Where is the Timex of Laptops?

Analysts at DRAMeXchange forecast last week that the marriage of netbooks and solid-state drives (SSDs) is teetering and likely to end in a messy divorce as early as next year. SSDs featured prominently in as many as 70% of netbook devices at the beginning of 2008. That percentage may fall to less than 10% by the end of 2009, as traditional hard drives make their way into more and more devices.

This should not come as a great surprise to anyone following the development of the low-cost device market. Several factors have contributed to the change in the type of memory, but none more than the shift in target markets. Netbook manufacturers still give lip service to selling a first computer to poor people in developing countries, but they are following their own distribution channels and market knowledge to sell second or travelling machines to people in developed countries. These consumers have different expectations for performance, compatibility and storage capacity than their emerging-market counterparts, and these expectations are more easily met with traditional hard drives.

The steep decline in SSD for netbooks suggests that consumers (in any market) are not particularly aware of or concerned with the advantages or disadvantages of the competing types of memory. In fact, SSDs have several advantages over traditional hard drives that should matter to emerging-market buyers. Lower-capacity SSDs consume less power, operate at a cooler temperature, and are more rugged. The lack of moving parts makes them more tolerant to extreme temperatures, high altitudes, impact shock, and dust. For the time being, they are slightly more expensive than comparable hard drives, but the price for SSDs has been falling by 50% annually as production capacity and supply of materials increase. Netbook makers who are shifting their focus to mature markets may be leaving the back door open to a competitor who develops an SSD-based laptop “that takes a licking and keeps on computing.” Ruggedization is a serious concern for many emerging-market buyers, particularly in the education segment, where fear of breakage and maintenance costs dissuades many from considering laptops for student or teacher use. Timex has been trading on their reputation for durability for decades. Would a robust, well-marketed netbook equivalent find the same success?

Also in the news:

• Medical data collection through mobile devices gaining steam
• Motorola aims low with $4 phone (in the UK?)
• CeBIT previews can’t wait until the New Year

Not Your Father’s Internet

The results of a Nielsen survey on mobile Internet usage were presented in a Nigerian newspaper last week, and mobile service providers, content providers, operators and handset manufacturers may have felt some early holiday cheer. According to the study, the number of Nigerians who access the Internet through mobile phones, while still almost five times smaller than those who access the Internet through a PC, grew 25% in the last 6 months, compared to a mere 3% rise among PC users. The report also noted that mobile Internet users are younger than their PC-using counterparts, and they favor different websites. On a computer, people are likely to use Google or entertainment-oriented sites, while mobile Internet browsers go to the BBC News website, or check the results of sports, weather or local events.

Since the study doesn’t appear to be available for review, the reported results prompt some questions and comments. It is unclear whether Nielsen accounted for the difference between urban and rural populations. The expansion of mobile infrastructure in rural areas may make mobile connectivity the preferred (or the only) way to access the Web for many Nigerians. Or, if rural areas were excluded from the study altogether, the results may reflect the different interests, needs or preferences of urban respondents, who are often wealthier and better educated. The variables impacting mobile Internet usage in Nigeria (and elsewhere) include access, network infrastructure, disposable income, and needs. The rate of adoption will be determined by how quickly handset functionality expands, prices fall, and infrastructure develops.

Regardless of the pace of mobile Internet adoption, the results of the Nielsen study add another layer of support to the argument that mobile phones are becoming an increasingly important computing device for a large number of Africans (and many other developing-country residents). Content and service providers, handset manufacturers and mobile operators have an undeniable opportunity for business growth, as long as they maintain a sharp focus on the user preferences and infrastructure limitations in these markets.

Also in the news:

• Acer's netbook wins early battle in market share war
• Indian service providers chase better markets in Africa
• Google’s Open Handset Alliance gains momentum

Mainstreaming Emerging Markets

For the second year, the annual International CES in Las Vegas, the world’s largest tradeshow for the consumer technology industry, will feature a dedicated session that focuses on the role technology plays to further economic growth in developing countries. The second annual Technology and Emerging Countries Program (TEC) will feature two keynotes and a panel on “Creating the Global Tech Ecosystem.” This is no side-lined breakout event. The opening keynote speaker is Intel’s Chairman, Craig Barrett, and the closing keynote will be delivered by Cisco’s Chairman and CEO John Chambers. That CES is dedicating plenary sessions to emerging countries, and the fire power behind the speaker lineup for these sessions, speaks to a shift occurring across most of the top technology companies.

Microsoft, Intel, Cisco, Nokia, IBM, Dell, Google, HP and many others have adjusted their strategies, operations, product designs or organizational structures to make emerging-market business growth a more central focus for their mainstream businesses. Corporate announcements, new products and partnerships relating to these markets are no longer couched in terms of corporate social responsibility. Mainstream business units appear to be taking a lead in their company’s revenue growth in emerging markets, bringing more efficient processes and abundant resources to the effort. A few years ago, it was difficult for companies to justify asking their mainstream businesses to take on performance metrics relating to emerging markets. Now, the development of Intel’s Atom processors, the creation of Microsoft’s Unlimited Potential Group, and organizational changes at Cisco demonstrate that this is changing.

Vital Wave Consulting sees this as a very positive trend. Many emerging-market-focused organizations outside of mainstream business units have struggled within large companies to deliver on internal expectations. Incubation of these special strategies can be effective, but only to the point where these groups learn what systems, products and practices need modification within their company. Networking opportunities such as the TEC program at this year’s CES are a good chance for emerging-market focused business managers to share best practices and learn from industry leaders how to shift the responsibility for emerging-market growth from smaller, exploratory groups to stronger and more effective mainstream businesses.

