Xiaomi - A Case Study Why we made this case study at Teagle? Teagle is all about interaction with customers – and for some time already we've been really fascinated by Xiaomi's successful approach to focus on its customers. After this case study, we feel even more confident that we chose the right path when we decided to focus on Customer Interaction Platform. Its a good opportunity to share our team's experience of understanding customers' motivations.
Now, shall we take a closer look at Xiaomi In just few years the Chinese smartphone manufacturer Xiaomi became the company with the largest market share in China, the world’s biggest smartphone market – and it’s currently expanding its concept abroad. Appealing story, design and the whole customer experience appear to match together. And it's all done in the Internet.
The key is to be close to customer
Remove barriers between you and your customers Create direct interaction channels between your managers and customers Turn your customers into fans and co-operators and invite them to participate
How Xiaomi did this? ...and what could we learn from its success? Xiaomi is not a device manufacturer by definition. It's a mobile internet and e-commerce company that just happens to make compatible devices in order to offer a complete customer experience. An essential motor behind its growth is A Great Story. Xiaomi invites customers to be part of a modern Cinderella Story, where an underdog Chinese startup rises against its mighty global rivals despite all negative prejudices and historical load associated with Chinese manufacturing industry. Xiaomi shows that it's possible to come up with something super high quality and innovative which is entirely created in China.
Great story – Embodying the new Chinese culture Xiaomi has been accused to shamelessly copy Apple. Xiaomi denies copying, and says it’s only inspired by the company. Do they just ride with Apple’s design and the publicity this conflict brings in? That might be partially true – but there’s something deeper that explains Xiaomi’s success in China. Xiaomi represents meaningful novel ideas to many Chinese young urban consumers, whose individualism and national pride are raising: It's a Cool Chinese Startup Success Story with a charismatic Chinese founder. The timing is perfect. There seems to be a need for the story that lets urban young generation be proud of being Chinese. Xiaomi's attitude against western IP rights strengthens their rebel image. (Many Chinese see them as unfair barriers dictated by rich western countries who try to maintain their power.) Their open and participative approach toward customers allows everyone be part of their success and manifest it to others with a Xiaomi device.
Xiaomi is gaining momentum internationally. With all that momentum and forward looking new ideas Xiaomi has managed to hire well known employees from big western tech companies. The fact that these guys chose Xiaomi of all alternatives supports the aura of a globally innovative and interesting company. Of course it also brings in valuable talent, experience & knowledge from established industry leaders.
Social marketing and market probing Xiaomi doesn't spend on traditional advertising... instead, it is genuinely present where its customers are – in online forums and social media sites. Xiaomi lives in the internet and so does its marketing. The company has been active in social media from its very beginning. (Weibo, WeChat, Xiaomi Forum, Baidu Tieba and Xiaomi Mall). They work hard to maintain direct communication with their fans and encourage their customers give feedback on existing products – but also on their future ideas and concepts. (Xiaomi calls its enthusiastic customers and community members MiFans.) There's a true participative culture. Fans are challenged with game- like online interaction. They can attend and win tickets to live fan gatherings where Xiaomi employees and managers are often present. As Hugo Barra said in an interview with Forbes
Xiaomi's obsessive and rapidly-executed focus on user feedback was "not something you see often in this landscape." He revealed that product managers at the company can spend half their time perusing the company's active user forums. "[A] suggestion gets picked up by a product manager within hours. Within a few [more] hours it can be at an engineer's desk."
Fast iteration cycle truly based on user feedback Xiaomi develops devices like software. They produce small batches and iterate the product all the time. Xiaomi deploys the ‘just in time' -production (first introduced by Toyota's Lean Manufacturing principles). It keeps the inventories small and works hard to secure a flexible supply of quality components. Predictions about the next week's demand are derived from previous week's sales and trends in social media activities.The production capacity of each device is adjusted accordingly. A batch of around 50 000 phones with incremental modifications is released and sold (often within some seconds!) during flash sales on Xiomi's web store every week. Active community members can see their ideas realized fast – which is a great motivator for customers to participate and give feedback.
