Bare-bones PC Finds Customers Outside Emerging Markets

Almost unnoticed in the low-cost PC craze is the MicroClient Jr., a small, limited-function personal computer (PC) produced by Norhtec, based in Thailand. Designed for environments with limited space or extreme temperatures, the device retails for $85 without a monitor, mouse or keyboard. Norhtec has no flashy marketing campaign and has steered clear of the OLPC (AMD) versus Classmate PC (Intel) battle. And the company is treating the low-cost PC market strictly as a business endeavor rather than a philanthropy project.

Due to their fear of cannibalizing mature-market product lines, multinational PC and chip manufacturers have aimed their low-cost computing solutions at emerging-market consumers. Norhtec, however, has recognized a demand – even among mature-market commercial customers – for inexpensive PCs that reliably perform only a few basic functions. And they’re selling thousands of units. Customers include a Canadian diamond-mining company and McDonald’s franchises.

Norhtec’s strategy supports Clayton Christensen’s theory, widely publicized in The Innovator's Dilemma, that technology innovation will originate from the low-end of the marketplace and eventually evolve to displace high-end technology. While multinational giants are fighting to sell higher-margin products and protect existing product lines from cannibalization, scrappy start-ups in emerging markets are innovating with the low-end customer in mind and finding high-end mature-market demand, as well. Multinational technology companies that overcome their resistance to low-end offerings will be better prepared for the Norhtecs of the world, who will inevitably enter mature markets through the back door.

Also in the news
• Analysts push Motorola to gain momentum in India
• Developing countries strengthen their hand in the global economy
• Intel and AMD battle over low-end laptops

Mobile Banking Lacks a Global High-Tech Leader

Using mobile phones for financial transactions, or m-banking, has seen rapid adoption in countries like the Philippines and Japan. Though the service remains fragmented and country-specific, this week’s CIO magazine points out the growing opportunity for m-banking in Africa.

CIO bases their assertion on survey results from South Africa, where local bank subsidiaries are already processing thousands of mobile transactions each month, and the biggest barrier to wider adoption seems to be a lack of consumer awareness.

Finding signs of m-banking success in South Africa is not surprising. Vital Wave Consulting research reveals that the mobile phone saturation rate among South Africans living at or above subsistence is comparable to the level in European markets. Saturation in South Africa (and Nigeria), together with rapidly increasing mobile penetration rates in other African countries, create a fertile user base. And mobile phone-based financial services are particularly attractive when poor roads and public transportation systems make a trip to the bank an expensive, all-day journey.

There are ample, quantifiable business opportunities in the m-banking value chain for multiple players, including banks, international credit companies, carriers, and software designers. While financial service providers are moving quickly to realize these opportunities, no global technology leader has stepped forward. A multinational high-technology company capable of providing such mobile solutions has much to gain by enabling comprehensive m-banking across emerging markets.

Also in the news:
• Microsoft is putting their money on smart phones as the next computer
• GSM and CDMA search for the best foothold in developing countries
• Vodafone unveils handsets designed for emerging markets

Dell Raises the Stakes by Lowering Costs in India

Once again, you would have to sift through a mountain of emerging-market publications to find this week’s Nugget. The latest salvo in the battle to commercialize low-cost PCs was offered by Dell this week in India.

According to local sources, Dell is planning to launch a $240 (Rs 10,000) PC in India, the world’s second-most populous nation, followed later by worldwide distribution.

Consumer preferences identified in an upcoming report by Vital Wave Consulting suggest that Dell’s strategy in India is sound. Consumers in strategic growth markets prefer conventional, full-functioning PCs over limited-capability, low-cost machines.

Ten years ago in the United States, Dell capitalized on growing familiarity with PCs and widespread connectivity to sell directly to consumers via the Internet and call centers. However, this model will not work in India without some adjustments to local market dynamics. Dell will need to complement its low-cost machines with alternative business models. Vital Wave Consulting believes that Dell is headed in the right direction with a locally-built, low-cost but full-function consumer PC. They now need to take the extra step and offer financing opportunities, new go-to-market strategies, and applications that address local needs. With the right solutions and creative new business models, Dell could see the same meteoric growth in India that it enjoyed in the US a decade ago.