Also in the news:

• Forbes investigates the microinsurance market
• Microsoft focuses on emerging-market healthcare
• Pixel Qi to introduce low-power laptop screens

Layaway Plans - Solution to Cultural/Economic Barriers to Consumption

by Karen Coppock
_____________

The San Francisco Chronicle wrote about the resurgence of layaway plans in the United States (US) due to the current economic situation and tightening up of credit.

Vital Wave Consulting had recommended using layaway plans to finance technology purchases - mobile handsets and PCs - in emerging markets in its November 2007 report, Strategies to Accelerate Handset Financing in Emerging Markets. The resurgence of layaway plans in the US confirms that this approach is viable even in developed countries when recessionary constraints make the environment similar to that of emerging markets. Most emerging-market citizens have no access to credit, or in the case of the Chinese and those that practice Sharia law, will not or cannot use traditional credit. Layaway plans, however, overcome both the logistical and cultural barriers to credit. Layaway plans generally do not charge interest (hence are compliant with Sharia law) and could be considered a savings plan, which would make them more palatable for the credit-averse Chinese. Layaway plans do not require a credit history, fixed income or mailing address, all of which are generally required for a credit card.

The challenge with technology-oriented layaway plans is the dynamic nature of the industry - products can change significantly in the weeks or months micro-payments are being made toward a purchase. To address this problem, retail outlets could create a layaway plan to enables consumers to save toward a specific product and if a newer, similarly priced version comes out in the interim, the funds could be transferred toward payment for the newer product.

Layaway plans were the backbone of the retail industry in the US after the Depression and can be a global strategy for firms dealing with increasingly tight credit markets and budgets.

Wanted: A Mosquito-repellant Netbook

Canonical, the company behind the popular Linux-based Ubuntu operating system, and ARM, makers of 80% of the world’s mobile phone chips, announced this week they are working together on a version of Ubuntu that will run on ARM-powered netbooks. The big selling point: the OS will sip power so sparingly that users will be able to run them as long, and recharge as seldom, as their mobile phone.

This would be good news indeed for the millions (or billions?) of emerging-market computer users who do not have access to a constant, reliable power supply. Having recently established a Caribbean field office in the Dominican Republic, Vital Wave Consulting can appreciate the need for a long battery life, not to mention a first-rate wireless antenna, heat and humidity resistance, and a tolerance for extreme power fluctuations. (Our Caribbean field officer would instantly snap up a computer that also repels mosquitoes.) For technology companies based in mature markets, or even developed enclaves of emerging markets, it is easy to lose sight of the challenges of being productive in an environment where hardware, Internet connectivity and electrical power is expensive, unreliable and difficult to acquire. To establish an Internet connection in a rural town in the Dominican Republic, for example, required 6 weeks, two costly trips to a neighboring city, and $40 per month for a weak DSL connection. The router had to be delivered to a neighboring school because there are no street addresses to locate the house, and frequent, long blackouts have rendered the service unusable for days at a time. Hundreds of millions of potential computer users in emerging markets face similar challenges every day.

Computer companies have done an impressive job of reducing prices for hardware and software (though in many developing countries, tariffs, regulatory rules and tight supply make computers and connectivity more expensive than in developed countries). There is still an enormous market opportunity, however, for technology companies that design for unsteady and unreliable power supplies, low Internet speeds, and environmental hazards like heat, humidity and dust. Technology companies can also gain a competitive advantage by providing maintenance, support and guarantees. Though these services may increase prices and create personnel or supply chain challenges, they are a significant differentiator in markets where people are already paying dearly for “low-cost” devices.

Also in the news:

• MTN aims to offer $10 mobiles and $40 smartphones
• Telecoms activity in China and India despite economic gloom
• SlingBox a good fit with emerging markets

In a Recession, Will Mature-Market Consumers Follow Emerging-Market Behavior?

Virgin Mobile appears to be faring well in spite of the recent economic downturn, beating analyst expectations and gaining subscribers. The results of a commissioned survey on spending priorities have Virgin Mobile USA executives cautiously optimistic. The survey found that, when budgets get tight, consumers say they will trim other expenses before cutting back on cell phone usage. Many are likely to dine out less and defer big ticket purchases, and a surprising 41% said they would buy fewer groceries, compared to only 32% who said they would reduce cell phone spending. Some respondents pointed out they would send more text messages in lieu of making voice calls, and two-thirds said they would consider watching advertisements in exchange for free airtime. Price-sensitive consumers also cite the benefits of alternative payment terms such as prepaid service.

Virgin Mobile's research is timely and provides valuable insights that are contrary to conventional wisdom. Few expect that consumers would cut food expenses before cell phone spending. Yet a study sponsored by IDRC in rural Uganda suggests that women on very low incomes are willing to sacrifice both food and travel in order to purchase mobile air time, such is the premium that is placed on mobile phones. Virgin Mobile’s survey responses suggest that, as mature-market consumers become more price-sensitive due to the economic downturn, they are beginning to behave more like emerging-market mobile phone users. An affinity for pre-paid services, the perception of mobile phones as a necessity, increasing use of text messaging, and even choosing mobile phone service over groceries are all characteristics of the customer base in emerging markets.

Companies that have conducted research and gathered data on consumer spending in emerging markets may be positioned to use that knowledge and expertise in developing strategies for weathering the current economic downturn. By understanding the spending habits, prioritization, trade-off decisions, and plan preferences of emerging-market consumers, companies will be better prepared to address the needs of more cost-conscious consumers in mature markets. If mature-market consumers are truly adopting the preferences and perceptions of emerging-market consumers, this is probably good news for the telecommunications industry. With cell phone connectivity increasingly perceived by consumers worldwide as a basic necessity, the mobile industry may not be as vulnerable as others during an economic downturn. Nevertheless, pre-paid services and other programs for price-sensitive consumers will be an advantage in a tough economic environment.