Complete Ecosystem So, Xiaomi is a mobile internet and e-commerce company that just happens to make compatible devices in order to offer a complete customer experience.
Xiaomi Ecosystem
E-commerce site (and fast delivery) Xiaomi is an e-commerce company. Its devices are sold from their web store directly to customers. Xiaomi has many showrooms where its devices can be played with, but these don't have any devices in STOCK to sell out. Centrally managed sales & logistics system allows Xiaomi control and monitor its sales and inventory – and cut off distributors' margins
and the mess of scattered inventories (A model that has been proven successful also by Tesla Motors). Xiaomi's biggest revenue doesn't come from devices, but from its proprietary app store and huge variety of different accessories. Xiaomi reportedly makes only about 10% margin with their devices. Xiaomi's emphasis on fast logistics ensure that customers don't need to wait long for their new gadgets to be delivered.
MIUI app store (localized for each market) Chinese smartphone MARKET is very different from western countries – not only because Google's services and app store are not fully accessible there. MIUI app store has an active developer community and offers alternative services to Chinese market. Customization is a very big deal. A great part of Xiaomi's revenue comes from skins, widgets, and other customization software that users download to change the appearance of the device often many times per week. In January 2014, according to a study by app analytics company Flurry, Xiaomi users in average spend more time using the apps than users of its competitor devices and they download more apps from the app store. Xiaomi takes a slice from every transaction made in MIUI app store.
MIUI (customized and customizable Android UI) Xiaomi's MIUI – modified Android UI – is a glue (and a honey trap) that keeps everything together and helps Xiaomi stand out from its rivals. Miui comes with many little tweaks and handy features that resonate well with young Chinese – and apparently also Indian consumers. Almost everything in the UI can be endlessly customized and fine tuned with skins, widgets and apps available in MIUI app store. This seems to be a good match with individualistic young generation in urban China.
MIUI can also be installed on a variety of cheap Chinese ‘white label' phones, which often come with half baked UI's. Long support for device updates help keep these devices relevant longer even if the phone manufacturer has stopped pushing out updates. This helps widen MIUI's user base and eventually persuades many to switch into a fully compatible Xiaomi device.
(Image: http://en.miui.com)
Quality devices (that work smoothly with MIUI) Xiaomi offers uncompromised performance, high quality parts and premium look & feel for much smaller price than others can do – an equation not seen before. Devices are not cheap but cost much less than competitors' flagship devices. Xiaomi employs design language that boldly mimics Apple and other popular brand names. This can be a problem if Xiaomi wants to scale its businesses to western MARKETS . However, in China, India and Indonesia the western IP rights haven't been a real barrier. Devices can be customized. Xiaomi allows each device stand out and match the style and personality of its owner by offering a great variety of accessories in its e- commerce site.
Social media hubs and fan communities (that fuel marketing and guide product development) Before anything else, Xiaomi's founders spent a lot of time in many of China's social media and made qualitative MARKET research and probing for their fresh startup. These sites eventually transformed into active co-operation hubs between Xiaomi and its customers.
Soon Xiaomi built its own community sites with reward programs and batches. Still they have maintained a strong link between the new forum and popular Chinese social media platforms like Baidu and Weibo. Xiaomi takes it seriously to keep fans engaged. There are continuously several active discussions, game-like challenges and competitions online. They have experimented organizing online party events with live streams from and between live fan events and gatherings held simultaneously in several locations. Most importantly, these activities are designed to keep customers loyal and to provide Xiaomi valuable first hand feedback and insights from its customers. Xiaomi continuously keeps track on swings in participants' interests, opinions and hot topics. After analysis these insights are used to guide product development, predict sales and adjust production capacity.
What could we learn from Xiaomi? ...Six insights 1/6. Be genuinely local and know your customers Respect the local culture and subcultures. It takes some effort to adjust your brand, products and services, but it makes them feel familiar and more friendly to your new target audiences. Being humble pays off especially when dealing with old, traditional cultures like China and India.
