in emerging markets like China, where Apple's Macs are uncommon.

But somewhat surprisingly, Microsoft makes relatively little money in China, where software piracy runs rampant. In fiscal year 2013, Microsoft generated almost $80 billion in revenue -- despite boasting the world's second-largest economy, China accounted for just over $1 billion of that.

Even if Xiaomi were to dominate China's PC market, it would have shockingly little effect -- at least directly -- on Microsoft's financials. Microsoft's hardware partners, however, could suffer: software is easy to copy; actual PCs are difficult to steal. China remains an important market for PC-makers like HP and Lenovo, and Xiaomi's entrance into that market could represent a significant competitive threat.

It remains speculation, but it seems likely
Although it has no presence in the U.S., Xiaomi is arguably the most interesting company in technology. A recent financing round pegs its valuation at $45 billion -- not bad for a company that was founded less than five years ago.

There's no definitive proof that Xiaomi plans to enter the PC market, but it certainly wouldn't be surprising. Xiaomi may have denied copying the Macbook Air, but it didn't say it wasn't working on a laptop.

If Xiaomi does release a laptop, investors should focus more on its software rather than its design. Macbook Air clone or not, Xiaomi could create a powerful PC ecosystem rivaling Microsoft's Windows, and devastate its key hardware partners. Just ask Samsung.

The article If Xiaomi Releases a Macbook Air Clone, Apple Won't be the Company to Suffer originally appeared on Fool.com.

Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.