Also in the news:

• Vodafone chooses ZTE for 35% of its handsets
• Low-cost laptops hurt Microsoft sales
• Asus focuses on innovation and leadership

The Devil is in the Data

If you aren’t living in a developing country, you may have missed the release of an interesting study by MasterCard Worldwide ranking the top 65 emerging-market cities that drive economic growth. The study received considerable attention in developing countries, particularly in China and India, which had the highest number of cities on the list. MasterCard’s commendable “Emerging Markets Index” was compiled by nine independent experts on economics, urban development and social-sciences. Cities were rated by eight key dimensions (economic and commercial environment; economic growth and development; business environment; financial services environment; commercial connectivity; education and IT connectivity; quality of urban life; and risk and security). Some key results: China has 15 of the top 30 cities, Budapest ranks very highly (3^rd overall), and South Africa has more cities in the Index than any country outside of Brazil, Russia, India and China.

Vital Wave Consulting agrees that understanding emerging-market cities is critical. Though cities are typically much more developed than rural areas in terms of infrastructure, income and available services, they often foretell countrywide development, and many cities are significant markets in their own right. However, business managers in the IT and telecommunications industries should understand that the choice and weighting of technology-oriented variables is crucial to pinpointing viable markets, and reliable city-level data are particularly difficult to find. To create the Emerging Markets Index, MasterCard had to draw heavily on country-level data (often the only data available), though it can impact city-level analyses. For example, national data can cause same-country cities to appear more homogenous than they really are and group together in a segmentation analysis. It may also account for the cluster of Chinese cities in the top half of the Emerging Markets Index. The Index is a definite step in the right direction; however, the results underscore the difficulty of conducting city-level research and the potential pitfall of using country-level data to evaluate city performance.

As multinational corporations dedicate more resources to selling products and services into emerging markets, reliable data and accurate assumptions on sub-national markets will be essential to developing comprehensive and effective go-to-market strategies, Companies that develop or acquire specialized, appropriate data, research and analysis will gain a more nuanced way of segmenting, sizing and selling to local markets in developing counties.

Also in the news:

• Visa and Citi expand mBanking reach
• A trimmer Nokia re-focuses on emerging markets
• Service plans to reduce netbook prices to $100 (or free)

More Mobile Functions Lead to Greater Privacy, Security Concerns

Over 350 telecommunications industry, public-sector and development-community leaders congregated in Johannesburg, South Africa October 13-15 for the 3^rd “MobileActive” conference. The annual event focuses on the role of mobile technology in healthcare, economic development, education, human rights and democracy. Vital Wave Consulting analysts at the conference were struck by the number and depth of discussions around privacy and security issues, especially among mobile health (mHealth) professionals. With Google, Yahoo! and Microsoft announcing the formation of a privacy-focused Global Network Initiative this week, and the recent launch of an ambitious multi-partner project to use mobile phones to combat HIV and tuberculosis in South Africa, such discussions were both timely and indicative of a potential opportunity.

The concern among many health professionals and mHealth project participants (including operators, content and service providers), is that, in many developing countries, mobile phones are not necessarily owned or used by a single individual. Low-income users often share phones, leading to legitimate privacy and security concerns. A text-message reminder to take HIV medication, for example, could have social repercussions for the receiver if it is seen by another person. And a farmer who receives a cash transfer from a family member must be certain that the people who borrow his phone cannot access the funds. Such privacy and security issues will become more important as the functionality of mobile phones expands.

There is an opportunity for software developers, handset makers, operators, service providers and content providers to address consumer demand for privacy and security safeguards on mobile devices. Companies that offer safer, more secure hardware, software and services will be rewarded for differentiating their solutions and understanding the concerns of their customers.

Also in the news:

• Microsoft looks to a simpler OS and cloud computing
• Dell debuts “Sandeep the Plumber"
• RIM’s Blackberry expands to key Latin American markets

The mobile phone is the computer for Africa

___________
by Karen Coppock

During a break-out session in the MobileActive08 conference in Johannesburg last week, a participant from Uganda asserted that the mobile phone is the computer for Africa. This proposition was heavily debated amongst the group, with some voting in favor of the computer (argument: have you ever tried to work on a spreadsheet or edit a Word document on a mobile phone? The screen is simply too small to be one’s only computing device) and others voting in favor of the mobile phone (argument: affordability, ubiquity, ease of usage, etc.).

One concern with computers was the requirement for literacy. Yet someone in the group mentioned that literacy is also an issue for mobile phones as SMS messages are so much more affordable than voice calls and many of the MobileActive08 projects revolved around SMS text messages. A very sharp participant from Zambia mentioned that there is an old tradition of letter writers – people who used to write letters for people who were not literate. She said that there is evidence that this trend could be translated to the mobile phone environment with the emergence of SMS writers or people that will send/read a text message for someone if they are not literate (either reading/writing literate or technically literate).

Regardless of its shortcomings, the general agreement in the small group was that the mobile phone may very well be the only computing device that millions of Africans ever experience first-hand. There is an opportunity, therefore, to develop tools that enable the mobile phone to become easier to use as a computer (i.e., docking stations for mobile phones with connections to a monitor, keyboard, external speakers and/or a mouse) …thus far the CellC and Vodacom mobile phone booths across South Africa have not exploited this opportunity, but perhaps that is the next step in the technology’s evolution in Africa.

Pre-paid funeral plans....

______________

by Karen Coppock

From Soweto to Joburg to Limpopo, tombstone and funeral service signs dotted the landscape in all of the places we visited in South Africa last week. Billboards advertised tombstones, coffins, and even pre-paid funeral packages. Funerals are a big business in South Africa and unfortunately, with the spread of HIV/AIDS, it is a growth industry in Africa. The poor (and middle class) often experience the double trauma of both financial and emotional devastation when a loved one passes away. Our local researchers noted that in certain traditions, the family of the deceased is responsible for butchering a cow for their town every day from the person’s death until their burial. This cost is over and above the expenses of purchasing a coffin and a tombstone and has to be incurred even if the deceased person was the primary breadwinner.