Define your target customer groups Find out what are their needs, dreams, values and challenges Work with the local natives to truly understand the cultural subtleties Define and differentiate your sub brands and targeted MARKETING messages accordingly.
2/6. Create a coherent story for your brand It should be original and honest to yourself – and it should answer these questions:
Why are you manufacturing your products? What does it mean to own and use your product? Why does one want to spend MONEY on your product and brand? Why is it different from owning / using another brand's device?
3/6. Provide interactive hubs for your fans to interact with you and with each other When you have your most important fans and followers gathered in one place...
Keep them active and encourage them to participate in various activities – motivate by giving product prizes and samples, organize events, reveal new features... Collect and continuously analyze user feedback, emerging trends and ideas. Motivate further by crediting your fans and show how their effort has changed the products for better.
4/6. Show a short path for interested ones to buy your products
Create a centralized web store for individuals and dealers. Provide a clear and consistent access to your web store from every touch point you have in the Internet. That helps you accurately monitor your sales and inventory – and adjust the production capacity accordingly.
5/6. Enable fun and easy customization Empower your customers with effortless ways to perfectly match their device with their identity whenever they will.
Act as customization items (e.g. digital themes or physical accessories) were music – something your users want to change often based on situation or feeling. Make it easy to sort and find suitable alternatives in your store. Use separate brands (not number codes) for series of accessories that share similar style. That's especially important for big corporate brands whose main identity might be too vague for individuals to identify with.
6/6. Adopt lean manufacturing model and fast iteration cycles
Ensure the safe supply of best components, keep your inventories small and produce smaller batches. Incrementally iterate product batches based on things you learn from interaction with your fans and customers – and regularly & predictively release upgraded versions (both hardware and software). Monitor your sales and reactions of your fans – and continuously predict demand for each product. Respond by adjusting production capacity accordingly.
The Xiaomi Way Xiaomi is a Chinese smartphone manufacturer. Recently it made a debut in Indian market with an exclusive sales tie-up with Flipkart for its smartphone Mi 3. Also known as the “Apple of China”, Xiaomi received an unprecedented consumer response in the Asian markets, when it launched its new smartphone Xiaomi Mi3.
On Tuesday, July 22 2014, the first stock of Xiaomi Mi3 was completely sold in 39 minutes as major technical issues sprang up amidst unexpectedly high traffic. Taking a lesson from this website was improved for betterment of consumer experiences and the results were: On July 29, 2014 the he entire inventory liquidated in just under 5 seconds and on August 5 2014, the entire lot of Xiaomi Mi3 went out of stocks in merely 2 seconds. In view of the success achieved by this relatively unknown manufacturer, it is worthwhile to analyze its and marketing strategy. The following attributes proved to be instrumental: The Product: The company offers high end phones on exceptionally low costs. The Pricing: The major earnings are expected to come from the sale of content and not the sale of the phone. The product was sold near to its cost, making it quite cheaper in the market. To reduce overhead costs the phone was sold via online platforms. Just-in-Time inventory management: This technique is believed to keep costs down through less inventory holding costs, and decreases the risks of overstocking. However, it has an additional benefit too. From a consumer perspective, the limited availability of its products in batches has strongly driven consumer fervor and inculcated built-up demand. Order placement: By only purchasing components and manufacturing products after users have placed orders, Xiaomi also eliminates having to manage surplus raw material, and drastically reduces holding/shipping costs. Promotions: Social media: Xiaomi not only broadcasted messages and announcements but by actively engaging with their customers using social media. Engineers are routinely encouraged to speak directly to consumers and use gathered feedback to refine software. Dedicated fan base: Xiaomi has also succeeded in building a dedicated fan base. Those Mifans are very active in social media and were always present at Xiaomi’s product launches ,cheering and applauding. This enhances the trustworthiness among the prospective buyers. Word of Mouth: The Flash sales created an sensation and was being talked everywhere. This helped Xiaomi to amass popularity far and wide. Market Selection: For the present, Xiaomi has abstained from entering into highly competitive North American and European markets.
Instead it has focused sharply on the South and South East Asian markets where its can derive maximum benefits of its low priced handsets.
