Thursday, February 12, 2009

Low-cost Devices Take Heat for Poor Low-cost Strategies

Initially heralded as a lifeboat for the PC industry and the single largest growth area for handsets, low-cost devices are now taking a beating in the press. Analysts last week blamed Motorola’s dismal quarterly results on their overly eager entry into the ultra-low-cost market and claimed Intel’s foray into netbook-powering Atom processors is disastrous for the company and the industry.

What you’re hearing is the common industry lament over razor-thin margins and the limited buying power of emerging-market consumers. Such challenges caused some low-cost PC manufacturers to abandon emerging markets to sell second devices to current technology users in mature markets. For other manufacturers, miscalculated strategies in developing countries have caused hiccups in their growth. Motorola’s low-cost handsets, for example, sold well, but the slow pace of innovation and lack of breadth in their product portfolio sent their customers to other companies when it was time for an upgrade.

In spite of (or due to) these missteps, there are still large, relatively untapped markets in developing countries. Business managers who explore new business models will find that low cost does not necessarily mean low margin. Support for alternative payment strategies can bring down the perceived cost of a device and help bring technology to first-time buyers and new customer segments, offsetting (rather than further eroding) declining sales in mature markets. Alternative payments require the right partners and new business models. Companies that put rigor behind all aspects of their emerging-market strategies will follow the demand for affordable devices into new markets and find a better balance between revenues and growth.

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