Apr 18, 2016
Digital disruption of business models is forcing many leaders to create new visions of change into their business strategies.
A recent Wired magazines article “Xiaomi’s Internet Thinking” shows how the Chinese smartphone manufacturer has created a massive business building a customer platform of 160 million people.
Xiaomi’s more than 160 million smartphone customers have purchased millions of the latest technological products with simple clicks on their mobile phones.
Its ecosystem platform is a crucial innovation in the world of commodified smart phones.
Selling smartphones not enough
Liu De, Xiaomi’s head of ecosystem products said just having better smartphones would not be enough to make Xiaomi a sustainable business in an internet based environment.
“We need to sell cooler products and have people coming at all times. It’s an important element of our acquisition and retention strategy.
Quality phones at rock-bottom prices
Lei Jun, Xiaomi’s CEO and founder built a company now valued at $US45 billion by developing a business that “turns’ its smartphone customers into “fans” who co-design and evangelize life-style products.
At the same time, Xiaomi transfers much of the life-style products’ market-demand risks through tactical investments of between $US100,000 to $US500,000 in many small hardware start-ups and develops its ecosystem to deliver their products to its huge smart-phone customer platform.
Xiaomi incubates these start-ups and helps them develop and create products to sell on its Mi.com e-commerce platform.
These processes allow Xiaomi to slash costs by minimizing inventory and optimizing supply-chains by selling high-quality top-of-the market devices at low-price margin-obliterating prices while profiting from services, content and accessories.
In 2015, Xiaomi sold more than 71 million smart phone devices and millions of other technology-based life-style products to its 160 million smart phone customers.
Initial emphasis – high-quality-products
Xiaomi main objective is marketing high-quality innovative products that create connected lifestyles with technological innovation.
It’s a smart-phone company and its Mi.com is China’s third largest e-commerce site which includes an internet services company that even publishes games.
Mi.com sells products ranging from power-banks to wearables, air and water purifiers. It’s more than 600 product portfolio creates lifestyle enhancements at low-prices and is easily purchased by its millions of smartphone users.
The company also has 22 stand-alone MiHome centers in China, Hong Kong and Taiwan.
Xiaomi’s platform sells massive quantities of innovative top-quality technology products on its platform.
In the first six months of 2015, it sold more than 10 million company-branded health wristbands and more than 10 million Ahmi power banks. It also sold millions of branded 60 inch TVs at a RMB4,999 ($US771) rock bottom price.
Xiaomi’s has developed a new business model for high-tech innovation.
Most venture capitalists and investors favor software and internet companies while Xiaomi’s new nimble speedier decision- making infrastructure can nurture hardware companies.
The company’s 20 eco-system product engineers, (not finance) people make all investment decisions.
“We don’t care about a company’s valuation - only whether if it has best product and team,” said Liu De.
The 20 engineers also sit on investees’ boards but not as “opposition” votes. “We respect the founders and their dreams.”
Mobile internet platform – key to success
Hugo Barra, former head of product management for Android at Google and now Xiaomi’s head of international operations said the mobile operating platform is critical for the company’s success.
“Our phones are the distribution vehicles for our platform – we don’t care about selling phones, but about getting as many users as we can.”
With the platform, Barra said can enter the movie, music and news business as a virtual carrier and is also already building a finance business.
Pipelines, Platforms and the rules of strategy
A recent Harvard Business Review article, “Pipelines, Platforms and the rules of strategy” noted that in today’s digital world, scale now trumps differentiation.
“Apple along with Google’s competing Android system overran incumbents by exploiting the power of platforms and leveraging the new rules of strategy they give rise to.
Platform businesses, HBR said bring together producers and consumers in high-value exchanges.
Their chief assets are information and interactions, which together are also the sources of the value they create and their competitive advantage.