Innovative Business Ideas

China’s Xiaomi’s innovative platform strategy

08 June 2016

Xiaomi

Human Capital Alliance looks at how Xiaomi has disrupted the smartphone business with a new business model.

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 a Chinese smartphone manufacturer has created a massively successful business on the back of virtually zero-margin hardware by building a customer platform of 160 million people.

Xiaomi makes more money by selling services and branded accessories produced by start-ups in which it invests.”

According to Wire, its ecosystem is a crucial innovation in the world of commodified smart phones.

Selling smartphones not enough

Liu De, Xiaomi’s head of ecosystem products said that from an internet thinking perspective, just having better smartphones would not be enough to make Xiaomi a sustainable business.

“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 priced at $45 billion by developing a business that “turns’ its smartphone customers into “fans” who co-designers and evangelisers of life-style products.

At the same time, Xiaomi transfers much of the market-demand risks to many small hardware start-ups in which it tactically invests between $US100,000 to $US500,000 and develops its ecosystem to deliver products on its platform.

It incubates these start-ups and helps them develop and create make products to sell on Mi.com.

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 and profiting from services, content and accessories. In 2015, Xiaomi sold more than 71 million devices.

Initial emphasis – high-quality-products

Xiaomi initially markets high-quality products to help create connected lifestyles with technological innovation.

It’s now a smart-phone company and its Mi.com is China’s third largest e-commerce site and an internet services company, which even publishes games.

On Mi.com it sells products ranging from power-banks to wearables to air and water purifiers –hundreds of products that create a lifestyle.

The company also has 22 stand-alone MiHome centers in China.

Huge volumes

Xiaomi’s platform has successfully sold massive amounts of innovative top-quality technology products on its platform.

It sold more than 10 million health wristbands in the first six months of 2015 per month; more than 10 million power banks and 60 inch TVs at a RMB4,999 ($US771) rock bottom price.

Faster decision-making

Wired said Xiaomi’s had 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 ecoystem 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.

At the same time, while its 20 engineers 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.

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