How & Why Xiaomi Built a Different Eco-System Model ?

We view Chinese Company, Xiaomi as a mobile Internet company, rather than a hardware company, mainly because Xiaomi captures a significant portion of user life time value (LTV) after hardware purchase through a 3-way monetization model (hardware, Internet service and software). On the contrary, hardware companies capture vast majority of the user LTV at hardware purchase.

Hardware, which includes various in-house developed Xiaomi devices such as Xiaomi smartphones, tablets, Xiaomi Router, etc. Xiaomi devices are priced at significantly lower prices vs. competitors, which should drive user acquisition.

Xiamoi Eco-Sytem model – Hardware, Middleware and Internet Services
xiamoi-eco-system-model Middleware/software, which refers to the back-end infrastructure services such as cloud, acceleration, payment, etc. Xiaomi tends to build this layer through both in-house development and investments. For example, Xiaomi has its own app store (app.mi.com), messaging service (MiTalk) and payment infrastructure (including in-house payment company and virtual currency MiCoin), but relies on investee companies regarding cloud (Kingsoft) and acceleration (Xunlei) services.

Internet & consumer services, which are sourced from mixed channels including in-house development, investee companies or third party partners. For example, Xiaomi operates its own online literature platform Duokan, while relies on third party content providers with regard to games, video and music services.

We believe the long term earnings power of Xiaomi is directly correlated with the scale of digital content / service consumption within Xiaomi platform. Therefore a smooth user experience of content consumption will be a key driver to Xiaomi platform.

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