Xiaomi: Reinventing the Smartphone Business Model in China Abstract The case discusses Beijing-based Chinese electronics company, Xiaomi Inc. (Xiaomi), and its unconventional business model. Founded in April 2010 by Lei Jun (Jun), a serial entrepreneur and investor, in association with his friend Bin Lin (Lin), a former Google and Microsoft executive, Xiaomi was known to produce cheap smartphones with a nice build quality. Xiaomi followed a unique business model where it sold its smartphones at cheap prices and later took advantage of the revenue streams generated by selling its software such as apps, cloud computing, and games. The company sold its smartphones at US$ 200 or US$ 300 whereas smartphones developed by Samsung Electronics Ltd.
Issues The case is structured to achieve the following teaching objectives:
Evaluate Xiaomi’s unconventional and innovative online business model. Understand the need to reinvent the business model of a company amidst rising
competition and changes in the business environment. Understand the reasons for Xiaomi’s success in China. Identify the challenges faced by Xiaomi and explore strategies that the company
might adopt to overcome these challenges. Examine whether Xiaomi can increase its dominance in the Chinese smartphone
market and become a leading player in the Chinese smartphone market. Examine the strategies Xiaomi should adopt to enter and make a mark in the emerging
markets it plans to enter. Examine the challenges Xiaomi could face in gaining a presence in the intensely competitive US smartphone market.
How Xiaomi wooed the best suppliers The story Chinese mobile phone maker Xiaomi Technology was founded in April 2010 by Lei Jun. Listed by Forbes as one of China’s wealthiest entrepreneurs, Mr Lei was already worth $1.7bn, having co-founded three successful technology start-ups since the late 1990s. His founding team at Xiaomi included former Chinese executives from Microsoft, Google and Motorola.
The challenge
As a start-up entering an increasingly mature and competitive market, Xiaomi – which means “little rice” – needed to attract top suppliers of critical components. But convincing such suppliers of its credibility would not be easy because Xiaomi had no brand, no factory and no record of sales, let alone profits.
Most large component suppliers were extremely loyal to existing customers and had tailored their factories accordingly. Apple already sourced components from 90 of the top 100 global suppliers and often invested in their factories to help them buy important machinery. There was also a widespread perception that Chinese mobile phone companies simply produced cheap imitations of Apple products. Some big suppliers had previously had bad experiences with Chinese tech companies that bought a lot of components, manufactured more handsets than they could sell, and went out of business. Sure enough, Xiaomi was initially rejected by 85 of these top 100 global suppliers.
The strategy
Xiaomi undertook three strategies to bolster its credibility.
● First, some of Xiaomi’s top executives concentrated to the exclusion of other priorities on securing component supplies. Mr Lei asked Lin Bin, who was in charge of daily operations, to concentrate on supplier negotiations instead of product design. Over the next five months Mr Lin spent 80 per cent of his time with potential suppliers, clocking up nearly 1,000 meetings and losing almost 20lbs in weight during this stressful period. ● Second, Xiaomi took some apparently contrarian steps to show its commitment to potential suppliers. Two weeks after the earthquake, tsunami and radiation leak that struck at Fukushima in Japan in March 2011, Mr Lei, Mr Lin and another senior executive, Liu De, flew to Japan with the intention of securing supplies of display panels from Sharp. Most foreign visitors were fleeing the country, and the aircraft carrying the Xiaomi executives was almost empty. The Sharp executives were pleased and touched by this demonstration of interest, and negotiated nonstop with their Xiaomi counterparts from 8am until 11pm – when they were thrown out of the Starbucks where they were meeting in Osaka, where Sharp is headquartered. ● Third, Xiaomi emphasised to mobile chipmaker Qualcomm its unconventional business model and in particular the “Miui” Android-based operating system it had developed for its phones. Miui is highly customisable and allows hundreds of thousands of keen users to invent new features. Every week, Xiaomi released a new version that it co-developed with leading users, responding to their feedback via the internet and online user forums with the most promising features included in the official release. This helped Xiaomi to keep research and development spending low and to release a new version of Miui every week. By July 2011, Miui had amassed 500,000 accounts with 300,000 active users. This vast, loyal user base gave suppliers further confidence in Xiaomi.
