![]() Xiaomi captures value through smartphone sales, although not any profit. Digitally, Xiaomi delivers value through smartphone apps that control all the ecosystem devices, making Xiaomi smartphones the remote control for home. It does not use physical distribution or retail points, but all of its hardware is sold online and marketed through word of mouth, significantly reducing its distribution costs. Xiaomi delivers that value through its online store, where it offers more than 10,000 products. Digitally, it creates value through its range of thousands of home electronics products from TVs and air purifiers, to wristbands and drones. Xiaomi creates value through high-quality yet affordable smartphones. We consider its digital business model the addition of its over 100 different ecosystem partners with Xiaomi branded products. ![]() We consider its traditional business model as a pure smartphone maker, i.e, the way the company started back in 2010. Let's now analyze Xiaomi's business model. These network effects grow the demand for the Xiaomi electronics business. The more smartphones are sold, the more Mi Ecosystem devices are sold and the more content and software developers are attracted to Xiaomi. That is its user base, in return for content and store apps. To content providers and software developers, Xiaomi offers access to its fan base. To its ecosystem hardware partners, Xiaomi offers access to its users, supply chain, and industrial designers in return for exclusivity of retailing these products. To its users, Xiaomi offers a wide range of consumer electronics products with a distinctive white minimalist, maybe Apple-like feel at very low prices. To drive demand for the Mi ecosystem products, Xiaomi uses a multi-sided network connecting users with Mi smartphones, ecosystem partners and content developers. In return, Xiaomi gets an exclusive deal to sell most of the products from that startup or hardware company. For its Ecosystem products, Xiaomi partners with hardware companies providing seed money for ecosystem products as well as access to Xiaomi's supply chain, marketing, retail, and industrial designers. They include items from TVs and internet routers to power banks, electric scooters, and even rice cookers. Beyond its smartphones, the Mi Ecosystem products are built by over 100 different partners, not Xiaomi itself. For example, from $300 for a fully featured smartphone to a $30 fully-featured activity tracking wristband. Xiaomi products are offered at a fraction of the cost of their Western counterparts. The Xiaomi business model is using smartphones to create an engaged user base for selling own-brand products under its Mi brand. It was valued at around $50 billion, after initial public offering in mid 2018. Founded in 2010, Xiaomi is now the fourth largest smartphone maker globally, trailing only Samsung, Huawei, and Apple. But first, an introduction for those not familiar with the company. We'll start by discussing Xiaomi and its digital business model. Specifically, in the case of Xiaomi, their WeChat messaging, and e-commerce application. We'll see similar business model patterns apply to the case of two of the biggest China-based internet companies, Xiaomi and Tencent. ![]() We've also presented how these companies create, deliver, capture, and defend value. We've explained how they're based on network effects. So far we've discussed the digital business models of Apple, Google, Facebook and Amazon. Welcome to lesson 3 in this module on how Internet companies use digital business models.
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