Entrepreneurs have created business model innovations, such as pre-paid funeral packages and funeral insurance, to enable families to mitigate the financial losses associated with funerals yet still fully participate in traditional rituals. Both firms and families benefit from these innovations. Firms benefit as their clients’ lack of a constant income does not necessarily impact the firm’s bottom line. Families benefit by enabling a dignified end for the loved one and limited funeral-related debt for the surviving family members. Identifying this type of win-win situation is key to success in emerging markets…and in business in general.

Cloud Computing – No Borders but Different Rules

Vital Wave Consulting provides services to large technology companies, capital investors, and foundations, but we have a typical Silicon Valley soft spot for hopeful start-ups. Earlier this week came the news of an Australian couple, John and Jeanne Nicholls, who emerged from their garage with a $100 palm-sized device that relies on “cloud computing” for processing and storage. Their company, ThinLinX, will soon launch several models of the Hot-E, a solid-state thin client aimed at “cost- and power-conscious small and medium businesses, schools and developing countries where fully-fledged PCs are prohibitively expensive, impractical or draw too much power.” The Nicholls claim to be partnering with a large but unnamed software company to develop the device.

Much of the value proposition cited by ThinLinX (e.g., affordability and low power consumption) is reminiscent of previous ill-fated devices such as AMD’s Personal Internet Communicator (PIC). Success in this category of device depends almost entirely on availability of broadband and the viability of cloud computing. Cloud computing, or remote software delivery and data storage, is the subject of intense interest (and investment) by Sun, Google, IBM, Microsoft, Amazon, and others. Merrill Lynch estimates the cloud computing market will grow to $95 billion by 2013, and IBM will spend $360 million for a new cloud computing data center in North Carolina (their ninth such center worldwide). So far, however, enterprise has been reluctant to relegate their storage and processing to server farms due to security concerns, and consumers seem resistant because of a lack of broadband access or unfamiliarity with the model.

New devices like the Hot-E, along with a growing host of cloud-based applications and online operating systems (e.g., OpenOffice, GoogleApps, Glide) may not be enough to draw the masses into the clouds. But additional efforts by Microsoft or top global PC manufacturers could tip the scales for broader adoption. Whatever serves as the catalyst for mass adoption of cloud computing, there will be dazzling opportunities for many companies, from garage-dwelling entrepreneurs to small software developers to multinational IT companies. Success in emerging markets will likely come to those who understand that, while cloud computing services are technically available anywhere there's a broadband connection, adoption and use will not not necessarily follow the pattern of mature markets. Successful cloud computing companies will do their homework on local issues like broadband availability and reliability, business model appeal, user preferences and price sensitivity, while carefully choosing partners who contribute toward a strong and financially viable value chain.

Also in the news:

• Asustek anticipates healthy ‘09
• IBM sees continued strong growth in emerging markets
• Yahoo! struggling with low ad revenues

M-Pesa is our hippo!"

Safaricom’s mobile money transfer program, M-Pesa, received additional praise last week, but more emphasis was placed on how the service is causing grief to Kenya’s traditional banks. (One banker laments: “Money transfer on the cell phone is a great idea, but you do not allow innovation to outsmart regulation.”) With M-Pesa, mobile phone users can transfer money in increments as low as $1.25 for a small transfer fee. Recipients can then withdraw cash from one of several thousand M-Pesa agents countrywide. 3.6 million Kenyans subscribe to the service, transferring approximately $2 million a day to friends and relatives around the country. Now the banks are complaining that excessive regulation prevents them from entering the market. These are the main points of the article, but a cursory reading would miss the readers’ comments, where the real action is.

Where else (besides on the street) can you find raw anti-bank sentiments like “You closed our accounts and chased us like dogs. Don’t bark at us.” Or, for those who speak Kiswahili, “The sly person is in trouble when the fool gets smart.” And our favorite: “M-Pesa is our hippo,” a vote of confidence for M-Pesa that may also allude to the fearsome habit of the hippo to stomp on whatever comes between it and the river. These comments are a window into the attitudes of an important segment of the Kenyan population - technology-savvy users who can afford to spend time and money submitting comments to an online forum. They may not represent the masses but they can set trends that influence lower-income populations.

Indeed, Safaricom (40% owned by Vodafone) has significant popularity among Kenyans. This good will has been cultivated with blatantly nationalistic marketing and a refusal to block SMS text messaging during a political crisis in December and January. Now it seems the company is also benefitting from the impression that they are resisting the banks, where few Kenyans have had a positive experience. But popular support is not enough. Technology is innovating faster than regulation – and not just in East Africa. Like voice and text messaging before it, money transfers and other mobile services are being adopted quickly and widely only in countries where the regulatory environment allows or encourages them, and cross-border transactions are largely prohibited. Growth will come to mobile service providers who work within the regulatory environment and keep the pressure on government regulatory bodies by stressing the social benefits of their services. Quantifying the benefits of mBanking, mHealth and other mobile services may not win as many hearts as a patriotic advertisement, but it will solidify the support of critical partners in the private and public sectors.

Also in the news:

• Nokia invites mobile application innovation
• Microsoft offers software suite for Portuguese low-cost initiative
• A shift in Indian Telco investment

Governments and the Development Community Warming to Private Sector

Nearly everyone in the development community (and a growing list of business executives) is familiar with the “MDGs.” The term is short-hand for the UN’s Millennium Development Goals – a list of eight ambitious objectives that, if achieved, would provide better education, healthcare, nutrition, gender equality, and communications technology to a far greater percentage of the world’s poor. Lately, Ericsson’s President and CEO Carl-Henric Svanberg has been quite vocal about his company’s support for the MDGs. Ericsson has joined the UN’s eHealth initiative and is raising awareness of the role of telecommunications in achieving the goals at the Volvo Ocean Race.

