E-Business Strategy
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lecture3-disruptiveinnovation.pptxDisintermediation & Disruption
Suling Zhang
Xiaomi Case
Smart Phone OS Market Share
“The bulk of these Android players are squarely focused on the sub-US$200 space, driven by demand at increasingly value-oriented consumers.” - IDC
Smart Phone Shipment
Hyper-competitive Smart Phone Market
Android average selling price: US$230 in third quarter, down from US$267
The strength of the long tail of regional and local vendors
8% decline in the top 5 collective share
1.4 billion smartphones to be shipped worldwide in 2015
9.8% compound annual growth rate for the 2014–2018
Average selling price of US$297 worldwide in 2014, dropping to US$241 by 2018
Each generation of flagship phones shows less and less differentiation from its predecessors
China Mobile Phone Market
(source: Statista, 2015)
China Mobile Phone Market
Largest smart phone market
37% of the global aggregate
High level of saturation
75% of users access Internet through cell phone
Slower growth (64% in 2013, 14% in 2014)
Growth spurred by consumers switching to 3G and 4G smartphones
70% of clients using 2G cell phones
58% owners in 3rd or lower cities
In Tier 1 cities consumers are attracted to sophisticated devices with a luxurious brand image
Chinese consumers tend to prefer handsets with larger display screens.
Players in China Market
Xiaomi: 14% (5.1% of world market, the 3rd largest)
Samsung: 12%
Competition:
Foreign companies’ influence in China is declining year by year as the market share of Chinese companies continues to rise.
China is Apple’s largest market (36%). Apple is planning to triple the number of Apple retail stores in the next two years.
Samsung has been the best at producing phones that are ‘good enough’,
Local companies benefit from cheaper production costs, a close partnership with local operators and providing applications tailored to Chinese consumers
Half of the top ten world manufacturers are now Chinese: Xiaomi (3rd), Lenovo (4th), Huawei (5th), Yulong (8th) and ZTE (9th).
Q: Is 2010 a right time to create Xiaomi in China?
timing by analyzing:
Customers trends: demographics, life style, values
Technology trends
Competition landscape
Questions to ask:
Can I come up with the right product and business model?
Do I have the capability to execute it?
Four Important Parties to Heed to
Supplier
Computer processors, sensors, displays, user interface devices, open source software, common functions, cloud storage and processing, open data
Combiner:
Drones
3D printing
Investor
Users:
co-innovators, esp. DIY users
market experimenters
Lobbyist
Founder Team
Founder Jun Lei
Founder of Kingsoft
Founder of Zhuoyue
Successful angel investor
11.6 million followers on Weibo
www.mi.com
Image: a hip, cool company that understands what the younger generation wants.
Chronicle of Events
2010.6: Founded in Beijing
2010.8: MIUI
2010.12: MI Chat (1 million users in 1 month)
2011.8: MI 1 Smartphone ($330), bbs.xiaomi.cn (37 million users)
2012.8: MI 2 Smartphone (11 million units sold in 11 months)
2012.11: Xiaomi Box ($50)
2013.7: Red Mi ($150)
2013.8: Hugo Barra (Google Android VP) joined Xiaomi
2013.9: MI 3 Smartphone (the World’s fastest Android smartphone)
2013.10: MI TV ($500)
2014.7: MI 4 Smartphone
2015.1: MI Note ($540)
Xiaomi Strategy
Fast growth from a niche market to a mass market
Create a blue ocean
Disrupt the market leader from all sides
Great products at affordable price customized to clients needs
Xiaomi Tactics
Quality: Tongrentang
Use same components and assemblers as the industry leaders
Customized Android system for Chinese users
Efficiency: Walmart, Costco
Operating cost around 4%
Focus on three core products
Direct sell online and social networking websites
7500 employees
Hire the best/most productive
Deliver more than the customer expected: Haidilao
What factors should be eliminated that the industry has taken for granted?
Eliminate
What factors should be reduced well below the industry standard?
Reduce
What factors should be created that the industry has never offered?
Create
What factors should be raised well beyond the industry standard?
Raise
Four Actions to create a Blue Ocean
Formulating your Blue Ocean business model
Buyer utility
Price
Finding the price which attracts the largest market
Cost
Simplify your operation
Change design
Find partner
Restructure price
Acceptance
Build an User Community
Motto: born for the fans
Initial 100 users are key
Users submit ideas, experiment with different ways of using the product and spread word-of-mouth
Sample ideas: filter calls, alert wifi free riders
Encourage interactions with users
Founder team at least 15 minutes to interact with users on forum
Engineers to interact directly with fan and feel they are working for fans
Ride the wave of social media
11m users in Xiaomi BBS, 10m in QQ space, 30m followers in Weibo, 3m followers on Wechat
Offline activities for fans:
Mi Fan Festival, Same city Mi Fan Meeting, MIPop Award
Xiaomi Marketing
Image brand: Young, Cool
Create an atmosphere of Losers’ Counterback
Good at telling stories
Use opinion leaders
Celebrity like product launch event, fans attended
Create your own language
E.g. F code, MIPop
Xiaomi Box Brothers
Xiaomi Flash Sales
MI1: 300,000 units preordered in half day
M12: 100,000 units sold in 2 minutes
Red Mi: 100,000 unites sold in 1.5 minutes
Red Mi Note: 2.2 million preorders in 3 minutes
Q: Will Flash Sales continue to work for Xiaomi?
MI Smartphone Sales Trajectory
Expansion into 6 countries: 1m Xiaomi handset in US, 1m in India
Financing History
2010.12: $40 million at valuation of $250 million
2011.12: $90 million at valuation of $1 billion
2012: $216 million at valuation of 4 billion
2013: market valuation of 10 billion
2014.12: $1.1 billion at valuation of $45 billion
Fast Rate of Innovation
Idea generation
Users generate ideas more than just beta testing and being focus groups
Research & Development: open source software, cloud computing, off-the-shelf component, specialized parts become commodities as billions of smart phones sold.
Funding: crowdfunding, abundance of VC
(Downes & Nunes, 2014)
Unconstrained Growth
The declining costs of information
Large database of standardized information on marketing, sales, and other transaction data, user feedback, performance comparison
Give consumers great leverage
Companies cannot hid behind slick marketing campaigns
Lower transaction costs for new products
Exponential growth of new transactions
Users no longer divided into pioneers, early adoption, early majority, late majority, laggards
Q: strength of brand weakens?
Xiaomi’s Evolution towards an Xiaomi Ecosystem
Build an ecosystem of related hardware connected on a single software platform with value-adding services and contents
Smart hardware: MI Band, MI air purifier, MI camcorder, MI Router, MI Mobile Charger, headsets, iHealth, wifi generator
Smart appliances: Midea
Content
Online video webites: aiQiyi and Youku
Social networking service MiChat
Movie, game studios
Games: 14Q4: monthly revenue RMB200 million
Education, domestic services, map
Operating system: MIUI
Cloud storage
Proprietary software
Goal: make another 50 Xiaomi, investing in 100 hardware companies
Q:How would the smaller companies compete?
Challenges
Optimizing sales and profits while curbing the downside risk of excess or insufficient inventory.
Patents
Stiff competition at all fronts
Xiaomi’s Patent Challenges
Global patent system
More than 100 patent disputes by smart phone suppliers by 2013
Tit-for-Tat global patent war on daily basis
patent litigation and patent purchase costs smart phone markers up to $20 billion between 2011 and 2012
Patent spending by Google & Apple exceeds R&D spending
Patent pool, cross licensing
Can Apple be disrupted by Xiaomi?
How will Xiaomi be Disrupted?