The results
Xiaomi’s efforts paid off in early to mid-2011. Sharp agreed to supply LCD touchscreens after the meeting in Japan, and Qualcomm decided to supply processors because it felt Xiaomi’s open-innovation Miui system could be the next big thing. With vital supplies now secured, Taiwan’s Foxconn, which also makes the iPhone, agreed to assemble the new Xiaomi phones. In August 2011, Xiaomi introduced its first smartphone, the MI-1, which sold out fast. The company had revenues of $5.2bn in 2013, up from about $2bn in 2012, and in late 2013 was selling more smartphones in China than Apple. Its product launches resemble rock concerts, with devoted fans listening to Mr Lei’s detailed technical descriptions. Xiaomi’s latest round of financing in August 2013 valued the company at $10bn, more than Microsoft paid for Nokia’s handset business and matching the value of Lenovo, the world’s largest PC maker. Investors so far include Singaporean sovereign wealth fund Temasek, Qualcomm and Yuri Milner, founder of Russian investment firm DST.
The lessons
When facing a credibility gap and scepticism among potential suppliers, new companies must move quickly and imaginatively. Xiaomi did so by shifting the focus of its senior executives, taking contrarian steps and emphasising its different business model
Here’s the secret behind Xiaomi’s disruptive success - are you ready?
A high-resolution 5 inch LCD display manufactured by Sharp, 13MP and 8MP cameras made by Sony, and a top-of-the-line eight-core Snapdragon processor by Qualcomm – you'd be forgiven if you thought these were specifications for Apple’s latest iPhone, or the newest Galaxy smartphone from Samsung. But they’re not. I’ve just described upstart Xiaomi’s latest flagship the Mi4, its newest disruptive entry into a massively competitively global smartphone market – yet another top-end offering from the Chinese manufacturer going for just a fraction of what the latest iPhone or Galaxy will cost you. There are hundreds of articles charting Xiaomi’s meteoric rise, particularly from a marketing perspective and its wildly successful usage of ‘hunger marketing’. But unknown to most, perhaps the most fascinating element crucial to Xiaomi’s amazing success is not its marketing (or lack thereof), but rather its wickedly smart, just-in-time approach towards supply chain management, a radical departure from the traditional inventory management techniques typically utilized by other major manufacturers in the smartphone space.
'Those who cannot remember the past are condemned to repeat it' political context over a century ago, but learning from the painful past mistakes has always been a key tenet of Xiaomi's founders – which has helped it so greatly disrupt the global Philosopher George Santayana’s famous quote was originally made in a socio-smart phone market in just a few short years. To get real insight into Xiaomi’s unique ethos, one has to delve deep into founder, Chairman and CEO Lei Jun’s past. A computer science graduate from the prestigious Wuhan University, Lei would join Kingsoft, a young Beijing-based software company – swiftly rising to CEO as the company struggled to stay afloat (no surprise when your main competitor’s the global juggernaut Microsoft). Lei would eventually steer Kingsoft to profitability, exiting the company in 2007 due to ‘health issues’ after taking the company public on the Hong Kong Stock Exchange for a market capitalization of USD400 million. This however, was largely based off its diversified interests like online gaming, as opposed to its software suites. While USD400 million was certainly no small sum to scoff at, it paled in comparison to the massive internet empires (and corresponding personal profiles and reputations) built by fellow Chinese tech superstars at the likes of Alibaba, Tencent and Baidu. This was taken akin to a personal failure for Lei, and it would be the catalyst driving him to pursue the success he felt his talent deserved. Moving on from Kingsoft, Lei’s subsequent investment in Vancl, an online retailer which nearly folded, would teach him another vitally important lesson. Poor inventory planning had
led to severe overstocking of its warehouses with goods that wouldn’t sell, a mistake Lei would never make again.