When the MDGs were conceived eight years ago, there were only 738 million mobile subscribers, which represented approximately 12% of the global population (assuming one subscription per person). Today, over 3.5 billion people – half the world’s population – own mobile phones, and the GSMA estimates that mobile networks will cover 85% of the world’s population by 2010 – five years before the MDGs are supposed to be achieved. Ericsson’s Svanberg points out that the Millennium Development Goals are now being re-thought in terms of how mobile technology (and technology in general) can contribute toward their achievement. In fact, nascent sub-industries like mServices – the delivery of critical services like healthcare and banking through mobile phones – have gained valuable support from governments and influential development organizations. Many of these organizations have learned important lessons and refined their roles and expectations for private-sector partners. In a recent investigation for the UN and Vodafone Foundations, Vital Wave Consulting identified six strategic recommendations for effective mHealth implementations. Many of these recommendations have an implicit requirement for private sector involvement.

Governments and development organizations manage entire ecosystems that serve the basic needs of millions of people. Despite resistance to (or mistrust of) the profit motive by many in the development community and emerging-market governments, a growing number of organizations are seeking ways to bring the private sector into achieving the MDGs. There is a residual assumption that private companies are still best involved as donors and philanthropists. However, the smart business manager will identify and seek out new opportunities presented by those who want to work with private-sector partners to (profitably) create efficiencies, improve communications, and provide better access to information and services.

Also in the news:

• MSI has the wind at its back
• mBanking prospects remain positive in Africa
• Motorola and wi-tribe bring WiMax to Pakistan

For your information...

How much do you pay to call information (411) from your home phone? How much from your cell phone? How would you find the nearest Italian restaurant on the fly? It might surprise many that dialing information from a cell phone is free and easy, thanks to Microsoft’s Tellme, Google’s GOOG-411 and several other services. According to Tellme, 40 million people in North America find information each month with its service, which is available on any phone but more common as a downloadable application on smart phones. When integrated with other tools, the service allows user to, say, search for a movie theater showing the latest blockbuster, get a map to the theater and buy tickets. Google’s service is by most accounts less impressive than its rivals, but followers of emerging-market news may have noted that the company just made it available in two of the largest cities in India, and plans to expand into three more.

Google may be on to something. The value proposition for a voice-based information service in India is different than it is for users in developed countries, where information is relatively easy to come by through other means (phone books, websites, maps). In India, as in many other emerging markets, information tools such as phone directories and maps with street addresses are often not as readily available. There is evidence that Indian mobile phone users are ready and willing to use their handsets to find information. JustDial, a local start-up, claims that 24 million Indians have used its phone-based information service, though the company has been criticized for selling phone numbers to marketers. Google has not announced plans to make its voice-search service profitable; the company claims that it is simply building a phoneme bank to develop its voice recognition systems. But it’s not difficult to see how Google could turn a profit from voice-based search. Unlike web-based ads, the “click rate” for results of a phone query would be very high. In fact, users might not even know whether the results they receive are “sponsored links” or regular query results.

Though operators in India (and elsewhere) are hesitant to partner with Google, they may as well accept voice-based information services as a means of motivating mobile users to spend more minutes on the phone, thus increasing ARPU. If Google (or a competitor) begins to generate ad revenue from the service, operators could negotiate a small cut of those revenues in exchange for promoting one service over others. In the long term, Google has the opportunity to make itself a primary source of information for a large and potentially lucrative customer base – the same role it plays in more-wired mature markets, only through mobile phones instead of computers. Growth opportunities will spread initially to local content providers acting as information brokers, and then – as more people in emerging markets acquire data-enabled handsets – to software developers who integrate other applications (e.g., geosyncing, m-payments) with information services.

Also in the news:

• Venezuela orders 1M Classmate PCs from Portugal
• Mobile services stay strong in spite of meltdown
• Google reveals open wireless network intentions

Basic Needs Present a Near-term Opportunity

With $40 billion in annual sales, Royal Philips Electronics is one of the largest consumer electronics companies in the world, with an already healthy footprint in most countries. But lately the Dutch company has been touting its efforts to win emerging markets. In India, for example, Philips has acquired a locally-focused medical equipment company, designed more efficient, healthier wood stoves, partnered with local development organizations, and worked with women’s self-help groups on distribution and financing schemes.

The variety of approaches suggests Philips has figured out that there is enormous (and growing) unmet demand in developing countries for a wide range of home appliances. However, labeling efforts to engineer better stoves “philanthropy by design” shows a fundamental misunderstanding of the near-term market opportunity. Vital Wave Consulting research indicates that, among people who earn over $2 per day, ownership of appliances like washing machines, dishwashers, vacuums, refrigerators and stoves is relatively common. That is, despite their limited means, low-income consumers are finding ways of purchasing durable goods. However, far more people own similarly-priced mobile phones, radios and televisions, suggesting that home appliances with the right design, functionality and price could be adopted in greater numbers.

There is considerable growth potential for companies that treat basic needs like lighting, cooking, cleaning, and learning as immediate rather than long-term opportunities. The greatest growth will come to companies that effectively manage the transition from innovation to business development. Products and services aimed at emerging-market consumers must be supported by a solid business case with reliable projections of sustainable profits to win the support of company executives. Though the end result may be improved lighting, safer homes and better health, the savvy business manager will see these efforts more as solid growth opportunities than philanthropic endeavors.

Also in the news:

• Mobile services - the silver lining around dark economic clouds.
• Pfizer sees growth in emerging markets.
• Who will bring Androids to emerging markets?