Also in the news:

• Red Hat makes plans for low-cost Linux global OS
• Sun believes Java will enable ultra-cheap mobile phones
• Mobile phones as money exchange tool gain momentum

Nokia's Emerging Market Strategy Connects the Dots

Nokia quietly demonstrated a solid emerging market strategy this week with technological, marketing, sales and distribution innovation in India.

The world’s leading handset maker launched seven new mobile phone designs with functions and features to meet the needs of rural Indians. The new phones have ruggedized exteriors, longer battery life and discrete user phonebooks and call-time limits to make sharing easier. Nokia’s announcement received more coverage by local Indian press until Business Week reported sightings of colorful Nokia vans in rural areas – part of an innovative marketing scheme to promote the new phone models among first-time buyers and potential upgrade customers.

Nokia’s comprehensive strategy may help boost their market leadership in India, which fell from 80% last year to about 67% today. As more high-tech multinational companies successfully penetrate rural and mass markets in developing countries, the opportunity will expand for application providers. Enabling the delivery of relevant services such as electronic remittances and health information will benefit an underserved consumer base and the companies that serve them.

Also in the news this week:

• One-Laptop-per-Child and Microsoft become strange bedfellows
• Indian researchers claim they are on the way to a $10 laptop
• Microsoft explores split-screen technology for shared-use environments

Steady Innovation Primes Yahoo! for Growth in India

May 2, 2007

Steady Innovation Primes Yahoo! for Growth in India

Yes, there was other news amid the OLPC/Intel hullabaloo this week. This week’s nugget comes from India, where Yahoo! has been steadily rolling out new products, services and strategies.

India’s Business Standard newspaper provided details about some of Yahoo!’s efforts – increased executive staffing, enabling Yahoo! Maps for Indian cities, and city-specific portals featuring localized, user-generated content. Portal users can find photos, videos, maps, podcasts, event information and blogs for 20 Indian cities.

Vital Wave Consulting likes Yahoo!’s relatively quiet approach to these strategic initiatives. Perhaps taking a page from the chronicle of success written by the telecommunications industry, Yahoo! is letting new products and services find traction before making big announcements about them.

The real opportunity for Yahoo! is the potential to radically scale the more successful services throughout India. There are currently 25 million Internet users in India, and usage is increasing most dramatically in urban centers. The number of Indian cities with million-plus populations grew from 23 to 35 between 1991 and 2001. By now, there are more than 40 Indian cities with a combined population of 500 million – all potential customers for Yahoo!’s new services.

Also in the news this week

• This is not your father’s philanthropy
• Financing for solar power in India
• OLPC price jumps to $175

Microsoft’s Gambit Strengthens Intel’s Hand

April 25, 2007

Microsoft’s Gambit Strengthens Intel’s Hand

Bill Gates’ splashy announcement last week in Beijing that Microsoft will begin to offer a $3 software package called the “Student Innovation Suite” to emerging market schools put the low-cost PC ball in the manufacturers’ court.

The terms of the deal – governments can only get it by providing free computers to students – suggest Microsoft is trying to compete with One-Laptop-per-Child’s $100 laptop, which runs on a version of Linux. Vital Wave Consulting notes, however, that Mr. Gates wasn’t sharing the stage with PC manufacturers, so Microsoft’s strategy may not be to compete directly with OLPC, but to stunt its growth by removing Windows as a barrier to offering low-cost PCs.
Microsoft’s announcement, together with a production delay for OLPC’s first shipment, presents an opportunity for local manufacturers and global PC companies. Chinese or Indian PC makers are working hard to market ultra low-cost PCs, but they will have trouble scaling outside their own countries. HP, Dell, Toshiba or Acer may eventually capture this market, but the real near-term beneficiary is Intel, whose Classmate PC can run on Windows or Linux. How long will it be before Intel announces the marriage (and resulting cost savings) of their Classmate PC and Microsoft’s Student Innovation Suite?

