Xiaomi invests in content creation

Today's news post is on Xiaomi, a Chinese smartphone manufacturer, and on its partial acquisition of online streaming company Youkuturu. I read about the tremendous growth and recent acquisition of Xiaomi in the Financial Times and I decided to sketch their business model using the business model canvas. Xiaomi has sold around 6 million smartphones in 2012, 18 million last year, and it's expected to sell 60 million smartphones in 2014. The particularity of Xiaomi smartphones is that they're high end and they sell to the middle class at half the price of Samsung and HTC's flagship phones. Xiaomi sells its phones through e commerce and via telecom operators and also generates its revenues on each smartphone sale. What allows Xiaomi to offer at a low price and to still make profits is the cost side of its business model canvas. So let's have a look at it. Xiaomi manufactures its phone and uses Google's Android software. Its marketing costs are fairly low because Xiaomi mostly promotes on social networks. This is only a partial explanation of Xiaomi's business model. Here's the interesting part. Xiaomi phones are in fact a gateway for mobile entertainment services. Once you buy a Xiaomi smartphone, it is likely that you'll purchase apps, online, videos and music, etc. This business model is the same as Nespresso's machine and coffee pods or the iPhone and its apps. Once you buy the device, you will regularly purchase the consumables. But because Xiaomi smartphone owners can access mobile entertainment services and apps from Xiaomi's rivals, the Chinese manufacturer decided to partially invest in video content development by acquiring Youku Todo and to create an ecosystem of services tied to its smartphones. Xiaomi's objective is to strengthen the link between software and hardware and attract smartphone owners in its ecosystem. Its long term strategy is to make half of its revenues from services and the other half from hardware. We understand better now how its competitors are not just phone manufacturers but also killer app makers.