In 2019, Lei Jun announced the launch of the "Mobile + AIoT" twin-engine strategy at XIAOMI's annual meeting. On the stage, Lei Jun impassively reviewed XIAOMI's mobile phone journey: "Today, in the face of China's bloody battle, the global journey, and the historical opportunity of smart families and AIoT, have we ever hesitated?" No.[5] 」。

XIAOMI began to lay out the IoT hardware ecological model in 2014. The core of this model is the adoption of XIAOMI.Investment + managementA large number of smart hardware start-ups make popular styles and quickly occupy their respective track markets. According to XIAOMI Q3 financial report released not long ago, XIAOMI invested in more than 300 IoT ecological chain enterprises, and the business income from IoT and the production of consumer products reached 20.93 billion, making XIAOMI the second largest source of income.

Most of these ecological chain enterprises are XIAOMI's direct troops, who have witnessed XIAOMI's phenomenal birth, experienced XIAOMI's sales crisis, and won one victory after another. However, after the victory, the revolutionary team of the ecological chain will inevitably be divided.

With the development and growth of ecological chain enterprises, more and more enterprises begin to launch their own brands to seek greater autonomy.

For example, No. 9 balance car, which joined XIAOMI's ecological chain in 2015, once described its relationship with XIAOMI as follows: the cooperative relationship between the company and XIAOMI, it only includes XIAOMI's financial investment and XIAOMI as one of the company's main channels to sell customized products."Company" does not belong to the typical ecological chain enterprise defined by XIAOMI.[6]」。

This is called by many media as the "de-milification" movement. So here comes the question,

1. How did XIAOMI's ecological chain succeed?

2. Why do ecological chain enterprises want to "de-milify"?

3. What is the essence of XIAOMI's ecological chain play?

The tuyere of overtaking BAT

Around 2013, XIAOMI mobile phone limelight, shipments rushed to 60 million to become the first in China, the complete disintegration of the "China Lianku" era. At this time, Lei Jun took a fancy to a tuyere that "can bend and overtake BAT": IoT Internet of things, and made a decision that had a profound impact on XIAOMI-- invest and incubate 100 eco-chain hardware companies within five years.

At the same time, Liu de, co-founder of XIAOMI, completed the painstaking pioneering work of XIAOMI's supply chain. For a whole year, his job turned into going to the bank to talk about credit lines, going to the university campus to preach XIAOMI's values, and attending some government meetings.[2]. Lei Jun decided to find him something to do and give him the task of investing in the ecological chain.

The core of XIAOMI's success is to make good-quality smartphones to control the supply chain, and then use the Internet mode to cut all offline circulation costs and sell products to consumers at close to cost. By contrast, when the same Qualcomm Inc MSM8260 processor was used that year, the price of XIAOMI 1 was 1999 yuan and that of the HTC G14 was 4000 yuan.

XIAOMI's ecological chain model is to use mobile phones as a success template to instill methodology and product concept into eco-chain start-ups in a way that does not have a controlling stake in investment, so that they can occupy their respective tracks.Like this，XIAOMI can quickly replicate 100millet without investing a lot of cost.

On the other hand, ecological chain enterprises produce hardware products for XIAOMI, can enjoy XIAOMI in the supply chain, channels and brands and other resources support, can make fewer detours and achieve rapid success. In this process, XIAOMI's role for enterprises is a catalytic converter, mainly with the following three axes:

1) supply chain support. XIAOMI is a famous master of cost control. In 2015, Nambo and XIAOMI's No. 9 balanced car launched a retail price of 1999 yuan with XIAOMI's characteristics at the launch of XIAOMI's new products of the times, thoroughly breaking through the market price of 5000-10000 at that time, with the help of XIAOMI's supply chain resources.

Take the battery as an exampleAfter XIAOMI and portable battery became the top seller in the world in 2014, because every yearConsumptionOver 100 million batteries can basically get the goods at the cheapest price in the global 3C supply chain system, which can pull down the important parts of the battery by about 20% on average.As a result, No. 9 balance car directly benefited.[1]。

2) Product methodology. XIAOMI's ecological chain products, such as air purifiers, water purifiers and floor-sweeping robots, all belong toHigh standardization and weak personalizationThe products are naturally suitable for the mass market. XIAOMI, on the other hand, adopts the principle of 8080, that is, to meet 80% of the needs of 80% users to make products.

In the early days, in order to release the products of ecological chain enterprises, they must go through XIAOMI's brand, supply chain, design and other aspects of strict review. Huami bracelet once had to rush to XIAOMI's press conference, only for the final approval of the mold, but XIAOMI thought that there was something wrong with the design of the bracelet and would rather ship the product later than release the product.

3) Brand与Channel. XIAOMI started as an Internet mobile phone and has built an efficient reputation for users in first-and second-tier cities, which means that ecological chain enterprises can get users' attention with little marketing cost as long as they play the brand of XIAOMI.

The top priority is channel support. XIAOMI has opened four major channels to ecological chain enterprises, including Xiaomi Mall on PC, XIAOMI Mall on app, and XIAOMI Mall offline.