A Sharp Focus on China’s High-end Consumers

Japan-based Sharp Corporation announced this week that it plans to expand in the already-large-and-still-growing Chinese handset market. Sharp enjoys a 40% market share in the dynamic and lucrative Japanese market, but the company sells few handsets outside the country. In China, Sharp is aiming for the high end of the market with multifunctional handsets selling for almost $600. The company hopes to sell five million handsets a year in China in the next few years. Sharp sold only 15.5 million handsets worldwide in the fiscal year that ended March 2008, so an additional 5 million handsets would have a significant impact on its bottom line.

Vital Wave Consulting likes Sharp’s timing: Apple has not yet entered the China market with its iconic iPhone, and 3G services were rushed to market in several of China’s largest cities just before the summer Olympics. A phone that offers mpayment capabilities – standard in Japan – might also attract China’s wealthy elite. According to one report, Chinese mobile phone users led their counterparts in India, Taiwan, Singapore and Australia in storing music, playing games, making payments, and accessing the Internet. Chinese Internet users do not fit the same usage profile as many Western (or even other emerging-market) users. According to a Chinese government study, the Web is not necessarily perceived as a means of finding information or shopping; rather, it is seen as a highly customizable entertainment medium. Over 70% of Chinese Internet users are under 30, and tend to be avid gamers, social networkers, and “fanzine” subscribers. Handsets that allow Chinese users to access these services outside the Internet café could be highly sought-after.

The high end of the market (for handsets, computers, and many other consumer electronics) is a particularly good opportunity in China and in other large emerging markets such as India. The percentage of the Chinese population that constitutes the high-end market may be relatively small, but in a country with more than one billion people, the total opportunity is still ample and justifies the expense of forging new marketing and distribution channels that target the country’s elite.

Also in the news:

• Low-cost laptops drive PC growth
• Philips strengthens its presence in emerging-market healthcare
• Asus differentiates itself with free online storage

Brand Name Power

Sales fell 19% last quarter for the top three local PC brands in South Africa including Sahara and Mustek's Mecer. Strong global brands such as Dell and HP recently decreased their prices to levels that are comparable to local brands. Distributors have found that when local and global brands are priced competitively, consumers chose the well-known globally-branded PCs over local hero PCs.

Global brands have traditionally struggled to compete with local companies, which often sell at lower prices. With savings in labor and distribution, local companies can maintain thin margins and pass on those savings to the consumer. However, with value chain efficiencies and falling PC prices, larger global brands such as Lenovo, Dell, HP and Sony have begun to reach a similar price-point to local brands. While competitive pricing may not assure the premiums that multinational corporations are accustomed to, they do lead to a greater market share. Success in emerging markets has kept the PC industry healthy in spite of a weakening economy in the US and Europe. Companies that have previously invested heavily in building their global brand are beginning to reap the rewards in these growing markets.

Strong growth in emerging markets is quickly becoming essential to a global technology company’s health. With global brands becoming viable competitors to local hero brands, multinational corporations would do well to expand their marketing and build brand awareness among a wider and more diversified customer base in emerging markets. As costs come down for consumer electronics and global brands become more competitive, brand awareness and perceived quality could tip the scales.

Also in the news:

• Dell releases four new Linux-based designs for China
• Symantec to use PC Tools to penetrate emerging markets
• Samsung bets on solid-state drives for low-cost PCs

Innovation on the Desktop for Emerging Markets

A continuous stream of leaks this week has kept the imminent launch of Dell’s Inspiron 910 top-of-mind in the press. Dell will join the likes of HP, Lenovo, Acer, Asus and MSI with its entry into the sub-notebook market. This week also saw a rebranding of Intel’s Classmate PC by MPC for US-based education markets. This recent barrage of sub-notebooks in the press is part of a confirmed trend. An upcoming report by Vital Wave Consulting found that of low-cost computing devices (including desktops, thin-clients, handhelds and notebooks) announced in recent years, 60% were sub-notebooks.

Sub-notebooks have dominated media attention. The early low-cost sub-notebook craze initiated by the One Laptop Per Child initiative placed the focus squarely on computing technology for developing countries. Since then, the focus has shifted to second (or spare) PCs for accessing the Internet, primarily for consumers in mature markets. While some of the sub-notebook innovations such as extended battery life and ruggedized exteriors are important in an emerging-market context, one could argue that desktop PCs are a more appropriate design for professional or educational environments in emerging markets. The lack of easy portability provides additional security; the larger screen and a stationary setting is more conducive to a shared-use environment common in developing-country educational institutions; and, plug and play components enable usage of inexpensive or existing peripherals (monitor, keyboards), which keeps costs down. To date, however, desktop innovation has focused on cloud computing, which relies on regular and high-speed Internet access - still uncommon in most regions in developing countries.

While major PC manufacturers remain focused on sub-notebooks and cloud computing, the market is ripe for desktop innovations for emerging markets. A ruggedized desktop PC with lower power demands and the ability to withstand temporary power outages, built-in physical security features, bundled software solutions that are not dependent on Internet access, and compatibility with older model peripherals could find a growing demand among technology buyers who have not succumbed to the sub-notebook craze.

Also in the news:

• New telecom operators pull down ARPU
• Emerging markets crucial for economic prosperity
• Ericsson's multimedia creates value in emerging markets

Apple Takes a Bite into Emerging Markets

Announcements this week show Apple’s iPhone making headway in emerging markets in spite of a history of challenges working with local carriers. The company announced plans to launch the iPhone in 10 Latin American countries and India this month. A later launch (end of 2008) has been suggested for two of the world’s largest mobile markets, Russia and China. Apple’s recent willingness to do away with revenue-sharing requirements and allow carriers to subsidize phone purchases is credited with accelerating negotiations worldwide.