Planting the seeds of the smartphone revolution It was around this time in the late 2000s, when Lei would find himself increasingly fascinated with the burgeoning smartphone craze. One thing led to another, and alongside Lin Bin (a Google mobile executive at that time) and several other accomplished, like-minded veteran technopreneuers, Xiaomi was born. Taking pointers from his own experiences, and where the likes of industry players like Nokia failed, Lei’s compelling vision of a smartphone company which moved, reacted and adapted to market demands and conditions as fast as a tech startup found great favor amongst investors, and ultimately as we would find out – the public. With a high-powered team assembled and substantial funding in the bag, securing buy-in from component manufacturers was a crucial stumbling block the unknown Xiaomi had to overcome. While initially rejected by 85 of 100 of the world’s top suppliers, through sheer persistence and some unique strategies, this would be a challenge they would eventually ace.
A phone worth $300, selling for $300
XIaomi’s unique, wildly successful business model is one for the history books – they’ve drastically cut down on the traditional costs associated with marketing and distributing, by
relying purely on the internet for sales. However, many still wonder how it manages to put together such high-quality products at such low price points, which it claims to be just above cost. What Xiaomi has done, is to essentially eliminate the large 20 percent to 25 percent cut retailers/distributors typically get, and pair that with the vision of earning profits from accessories and web applications/services within its eco-system (MIUI) instead. That’s not to say Xiaomi does not earn from its mobile phones at all, for it still certainly does (albeit at a much lower margin). But it’s this conscious decision to forgo greater margins from the phones itself, despite sporting components coming mostly from the same exact original equipment manufacturers (OEM) Apple or Samsung would use, that has allowed it to carve out such a substantial market share in no time at all. What has resulted is a succession of mobile phones that consumers love, which are absolutely nothing like the cheap knock-offs that many traditionally associate China manufacturers with. Xiaomi phones are top-of-class, full-featured products often containing components from some of the top tech firms in the world such as Sony, Sharp and LG – put together by the same assembly factories used throughout the industry such as Foxconn. Recently-released statistics for Q2 2014 have just reported that Xiaomi is now the top smartphone vendor in China, overtaking the venerable Samsung – and with their ambitious expansion plans, the rest of the world had better watch out.
Just-in-time, with just-the-right-amount
From a consumer perspective, the limited availability of Xiaomi's products in batches has strongly driven consumer fervor and inculcated built-up demand – regardless of whether this supply scarcity is legitimate, or one artificially implemented, precisely in a bid to build up and drive that demand (a topic which has been widely debated online umpteen times). From a supply chain management perspective however, Xiaomi’s ‘Just-in-time’ inventory holding technique has been a staple of its business model that’s helped keep costs down by lowering inventory holding costs, and decreasing risks of overstocking on products which don’t move (like Lei’s Vancl). By only purchasing components and manufacturing products after users have placed their orders, Xiaomi also eliminates having to manage surplus raw materials, and drastically reduced holding/shipping costs (with as much as up to 80% less inventory in the warehouse) by delivering finished phones almost as soon as they have rolled off the production line. In addition to the limited production runs, Xiaomi has also brilliantly departed from traditional mobile sales strategies to augment its razor-thin product profit margins, by selling the same phones for a much longer period than the majority of its competitors. For example, it might stick with a flagship product for 18 months instead of one every half a year, giving it more flexibility with profits, better scope to sell accessories, and most importantly to take advantage of economies of scale, when component and production costs drop over time. Xiaomi’s model was oft-mocked in the company’s infancy, with naysayers arguing along the ‘if it isn’t broke, don’t fix it’ line. But even giants like Nokia and Motorola fell by the wayside, trying to compete traditionally with today’s leaders like Apple and Samsung. Lei and team’s vision has clearly paid off – they spotted an opportunity to not just impact, but greatly disrupt the worldwide smartphone market through the ground-up rethink and implementation of a business model never before tried in this industry. One thing’s for certain now, nobody is doubting Xiaomi anymore.
A Mi in every business No two businesses are ever perfectly alike, and a bevy of stars certainly aligned for Xiaomi to achieve the success it has today. But there would certainly be lessons applicable from Xiaomi’s story for just about any company. These would include their famed ‘hunger marketing’ tactics (already a well-known case study in itself), as well as that unwavering belief in a compelling vision which radically departed from the norm - not an easy task at all when everyone else was trying to knock them down.