You should know that at that time, Pinduoduo had not yet risen, and SUNING was not in debt. XIAOMI was the fourth largest e-commerce platform in China and the largest channel for ecological chain enterprises. For example, until 2018, the Zhimi channel for the production of XIAOMI air purifier came from XIAOMI. Huami was at this level at that time.[4]。

It can be said that a few years before the establishment of XIAOMI's ecological chain, this was a mutually beneficial and win-win situation for XIAOMI and ecological chain enterprises, but this relationship is difficult to maintain forever.

A delicate game relationship

The cooperative relationship between XIAOMI and ecological chain enterprises is not monolithic.

For example, enterprises once had the problem of low voice: in the early days, the supply chain materials of ecological chain enterprises had to be uniformly purchased by XIAOMI, which could save 5% and 15% of the profit space for the supply chain. Although it seems to save costs, for many manufacturing companies, the supply chain involves the lifeline and wants to be in their own hands.[1]。

Few people can explain the game relationship between the two, and even qu Heng, general manager of XIAOMI's ecological chain department, said, "there are a lot of misunderstandings on this topic, both externally and internally. Even inside, there are many people who think that the ecological chain is our subsidiary, and people often tell me, what's wrong with that company? you hurry to take care of it.[3]。」

The official book "Battle Notes of XIAOMI Ecological chain" describes that XIAOMI and the ecological chain enterprises are brother companies, and more than one chapter emphasizes that "XIAOMI did not want to tie up the ecological chain enterprises in the first place."

In fact, ecological chain enterprises can be divided into two groups:On the one hand, it is called by the media as the "rice-gnawing people" who have to rely on XIAOMI to survive, and the other is the "de-millet" enterprises that lead or even go public.[7]。

Why can't XIAOMI keep these leading enterprises?

First of all,Performance to price ratioModeBondage：XIAOMI successfully copied Xiaomi from various industries with the mobile phone model, and at the same time passed on the problems that plagued XIAOMI himself to these enterprises-the strategy of creating cost-effective popular styles, resulting in low profits.

To challenge the plug board giant Bulls Green Rice, for example, in 2015 XIAOMI's first plug board cost 30 yuan, the price rate of green rice is only 1.33 times, the fixed rate is also 1.65, far lower than Feike and other counterparts. Has the price advantage at the same time, also causes the green rice gross profit margin to be no more than 20%, far lower than other players 40%.

For some companies with relatively high technology content, such as floor-sweeping robot brands, the cost-effective model makes it impossible for companies to dilute R & D costs through the high premium of product research and development, and then support new R & D investment. Or in other words, the cost-effective model makes enterprises lose their pricing power more or less.

On the other hand, XIAOMI's ecological chain weakens the brand:XIAOMI's ecological chain model is essentially a branded OEM/ODM model. The relationship between XIAOMI and the ecological chain enterprise happens to play the roles of independent brand and OEM / design.[8]。

In the classical smile curve theory, the lowest added value is the manufacturing assembly at the bottom, and the highest is the brand marketing and R & D design at both ends.

According to Huachuang Securities's calculation of household appliance enterprises in different industrial chains, such as VesSnc, Midea, Xinbao and Zhaochi shares.The order of profit margin from high to low is: design + brand > integrated research, production and marketing > design + OEM (ODM mode) > pure OEM (OEM mode).。

In other words, the higher the brand rate, the higher the profit margin. Apple Inc, the world's largest by market capitalization, has a firm grasp of high-end brands and independent research and development, and handing production to the supply chain speaks for itself. Although XIAOMI ecological chain enterprises actually have their own brand, but under the XIAOMI system, the sense of existence is not strong.

The biggest difference from the traditional OEM/ODM model is that companies still design and contract production for XIAOMI, but Xiaomi will make financial investment in them and provide support in the supply chain, channels and brands, which can be seen as an upgraded version. When ecological chain enterprises have the opportunity to complete the first bucket of gold and capacity accumulation, in order to pursue higher profits, they are bound to go to the right-end independent brand path.

Stone technology is a typical example. In 2016, Stone Science and Technology carried out ODM floor-sweeping robots for XIAOMI, relying on XIAOMI channels to quickly open the market. However, there are gains and losses. XIAOMI's voice in ecological chain enterprises is very limited, and the profit margin of early stone technology is not more than 20%.[8]。

In 2017, Stone Technology began to launch its own brand stone and small tile sweep products, and the gross profit margin began to rise rapidly, from 19.2% in 2016 to 51.3% in 2020. In the stone technology prospectus, the gross margins of the partnership with XIAOMI and the own-brand business are 15 per cent and 45 per cent, respectively. The successful demilization of stone technology has approached the market capitalization of hundreds of billions of dollars this year.

But in the whole XIAOMI ecological chain, there are not many companies that can really "de-millet".