In spite of a delayed official launch, Russia may already be home to one of the highest concentrations of iPhone users in the world with an estimated 500,000 gray-marketed devices. The robust industry sells unofficially-imported iPhones (even Russian President Dmitry Medvedev has been seen using one), “unlocks” them from any carrier restrictions, and imports local language software. This overwhelming demand highlights the existence of the top-of-the-pyramid market in developing countries. While small in number, this market is not only profitable but is also a strong influencer of consumer choices further down the economic pyramid - particularly in urban areas where low- and high-income consumers live in close proximity. This influence from the top-of-the-pyramid market can create a demand for more affordable and appropriate versions of a product among the rest of the population.

Apple’s roll-out in emerging markets will undoubtedly see impressive sales, but iPhone buzz in developing countries may ultimately pay off more for others. Apple’s strategy of targeting the elite in emerging markets with its high-end products leaves an opportunity for rivals who see the potential in the much larger lower-income markets. Companies that introduce an iPhone-like device that is more appropriate for local environments, telecommunication networks, and income levels will realize sales by fulfilling the aspirations of those who have been influenced by the local elite but can’t yet afford an iPhone.

Also in the news:

• Microsoft shifts India R&D team to an emerging-market focus
• AMD holds back on a netbook chip
• Lenovo and IBM to collaborate on Linux for emerging markets

mHealth: Making the Market Happen

The United Nations Foundation and Vodafone Group Foundation hosted a conference last week on using mobile technology to improve healthcare delivery in the developing world. This exclusive gathering brought together 25 leading eHealth practitioners, academics and business managers with the ambitious goal of setting a global strategic direction for the delivery of healthcare through mobile devices (mHealth). Facilitated by Vital Wave Consulting and hosted by the Rockefeller Foundation, the week-long conference in Bellagio, Italy was designed to create a common framework for sustainably scaling mHealth initiatives.

The conference agenda included examining the landscape of mHealth, understanding the various applications of mHealth (including mobile telemedicine), evaluating its delivery value chain, determining critical success factors and identifying the incentives for financially sustainable implementations. As with any initiative focused on extending universal, quality service to the most remote and underserved people in the world, there are considerable challenges to overcome – interoperability of networks and platforms, lack of local capacity and management expertise, diverse and often contradictory regulatory regimes, and distribution channels that rarely reach rural constituents, to name a few. It is the nature of these challenges that makes public-private partnerships an integral part of the future mHealth landscape.

mHealth is a promising sub-vertical of two rapidly-growing areas of ICT – eHealth (i.e., delivery of health-related services through electronic media) and mServices (i.e., delivery of services such as banking and governance through mobile networks). Attendees recognized the value, importance and inherent opportunity of committing to an “mHealth Alliance” dedicated to designing and executing effective mobile service projects. The inception of the mHealth sub-vertical provides companies in the telecommunications, software and hardware industries, as well as service and content providers, with the opportunity to shape the market in its infancy. With effective public-private partnerships that establish common mHealth standards and practices, participating companies can make the market happen instead of waiting for the market to take shape around, or perhaps without, them.

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• Lenovo unveils $399 laptop
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Business Advantages of Content and Service Partnerships

Nokia has cemented its position as a market leader in nearly all of the world’s top emerging markets by offering numerous handsets with a wide range of prices and functions, creating an extensive network of distributors and resellers, and answering consumer demands in diverse environments. According to (Nokia-supported) ShareIdeas.org, an online community focused on mobile communications for social benefit, the Finnish company is also quietly supporting projects that enable educational content delivery to primary schools and mass SMS text delivery by non-government organizations (NGOs).

Nokia is partnering with several government agencies and NGOs on BridgeIt, a service that allows primary school teachers to review a menu of math, language and science content on their mobile phone and order lessons with a simple text message. The request is relayed from a server to a satellite, which immediately beams the content to a TV in the classroom. Similar services use an expensive two-way satellite interface or an Internet-based menu. The BridgeIt program (under the name “text2teach”) has benefited over 150,000 students in the Philippines and recently expanded to Tanzania. Nokia has joined another group of investors to support FrontlineSMS, a web-based platform that allows non-profit organizations to send and receive mass text messages with millions of mobile phone users. The service enables remote data collection, supports several common languages, and works on a wide range of software platforms, handsets and modems. Now in use in over 40 countries, the free service has helped NGOs coordinate health initiatives, publish price information, and act as government watchdogs.

These are only two examples of a rapidly-expanding array of content and service delivery models that rely on mobile telephone technology. Nokia is not the only telecommunications company involved in these initiatives; Qualcomm, Alcatel-Lucent and AT&T (to name a few) have also supported content-delivery projects in Africa or Asia, and Google’s open source Android platform will enable the development of useful tools to new handsets. Vital Wave Consulting likes the benefits such programs bring to private-sector partners. Collaboration with government agencies, foundations and NGOs (i.e., major buyers in emerging markets), direct exposure to the changing role and usage of mobile phones, and brand association with the benefits of social programs are just a few of the dividends from such investments. Collaboration and facilitation of beneficial programs such as BridgeIt and FrontlineSMS allow handset companies to concentrate on their core competencies and extend their access to diverse, important customer groups in new markets.

Also in the news:

• Toshiba and LG looking into mini-notebooks
• Sony Ericsson behind the curve
• Dell going strong in India

Riding NComputing into Emerging-Market Schools

NComputing announced last week that it is on track to sell one million units this year. The company expects that demand in emerging markets will exceed that of the US and estimates that 35% of revenues will come from India alone by 2009. The boost in sales comes primarily from India’s educational institutions and from the proliferation of India-based resellers. NComputing’s desktop virtualization software and hardware allows seven (or more) users to work independently from one CPU, reducing the per-seat computing cost to around $175.