Also in the news this week

• How will mobile search business models differ from PC Search?
• Motorola stumbles with low-cost handset strategy
• Free mobile directory assistance launched by MS and Google

Social Entrepreneurs Can Help Build Emerging-Market Portfolio

April 11, 2007

This week’s news coverage of the world’s largest conference for social entrepreneurs lamented the lack of funds for developing-country projects. Entrepreneurs at the Skoll World Forum said fundraising and courting corporate partners is their biggest challenge.

“I believe corporations, especially ICT companies, should be actively investing in these enterprises,” said Kevin Jones, a principal with Good Capital and self-described serial entrepreneur. “Given the strong growth in emerging markets, all types of investors should see the advantages of partnering with international social entrepreneurs.”

Vital Wave Consulting understands the hesitancy of corporations. In many socially-oriented partnerships it is difficult to align incentive structures or demonstrate ROI. With social entrepreneurs, however, successful partnerships are more likely as both parties share the profit motive. Social entrepreneurs who do their homework and present a bullet-proof business case with an effective business model are certain to reduce the challenge of finding investors.

Corporations stand to benefit from these partnerships, as well. Social entrepreneurs can deliver expertise in target geographies, deep understanding of user needs and usage models, and in-country relationships. Successful social ventures are also excellent acquisition targets – for talent, technology and business models. Such partnerships could help speed the transition of emerging-market activities from the corporate social responsibility brochure to the company’s annual report.

Also in the news this week

• China Mobile adds 53M subscribers in 2006 for a total of 301 million

• Emerging markets capitalize on VoIP trends

• Innovation gets outsourced to “Chindia”

US Computer Companies Learning How to Win in China

April 4, 2007

US Computer Companies Learning How to Win in China

A flurry of news this week suggested the world’s biggest PC manufacturers are figuring out how to win emerging markets, especially China – a key market that saw PC sales grow 21% in 2006 compared to 2.6% in the US and 10% worldwide (IDC).

Dell’s simplified, low-cost EC280 PC was launched in China, and the company is setting up demonstration kiosks where consumers can handle a machine before ordering it. Dell also quietly announced they are planning to expand the number of PC and notebook models that can be ordered with Linux – another potential cost saver for emerging-market consumers.

HP has wisely opened 2000 retail centers in large cities, though Chinese market leader Lenovo (with 36% market share) has 10,000 more stores in smaller cities. HP’s strategy, along with a growing preference for branded computers among the booming middle class, has increased HP’s market share from 4 to 9% since 2003.

To expand their presence in outlying cities, HP and Dell will either have to convince thousands of retailers to give them shelf space, create a parallel distribution network, or explore alternative financing and distribution models (e.g., with utilities, ISPs, rural banks and agricultural cooperatives) similar to Lenovo/Microsoft’s FlexGo.

Also in the news this week

• Will Microsoft’s anti-piracy measures drive people to Linux?
• $200 version of OLPC laptop may appear in mature markets.
• $100 3G handsets not the answer for emerging markets.

Google Looking for Traction with Online Apps

March 28, 2007

Google Looking for Traction with Online Apps

At the ICT for Sub-Saharan Africa Conference in San Francisco last week, Google’s Internet strategist Vint Cerf announced that the company will offer free Google Apps to universities in Kenya and Rwanda. Over 200,000 students and government employees will have free access to online applications such as G-mail, Google Docs and Spreadsheets, Talk, Calendar and Page Creator.

Google would clearly like to break Microsoft’s hold on desktop applications by making them web-based services. In Africa, they are searching for globally-viable marketing, pricing and distribution models. They’re also testing the acceptance of new models in a key demographic – university students. Vital Wave Consulting research confirms that that education is a high-growth segment for ICT in developing countries. And its connection to other market segments makes this a strategic play for Google.

Microsoft is not asleep at the wheel. The company hosted the “Under the Radar” conference last week, at which several start-ups demonstrated online applications that would complement or rival MS Office. If Google and/or Microsoft change the desktop software business model to web-based services, there will be an excellent opportunity for smaller developers to offer emerging-market buyers online applications with a competitive price, locally relevant uses, and the right mix of services.

