Creating Chinese Unicorns: Value Exchange Within the Xiaomi Ecosystem
Article #2 in the Xiaomi Series (Edited by Adam Bao)
Part II examines in more detail the value exchange between Xiaomi and its ecosystem partners. We provide the translation below, but the original article was shared on Toutiao by L, Picar, and 穆澄 (link here)
Value Sharing in The Early Stages
The Xiaomi platform is like an amplifier. With the help of the Mi brand (software and hardware + internet services), its 150-million-strong user base, own channel (Mi.com), supply chain, investment funding (funds and banks) and social influence, strong ecosystem teams and projects have been made even more successful. And this is why start-ups join the Mi ecosystem.
The conditions that these start-ups enjoy in the early stages are what start-ups outside the ecosystem can only aspire to achieve.
First of all: channel and volume bonus. As long as these companies produce good products that meet users’ needs, Xiaomi’s channels can help them to grow swiftly.
To take a 299 RMB suitcase from 90fun as an example: nearly 12,000 units of the product are sold on Mi.com each month, while only 1,982 are sold per month on the 90fun website. The channel power of the Mi.com is clear.
Second: endorsement by Xiaomi makes it easier for the company to partner with large companies and move into overseas markets.
For example, for 90fun endorsement by Xiaomi has led to partnership with Intel on a smart running-shoe project; for Ninebot, Xiaomi assisted in its acquisition of industry pioneer Segway, thereby building the foundation for global operations for Ninebot.
Third: Xiaomi’s mature business model, management philosophy, product methodology, and its constantly-evolving ideas serve as business case studies and learning materials for start-ups.
The founder of 8H said: “After we joined the Mi ecosystem, Xiaomi provided tremendous help in the areas of design, marketing, and supply-chain management. Xiaomi has not only transmitted to us its ideas and channels, but also gifted us with large amounts of intangible assets. These have in turn provided great help to the swift growth of 8H.”
Fourth: Xiaomi provides a platform for a possible Internet of Things (IoT) for the future, creating even better fit and focus over the course of product development;
Currently, the IoT platform where various products from the Mi ecosystem have been linked is already connected to over 50 million devices. The Mi Home app used to manage these devices already has five million DAUs (daily active users).
Fifth: the company can gather considerable feedbacks by interacting with a large number of Mi fans. At the same time, the company can attract more fans and grow its market quickly.
According to what 90fun CEO Zhang Su told reporters, Xiaomi has taught him many things on top of just paying attention to user comments and feedback left on Mi.com, such as how to interact with users through means including WeChat, QQ, and Weibo, and through offline activities such as regular market surveys, interviews with industry players, in-depth exchanges and visits to advanced overseas retail markets, etc.
As an advisor and investor in all of this, Xiaomi certainly benefits from access to ecosystem system product ideas and patents, which are ultimately shared with Xiaomi. Furthermore, Xiaomi is able to establish and fortify its Mi.com eCommerce platform.
Xiaomi eCommerce Platform
According to media interviews with Liu De, if Xiaomi is to be described as a shopping mall, then each ecosystem participant is like an individual store within. Currently, Xiaomi opens a new store every seven days. It plans to expand its network to comprise 1,000 stores in the coming two years. Currently, seven ecosystem members obtain annual revenue of over 100 million RMB. In addition, Huami (fitness bands) and Zimi (power banks) also take in over 1 billion RMB in revenue.
Cash revenue aside, today Xiaomi has established what users online call the “Mi shopping mall” with its ecosystem’s coverage of various product areas such as wearables, household robotics, accessories, luggage, VR, smart home devices, etc. This seems Xiaomi’s first step in realizing its ecosystem, but actually it is the participation in the IoT arena by means of investment.
The Importance of IoT
The IoT has been termed “the next phase of the mobile internet”. Xiaomi’s investment footprint in this regard can be seen in both hardware and software, with investments in chip and cloud computing, etc.
According to media reports, Xiaomi insiders have disclosed that the company has sought to promote the so-called “informatization of hardware” through four approaches: providing complete embedded-system chips; providing cloud services that facilitate information management; providing control support for various scenarios with MIUI; and upgrading routers to serve as control nodes for the smart home. Early this year, Xiaomi launched its independently-developed Surge S1 chip with a sign that it has begun to go deep into smart hardware.
To date, Xiaomi has invested in a total of 77 companies with over 50 million devices connected and/or activated. These products are constantly streaming into Xiaomi’s massive smart home network. As the network continues to grow, the approach of “high-end manufacturing + intelligence” will lead to further product sales and more importantly, the accrual of even more data. The data accumulated by the Mi ecosystem is revealing about the household, and even the health status of the individual. In the future, such data and e-commerce data from Alibaba, and social-media data from Tencent, may well become the most valuable data in China. This is perhaps Lei Jun’s true ambition with the Mi ecosystem.
Strategic Compromise in The Final Stage
For many ordinary Xiaomi users, the mention of the phrase “Mi ecosystem” may not draw much of a reaction. For them, the most important thing is that they will be able to access various products at value-for-money pricing. When a new type of tech gadget appears on the scene, users typically hope that Xiaomi would launch its version so that they can try out the tech. In fact, very often the user buys a product which has been jointly developed by Xiaomi and the ecosystem member, and over the course of this process the brand of the start-up is eroded.
This is one reason why the majority of ecosystem members have been seeking to differentiate themselves through R&D and market development. For instance, the Ninebot 9 balanced car jointly launched with Xiaomi is targeted mainly at the domestic market while higher-end products are positioned for overseas markets. Clearly, the specifications for these two types of products are dramatically different.
Taking a similar track is Huami, which launched its AMAZFIT fitness band as early as 2015. The band is priced at 299 RMB in contrast to the versions sold by Xiaomi, which cost around 79 RMB in a bid to tap the high-end market.
One trend with makers moving towards developing their independent brands and/or the high-end brand is that they gradually reduce their reliance on Xiaomi over the course of market divergence.
Since last year, Lei Jun and Huang Wang (CEO of Huami) have often publicly sought to clarify the relationship between Xiaomi and ecosystem members. Lei has sought to protect the Xiaomi brand and to mitigate misunderstandings by saying that Xiaomi is not focused on a particular area and is interested in “everything”, while Huang has worried that Huami would be mistaken as simply an OEM provider for Xiaomi rather than the independent entity that it is.
However, for the enterprise to continue growing after becoming less reliant on Xiaomi, it will have to stand up to market challenges.
As GGV’s Hans Tung told reporters: each and every ecosystem member may have to consider the question of whether they should develop their independent brands. Since Xiaomi targets the mass market that makes up 70% of the total, the question for ecosystem members would be, when would be a good time to develop their independent brands and to tap the “30%” that is the high-end market?
Further, whether Xiaomi will remain a relatively open platform over the course of further development is another question that ecosystem members will have to ponder over. The most important thing here is to continue working on growing one’s strength.
From Xiaomi’s perspective, adopting partnership with ecosystem members is much more efficient than creating departments within. Some companies have been willing to develop their own brands, and any attempt to deter such moves would probably backfire. Time will tell what equilibrium looks like here.
