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Ecosystem strategy
In the wake of Xiaomi’s setback, company executives concluded they needed a third leg to their business model — offline retail stores. But they wanted the stores to go beyond selling phones to forge sustainable bonds with customers. Their solution: create an ecosystem of some 100 startups as partners to provide Xiaomi with other internet-connected home and tech products that would draw customers to its stores.
Xiaomi Senior Vice President Wang Xiang, who used to run Qualcomm’s China business, explained how the ecosystem strategy drives traffic as we sat in his office: “Buying a phone or TV is a low-frequency event. How many times do you need to go back to the store?” he said. “But what if you also need a Bluetooth speaker, an internet-enabled rice cooker, or the first affordable air purifier in China — and each one of those products is not only best-in-class, but costs less than the existing products in that category? Our ecosystem even gives customers unusual new products that they never knew existed. So they keep coming back to Xiaomi’s Mi Home Store to see what we’ve got.”
Lei Jun, Xiaomi's chief executive, speaks during the launch of the company's Mi Mix 2 smartphone.
Wang says the strategy aims to reduce “pain points” for Chinese consumers. He points to air pollution, a serious issue in China. Quality air purifiers cost roughly $500, he says. So Xiaomi funded a startup with an air-pollution expert, offering help with design and manufacturing, access to its supply chain, and lessons of its own low-cost operating efficiency. The result: the Mi Air Purifier 2, which sells for $105. It’s connected to smartphones, allowing users to monitor the air in their homes, and receive alerts when the filter needs changing.
The purifier was a blockbuster hit. “Within two months we were the top seller of air purifiers in China,” claims Wang. “And that’s how we solved the ‘pain point’ in air purifiers.”
The company took a similar approach with fitness bands, designing a streamlined device with a battery life of almost 60 days that solved the “pain point” of having to recharge the bands every few days. Xiaomi is now the world’s top seller of fitness bands, ahead of Fitbit and Apple. Ditto for Xiaomi’s award-winning power banks, which provide more charges than rivals at a lower price; Xiaomi is the world sales leader in this category as well.
All its ecosystem products, from pillows to air purifiers, and from rice cookers to portable Bluetooth 4.0 speakers, aim to resolve similar price-to-performance “pain points” for customers. The products are inexpensive, but not cheaply designed or manufactured. They’ve won more than 100 international design awards.
