Xiaomi Case Innovation

XIAOMI Case Analysis

1. What is unique about Xiaomi's business model? Compared to Samsung, Apple, Nokia, HTC, and Blackberry, how do you explain the sudden rise of a once-obscure startup from Beijing?

Xiaomi’s business model was to build a service business by selling mid- to high-end smartphones at cost. Xiaomi’s founder believed that the future of the mobile Internet is really about services. Xiaomi’s founder even compared Cell phones with PCs. PCs generated big profit margins in the beginning, but those margins are in the single digits now. The same thing will happen to smartphones. So rather than focus on devices where margins will eventually decline, they focused on services. In other terms, its business model can be divided into three components:

1. Software before Hardware: Xiaomi created an android based operating system and named it MIUI (pronounced as me-you-eye). As the name suggests, this UI was created to bring a model of open innovation in the market. Through this UI, it allowed users to customize their UI on their handsets. By making its operating system MIUI available to download on other Android phones, Xiaomi increases the accessibility of its apps and content to reach more users. It helped Xiaomi to get close to the customers. It is well known fact that if you treat your customers well, you will discover that the value they can bring far exceeds your imagination.
2. Low Cost and High Quality Product: In contrast to Apple and Samsung, Xiaomi focussed on providing high quality product at cost to the users. Since, Xiaomi focussed on earning revenues from services rather than from product, they sold smartphone with very low margins. To control the cost of the phones, company did not own any physical stores and manufacturing facility.
3. Scarcity Market Strategy: Xiaomi has adopted a “Scarcity Market” strategy for selling their products. They sold products through online mode only and save all the marketing expenses. Along with this, they also come up with the strategy of flash sales.

Compared to Samsung, Apple, Nokia, HTC, and Blackberry, the sudden rise of Xiaomi is attributed to its unique business model. One more notable factor for its success China is non-availability of Google store. Xiaomi relies heavily on social networks like Weibo and its own forums to communicate with users. I believe that the single factor which can be core of their success is its understanding of value gap between customers and market.

1. Who is Xiaomi's target audience? What is Xiaomi's value proposition to its customers?

By understanding customers and market, Xiaomi was able to identify the gap in smartphone market. This gap can be broadly stated as what customer wants? and what smartphone companies are providing?. They understood that most of the people want to have a smartphone but can’t afford it and most of the iPhone users used another phone to make simple phone calls. Their customers can be segmented into two categories:

1. Young generation who love technology – These are the people who want their phone to be customized and thru Xiaomi’s open innovation strategy, they were able to do so.
2. Middle Income Group – These are the people who want high quality smartphone but cannot afford Apple or Samsung. Xiaomi’s smartphones are priced almost half of the price tag of big brands. So, these people find Xiaomi a really altercative option.

Xiaomi’s Value preposition is to provide pocket friendly high quality smartphones with highly customizable experience. In my belief, Xiaomi’s products are created for people and in association with people.

3.  Why would end users contribute tirelessly to Xiaomi's MIUI interface? What

     motivates them?

Before launch of MIUI, operating system on any phone was considered as a hard-coded firmware on phones. MIUI changed the whole notion of the user interface experience. It provided first of its kind customizable user interface. Xiaomi invited and encouraged both techies and phone users to find the bugs in the system and to recommend changes they want to see on their user interface. Xiaomi did this by using social media and its own community forum to connect with people. Xiaomi made sure that the changes recommended by people are implemented to MIUI, so they have started providing weekly updates for MIUI. This extreme open innovation model made sure that people contribute to improve MIUI on regular basis.