Also in the news this week

• Cisco Capital extends its “Easy Lease” program to Turkey to spur SMB sales and increase the capacity of channel partners.
• SmartMoney and BusinessWeek discuss how HP and Dell are cutting into the Chinese PC market.
• Peripherals in India see remarkable incremental growth in ‘06.

ICT Companies Should Aim for Near-term Growth Markets

March 21, 2007

ICT Companies Should Aim for Near-term Growth Markets

The World Resource Institute (WRI) and International Finance Corporation (IFC) took a step this week toward addressing the business community’s biggest concern about “bottom-of-the-pyramid” initiatives – the lack of quantifiable data to assess the market. With their latest report, The Next 4 Billion: Market Size and Business Strategy at the Base of the Pyramid, WRI/IFC present new market data for doing business with the world’s poor, who represent a market opportunity of $5 trillion annually.

For multinational companies, however, the more immediate opportunity is the 1.5 billion people at the middle of the economic pyramid – those who earn between $3,000 - 20,000 annually and represent a $12 trillion opportunity. Though it is distinct from mature markets and requires a new approach to market research and business planning, this market segment can be captured with smaller adjustments to existing solutions and business models. The value of this market is therefore easier to “sell” internally, and more in line with a company’s core strengths.

ICT Companies with deep understanding of the characteristics of near-term growth markets will see more immediate returns and be better positioned to develop appropriate solutions further down the economic pyramid.

Also in the news this week

• Intel offers solid state flash memory drives – part of the evolution of low-cost, ruggedized laptops for developing countries
• Affordable 3G LG phones to hit world market - low cost, high battery life makes appeal high for emerging market customers
• Ericsson goes deep into emerging markets - GSM base station helps operators reduce costs 30%

Think Global, Partner Local

March 14, 2007

Think Global, Partner Local

Professor Pankaj Ghemawat of Harvard Business School poked a hole in the world-is-flat version of globalization in the current edition of Foreign Policy magazine. Ghemawat points out that “more than 90 percent of all phone calls, Web traffic, and investment is local,” and that most Web users chat with local friends or e-mail family rather than connect with someone overseas. “We’re more wired, but no more global.”

The preference for local, relevant content may account for the struggles US-based companies like Google, Yahoo, and eBay have faced in transplanting their success to emerging markets like Russia and China.

To win these markets, multinational tech companies are wisely experimenting with different business models – partnering with local competitors, surrendering overseas operations to local players, or signing up proven consumer champs like Pepsi and Procter and Gamble to find new advertising revenues.

There is a clear opportunity for SMB’s in developing countries to partner with multinational search and e-commerce companies to collect and deliver locally relevant content. Soon, it will be possible to identify a user’s location as soon as she logs on. The company with the strongest roster of local content providers will achieve the most business growth in that environment.

Also in the news this week

• MobiTV sees demand for service in developing countries
• Apple developing flash-memory notebooks – more rugged, less expensive could give Apple an emerging-market play
• Microsoft moves into enterprise VoIP – enabling more cost-effective operations in MNCs with overseas offices

Low-cost Laptop Competition Good for the IT Industry

March 7, 2007

Low-cost Laptop Competition Good for the IT Industry

Respected tech writer Michael Kanellos offers up this week’s nugget with his discussion of which approach to emerging-market computing will prevail – Intel’s full-service Classmate PC, or One Laptop Per Child’s less-expensive XO machine.

Kanellos points out that the battle boils down to the OLPC’s centralized assembly (and the resulting cost savings) and Intel’s partnership with local manufacturers and suppliers to provide support, maintenance and locally-relevant content.

OLPC has clearly succeeded in driving innovation and competition in the IT industry, and four million orders for the XO demonstrate demand and the willingness of governments to spend on IT for education.

As the leaders of each initiative, Nicholas Negroponte at OLPC and Craig Barrett of Intel, define their distinct approach to product and market development, buyers will have clearer choices and the IT industry will learn valuable lessons about how to expand near-term growth markets in developing countries.

Also in the news this week

• UN-GAID conference coverage in Forbes and InformationWeek
• Cisco’s high margins in emerging markets