Inventory however, will always remain the biggest asset and lifeblood of any retail business, and putting in place effective inventory holding and stock management techniques will give you a good jump-start on the path to success.
The most important lesson to take home would thus perhaps be the one Lei learnt from Vancl, and which he absolutely nailed the second time around with Xiaomi – the importance of finding, understanding and implementing the right inventory holding technique to suit the needs of your business. Lei understood that inventory management can literally make or break a business, and structured Xiaomi’s entire business operations around the ‘Just-in-time’ inventory holding technique to minimize logistics and holding costs, while giving the company the best opportunities to reap enormous long-term success and profits. The answer for your business might not be ‘Just-in-time’, but perhaps an alternative technique such asdrop shipping (sellers on eBay, Amazon etc), consignment, or even crossdocking (Walmart). But whatever the right answer is, Xiaomi’s remarkable success story has highlighted how crucial a decision that is, and the massive impact it has on your business as a whole. And that’s something we can all definitely learn from – for the little Chinese startup that could is now a rapidly-growing powerhouse conquering one market at a time, well on the path to global domination.
Xiaomi Inc.: The world's fourth largest smartphone company the West has never heard of In January 2015, Chinese company Xiaomi Inc. announced it had tripled its smartphone sales to 61m handsets sold while more than doubling its revenues to $12.1bn over its 2013 results. In December 2014, the company became the world's most valuable technology startup company after another round of funding, shortly after it was revealed it had become the world's fourth largest smartphone seller.
Features and benefits
Provides a profile and analysis of Xiaomi's enigmatic CEO and founder Lei Jun. Details Xiaomi's beginnings and its early success. Focusing on Xiaomi's smartphone business, provdes a detailed analysis of its sales performance in its home market of China. Analyzes Xiaomi's unique business model, and looks at why it has been so successful selling almost exclusively through online channels. Covers Xiaomi's entry into India, assessing how well it has performed thus far.
Highlights The world's fourth largest smartphone maker, and the world's most valuable tech start-up company, Xiaomi is also China's third largest e-commerce company. Selling 61m smartphones in 2014, the company has set itself a target of 100m devices sold for 2015. Xiaomi markets itself as a software company first and a hardware company second. It sells its phones at close to cost in order to get as many devices into as many hands as possible in order to expose the maximum number of customers possible to its e-commerce ecosystem. Operating in China, Hong Kong and Taiwan, Xiaomi expanded into India, Singapore, Malaysia, Philippines and Indonesia in 2014, with plans to expand into Thailand, Turkey, Brazil, Mexico and Russia in 2015.
Your key questions answered
What is Xiaomi, and why has it become so successful? Why is Xiaomi referred to as "the Apple of China," and why is this not strictly correct? What makes Xiaomi's business model so unique, and why does it more closely resemble Amazon over Apple? How well has its expansion into India gone?
Xiaomi's Growth Strategy Detailed Posted by Sameer Singh | 9 Sep 2013 -- 15:00 |
TheNextWeb just published a very interesting interview of Xiaomi's co-founder and president, Bin Lin. His comments are consistent with my thoughts about Xiaomi's business model and inherent strengths. Let's take a look at a few of his quotes and what they tell us about the future of this company.
