Remember when Apple launched iTunes and no one knew why the hardware company was investing in music? iTunes became a source of recurring revenues, but more importantly, it strengthened Apple’s business model and raised switching costs for its users. How about when Amazon introduced AWS? It wasn’t clear how selling cloud computing solutions was going to help boost e-commerce sales. AWS didn't, but analysts estimate that this resource-driven innovation is generating billions of dollars for Amazon in 2014.
I felt startled when I first heard about Xiaomi’s intentions of investing in video content development in the Financial Times. The announcement of the Chinese smartphone manufacturer's acquisition of online streaming company Youku Tudou caught my attention. I started sketching their business model to find out how this unexpected move was, in fact, reinforcing Xiaomi's business model. Here's my visualization below, based on the article:
Tools and techniques used
- Business Model Canvas
- colour-coding based on value propositions
- Story-telling one sticky note at a time
- The particularity of Xiaomi smartphones is that they’re high end and sell to the middle class at half the price of Samsung and HTC’s flagship phones.
- Xiaomi is able to offer its smartphones at a low price because it has been cutting on some traditionally high costs (e.g. marketing, distribution).
- Xiaomi sees its smartphones as gateaways for mobile entertainment services, which would represent recurring revenues in the future. Xiaomi wants to create an ecosystem of apps available from its smartphones.
- Therefore, Xiaomi decided to invest in video content development by taking a participation in Youku Tudou (online streaming company).