For example, easy to intelligent lamps and lanterns for XIAOMI, originally this year's impact Kechuang board IPO, but was questioned by the regulatory layer of independence. Yi Lai Smart admits that there is a certain degree of competition between the company's own brand and XIAOMI's "Mi Jia" brand products. If the company's own-brand products can not be continuously recognized by the market in the future, they may be impacted by Mijia brand products.[7]。

The core of "de-mileization" is whether the enterprise itself can get a high premium through front-end research and development or back-end brands. For XIAOMI, these enterprises can become bigger and reap a good return on investment.

Secondly, XIAOMI has more than one cooperative enterprise in an industry. For example, in the field of floor-sweeping robots, Stone Technology is the most famous one. In this category, XIAOMI also introduced Shenzhen Shanchuan, Hunting Technology, Viomi Technology Co., Ltd. and Shenzhen Silver Star to do it together. XIAOMI will even play in some home appliances.

The question is, doesn't XIAOMI's ecological chain model have a market it can't beat?

An impenetrable mountain

The investment law of XIAOMI's ecological chain is traceable.

By the end of 2017, the three layers of XIAOMI's ecological chain from near to far investment have become very clear.The core layer is the peripheral products produced around XIAOMI's mobile phone.For example, there are portable battery, headphones and smart speakers.

The second lap mainly focuses on intelligent hardware.Including air purifier, TV, rice cooker and so on.

The last layer is lifestyle products.Like toothbrushes, towels and suitcases. Lei Jun intended to create a hardware-based version of XIAOMI MUJI, and these products were landed in the home of XIAOMI.

Taking a further look, the markets of the above three layers of products have one thing in common. Most of them are in line with Liu de's ant market.The so-called ant market has three characteristics:

First of all, the competitive pattern of this kind of market is highly fragmented.It leads to "there is a big market without a big brand".In many cases, more than 80% of the market is occupied by tens of thousands of small manufacturers, just as ants occupy the largest cake in the market.

Take the domestic lighting industry as an example, the total revenue of the industry reached 560 billion yuan in 2016, but the revenue of the top three largest listed lighting companies accounted for only 15.67%, and the remaining 84.34% of the market was occupied by small and medium-sized enterprises, which is a typical ant market.

Secondly, the barriers for ants to enter the market are generally low.Most of them are traditional industries or emerging technology hardware markets, characterized by mature supply chains and abundant production capacity. However, in the absence of oligopoly, the incubation cost of new brands is very low.

Finally, the ant market inevitably leads to inefficiency:On the one hand, a large number of inferior and fake products circulate the market, on the other hand, high-quality products can not expand the market share, but can only maintain investment through high gross margins.The end result is that the products in the ant market are either of poor quality or expensive, leaving a lot of room for market transformation for XIAOMI.

In the ant market, the "XIAOMI model" with performance-to-price ratio as the core can enable ecological chain enterprises to quickly do large-scale. For example, XIAOMI achieves 69 yuan for portable battery with more than 200 yuan, 699 yuan for air purifier at every turn, and 1000 yuan for floor-sweeping robot with an asking price of 6, 000 or 7, 000 yuan, which greatly reduces the threshold for users to use and brings huge sales.

But outside the ant market, XIAOMI's ecological chain is somewhat stretched, the most typical of which is air conditioning.

The characteristics of the domestic white power industry are, first of all, the long-term solidification of the oligopoly pattern, followed by a relatively high proportion of offline channel shipments, and finally slow technology iteration and strong brand effect.These characteristics are completely contrary to the ant market, which is difficult for XIAOMI's ecological chain enterprises to win in the short term.。

In 2015, XIAOMI unveiled "the first air conditioner for young people" with parameters of 2999 yuan for one horse and 3399 yuan for 1.50 horses. The price was touching and the sales were dismal. In 2019, the market share of Gree, Midea, Haier, Kelon and Hisense in the domestic air conditioning market is still as high as 79.2%.

In recent years, XIAOMI's style of playing in the dialogue industry began to have new changes. For example, to make kitchen and electric air fryers, compared with previous investments in start-up companies, XIAOMI will choose upstream leading foundry enterprises as ecological chain enterprises for investment in mature industries.

As qu Heng, general manager of XIAOMI's ecological chain department, said, "when you enter the ant market, but face the industry leader directly, you must start with production and follow the rules of the traditional industry before you can surpass it."[3]」。

The end.

Since 2013, XIAOMI has hatched nearly 300 enterprises. for XIAOMI himself, the greatest contribution of eco-chain hardware has not only enabled XIAOMI to quickly enter various industries, but also used IoT hardware combination to make XIAOMI House model run successfully, invigorating XIAOMI's offline deficiency to a certain extent.

For the enterprises on the ecological chain, the vast majority of participants start from scratch, by entering XIAOMI's product standards, using XIAOMI's resources to win the first battle and win the basic market. Some companies have successfully transformed from ODM factories to become a force that cannot be ignored in the consumer market.

From this point of view, no matter how many XIAOMI and ecological chain enterprises love each other, it can be regarded as XIAOMI's contribution to China's manufacturing industry.