Building "Word of Mouth" Through Loyal Early Adopters Most of the product features that people are feeling are really the software and the services. Users like the software, they like the experience, they like how they get onto the Internet and browse the Web, how they download the APKs. They play games that run really smooth, they
take pictures — great images… We have to do a great job building a great product (software) before any of the other things can work. We are the only company who does that: being super open and embracing user feedback and upgrading (our software) every week. We are the only company; no others. That’s exactly the reason why we have built a group of fans that are super loyal to us. They don’t get any reward by giving us feedback and trying things. I think the sense of ownership and a sense of being part of the effort to improve the system, improve the handset, make them feel being respected and make them feel being part of it. So it’s the sense of participation that will get them involved into the discussions, and by nature that’s also the reason they become a big fan of us. In my previous post, I showed that Xiaomi users are about twice as engaged as other iPhone/Android users. This is primarily driven by the fact that Xiaomi users belong to a favorable demographic, i.e. early technology adopters. These users also tend to be extremely vocal about their product choices and as a result, word-of-mouth has become a very strong marketing channel for Xiaomi. I also see somewhat of a parallel with Dell in the late 90s - Dell had realized that hardware quality had reached market expectations, but the retail interface and customization options were still limited. This is what Dell sought out to fix with its online model. Motorola has been moving in the same direction with the Moto X. But Xiaomi has taken this concept a step further, as it has allowed users to provide actionable feedback or essentially "customize" the software itself.
Current International Presence We actually have hundreds of thousands of phones in the States. We couldn’t sell to the States because of logistics — shipping only allows shipping to China cities — but somehow through analysis, we figured out that there are hundreds of thousands of phones in the US. Few people know that Xiaomi already has an international presence - both via devices and the MIUI firmware that is distributed online for free. On a smaller scale, this suggests that Xiaomi's model does have international appeal. Also, it seems as though Xiaomi phones are just slightly outnumbered by Windows Phone devices in the US. This quite surprising as Windows Phone devices have received fairly strong marketing support from AT&T, Nokia & Microsoft, while Xiaomi hasn't even attempted to market to US consumers.
Segmentation by Regional Preferences Different regions, different countries’ consumers will have different needs. (We need to) understand what these consumers want when it comes to software design, and even some of the hardware design and some of the Internet services that we provide, and we have to do a great job adapting to international users before we can actually sell it. So that’s why we need Hugo, with really in-depth product experience. He’s one of the best persons in the world able to do this. To me, this was the single most important comment from Bin Lin's interview. Xiaomi's longterm strategy will be to customize their software & services based on regional preferences. Combined with their use of consumer feedback and services-focused model, this presents an asymmetric attack on leading smartphone companies that will be difficult to defend against. However, this will also be challenging to implement as Xiaomi continues to expand.
Will Xiaomi Need to Fork Android to Achieve Localization? The biggest worry for Android is the fragmentation. That people will take a branch of Android, fork it off, make a bunch of changes and then never go back. So as Android evolves, then you have a branch of Android that also evolves, and it becomes so distinctly different then apps built for this Android version doesn’t work on the other version of Android. That’s what concerns Google. But MIUI phone – since day one, we’ve never done that. We make a system that always follows Android updates closely and for many occasions, we have upgraded together with Android’s updates. Since customization is at the core of Xiaomi's value proposition, some may think that they would be tempted to "fork" the Android operating system. However, Xiaomi seems to realize that the path to international success hinges on full compatibility with applications (and by extension, Google services like Play). In fact, compatibility and quick firmware updates are some of the key reasons behind Xiaomi's appeal to the vocal, early adopter community. And by extension, customer loyalty and word-of-mouth marketing are some of the primary reason behind their rapid ascent.
Xiaomi's Business Model We think of hardware as just a platform to run services. We don’t look to make money on the hardware, we are looking at users who have bought the hardware, then started to use our services… It’s the services that eventually bring in revenue. Most of the product features that people are feeling are really the software and the services. Users like the software, they like the experience, they like how they get onto the Internet and browse the Web, how they download the APKs. They play games that run really smooth, they take pictures — great images… We have to do a great job building a great product (software) before any of the other things can work. Their services-focused business model certainly seems to be working. In just 3 years, Xiaomi has joined the (extremely) short list of profitable smartphone OEMs. I think the following chart complements this quote perfectly:
I have always harped on the fact that high hardware profit margins are not a sustainable trend, even for industry giants like Apple & Samsung. Over the next few years, the companies that succeed in the mobile industry will not be those that follow an integrated approach to hardware & software, but rather those that have the capabilities to leverage dominant platforms to deliver and monetize over-the-top (OTT) services. Xiaomi looks like the ideal case study for studying the effectiveness of that strategy.