While low-cost laptops cater to individual consumer demand for portability and private ownership, NComputing’s solution has gained the attention of institutional buyers by addressing concerns over affordability and power consumption. Educational institutions now account for 70% of NComputing’s revenues. In a meeting with Vital Wave Consulting last week, Dukker maintained that his company’s success is based as much on a sustainable business model as on meeting customer needs. With lower per seat costs than “mainstream” PCs, NComputing’s model leaves enough money in school budgets for teacher training, service and support. According to Dukker, this allows other members of the value chain to maintain profitability and build their presence in the strategically important education segment.

This argument made sense to education officials in Macedonia; NComputing recently delivered 180,000 seats to the nation’s schools. These large-scale multi-user deployments create new opportunities for technology companies with complementary solutions. PC manufacturers, for example, can maintain their profits by deploying high-performance, higher-margin models. Educational software companies, service providers and peripheral manufacturers (e.g., monitors, keyboards) can also capitalize on these broad technology initiatives. More participants with sustainable profit margins in the education-technology value chain will ensure the longevity of solutions, build the service and support links of the value chain, and extend technology to a larger user base.

Also in the news:

• Toshiba and LG looking into mini-notebooks
• Sony Ericsson behind the curve
• Dell going strong in India

Leaving Money on the Table in Emerging Markets

Handset manufacturer Sony Ericsson announced this week that it is in talks to acquire India-based Spice Mobile. The move is part of Sony Ericsson’s recent investments in emerging markets, an effort to counteract its slowing growth in the mid- to high-end markets of the developed world. The “People’s Phone,” Spice’s low-cost handset, could help Ericsson better compete with Nokia in India’s lower-end markets.

Traditionally known for premium phones, the bid for Spice could be Ericsson’s ticket to providing products with more local appeal. A recent China Daily article on Nokia’s entry into China outlines a different strategy but with a similar end in mind. Nokia struggled initially to gain a foothold in China and outlined drastic cost-cutting plans for key products. But at the last minute the plans were changed. Conversations with customers and channel partners convinced Nokia that new distribution channels and locally designed products would better meet customer needs - not cheaper phones. The company’s ability to respond to market intelligence delivered what is now a 35% market share for Nokia in China (in spite of fierce domestic competition) and reinforced that cost-cutting is not the only method for achieving growth in emerging markets.

Rigorous data collection and research-driven strategies can reveal new opportunities for profitability. A common assumption that price reduction should drive emerging-market strategy can often cause multinational corporations (MNCs) to leave money on the table. Foreign MNCs expanding into emerging markets would do well to leave room in their processes for thorough market research and the time to respond according to its results. With both quantitative and qualitative market data, emerging-market professionals have the business case ammunition they need to cause a big ship like Nokia to turn on a dime.

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• Lenovo Mobile focuses on ultra-low-cost mobile devices
• Smaller emerging-market countries look more appealling
• Virtual desktop allows 30 users on one PC

Intel and Lenovo Target SMEs with a Simple “Open Sesame”

Intel and Alibaba.com, an English-language global trade website based in China, announced a partnership with Lenovo Group this week to launch a PC designed to make e-commerce easier for small and medium-sized enterprises (SMEs) in China. The desktop PCs, due out in September, will be preloaded with Alibaba.com’s e-commerce applications for SMEs. Intel and Alibaba.com announced their original partnership in May but have been searching for a manufacturing partner.

E-business is not yet widespread in China. With less than 1% of China’s 42 million SMEs conducting business online, there is still sizable room for growth. In emerging markets, an estimated 69% of the labor force works in micro-, small- or medium-sized businesses making SMEs a key market segment for ICT companies seeking growth opportunities. Intel and Lenovo’s focus on this market is a clear indicator of the industry’s effort to better pursue this still amorphous segment. To date, multinational corporations (MNCs) have made limited product modifications to target SMEs in developing countries. This three-way partnership strategy - embedding e-commerce applications into new hardware and pairing an MNC solution with local content and brands - may be a solid step towards tapping into China’s SME treasure.

For other MNCs seeking to crack the SME code, Lenovo’s new PC could help draw out a sub-segment of China’s market, the most technologically savvy SMEs interested in growing their business online. This small, forward-thinking group of companies makes a worthy beachhead target for nearly any technology firm interested in capturing China’s growing markets.

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• Compartamos defends business model
• Atom shortage may hurt low-cost PC shipments

Strategies for a New World

Sony’s chief executive Howard Stringer seems to have seen the emerging-markets light. In an article in last week’s Telegraph, Stringer highlights Sony’s new focus on emerging markets, particularly the BRIC countries. He also suggests, however, that the company’s reliance on brand and sophisticated features and functionality will continue; he is aiming for 90% of Sony’s electronics products to have wireless Internet connectivity by 2011.

While emerging-market consumers have shown that they are brand and quality conscious, they also become more price sensitive at lower income levels, and have demonstrated an appetite for devices with relevant or “just-enough” functionality. Sony might borrow some ideas for rethinking business strategies for emerging markets from Dell. Although Dell has a different product set (and Sony has the advantage of media content), Dell has made some smart adjustments in the past years that are leading to big gains in emerging markets. The company's BRIC revenues jumped 58 percent in the first quarter, thanks largely to strong internal executive buy-in, consumer credit partnerships with local companies, and tailored country-specific strategies. Ultimately, in emerging markets, Dell has had to migrate away from the one thing that defined them in mature markets – their direct-to-consumer distribution method.

To realize the full opportunity in emerging markets, Sony may need to undertake a similar revision of their own defining characteristics (i.e., branding and sophisticated products). Wireless connectivity would make Sony’s products attractive in top-tier emerging-market cities, but it’s not necessary or usable for millions of emerging-market users without Internet connectivity. Sony (and other tech companies that play in the high-end consumer market) would benefit from a broad range of product features that match the purchasing power and unique needs of emerging-market users. With solid data, deft management and good decision-making, these companies can develop the right products for the new world without losing their edge in the old.

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