Opinion: Why struggling Xiaomi should rethink its business model like Netflix did

Photo credit: Maurizio Pesce.

Netflix is thriving. The company’s stock hit a 52-week high after Q1 profits and the revenue beat analyst expectations. Subscribers, now just shy of 100 million, are consuming 1 billion hours of content per week. Impressive would be an understatement. And there are things that the struggling Xiaomi can learn from this success.

Quick Netflix recap

Netflix started as a DVD rental-by-mail firm in 1997. The company struggled to generate profit in the first five years after its founding. In fact, it was barely able to survive, having to compete head to head with DVD-leasing giant Blockbuster.

As the internet became more accessible in the 21st century, Netflix boldly changed its business model and became a video-streaming service in 2007. It is now available worldwide, except in China, and its biggest competitor Blockbuster went out of business.

What would have happened if Netflix had futilely attempted to innovate at a service efficiency level rather than changing its entire business model as the internet boom kicked in?

Innovation of business model vs operations

The key takeaway is that radical innovation at the business model level and not at operations level is what saved Netflix. It follows, then, that the area of a business where innovation is applied is critical.

Xiaomi is struggling with similar challenges now.

When we talk about the competitiveness of a company, we focus on its uniqueness that cannot be imitated by its rivals, be it finances, customer base, brand image, or production processes. But these factors are very minor competitive advantages for a business to get ahead in the market.

The most powerful advantage is the core business model itself, which leads to fundamental and transformational change internally and in the market, like Netflix discovered in 2007.

Netflix as a video-streaming service. Photo credit: Esther Vargas.

In small businesses, innovation at this level is usually spearheaded by the executives. However, it is not always easy to prove or measure the effect of innovation in the early stages, which can lead to conflict or resistance within a company. Moreover, the biggest threats to innovation is internal politics and the organization’s culture. There are only few organizations that regularly consider and discuss business models in their executive meetings.

On the other hand, innovation at the operations level brings a partial change, a change that seems stable and relieves the members of the organization. Members can usually agree with the changes without much resistance. It’s also easier to measure the short-term outcomes of these changes.

So how does this help Xiaomi?

Xiaomi was once compared with Apple in terms of sleek smartphones and charismatic leadership. But the Chinese tech startup is looking to have an image makeover as it tries to recover from the sales growth slide.