Netbooks: Emerging market entry-level technology or Western fashion accessory?

by Brendan Smith

A recent article in Business Mirror notes that Intel is getting ready to release a new version of its low-cost Atom processor, and with this version it's hoping to hit the market it was targeting in the first place: emerging market consumers buying their first computer. The company had originally thought that the chip, which allows PC manufacturers to sell laptops for less than $500 in most instances, would appeal most to people in fast-developing economies like China and India. Instead, it has been Western consumers who have taken to netbooks as a second computer, drawn not only by their low price but by their small dimensions, low weight and snappy looks.

The new version of Atom is designed to use less power and be capable of enduring the more extreme conditions present in many developing countries, including hotter climates and the dust that often wrecks electronic devices in rural areas. Intel believes that many consumers in developing countries have shunned netbooks because of doubts about their durability, and the new power-sipping Atom is designed to eliminate the need for a fan, allowing the computers to be sealed and preventing dust contamination.

While improving the durability of hardware is critical, there may be other reasons that developing country consumers, especially in rural areas, have hesitated to buy netbooks. As their name implies, netbooks are designed primarily to leverage the power of the Internet, and many residents of developing countries lack reliable connectivity, particularly in rural areas. The growing popularity of netbooks and "nettops" means that device makers have to figure out ways to provide reliable connections for these units. Hardware makers are in talks with mobile carriers on deals to provide customers with free or subsidized netbooks or nettops in return for a long-term contract, as is done with mobile phones. These models, which have been attempted in the U.S. and elsewhere, may boost the uptake of netbooks by essentially allowing consumers to buy netbooks and Internet service in installments. Hardware companies and mobile Internet providers that can devise compelling value propositions for developing world consumers may be well-positioned to capitalize on the next wave of Internet adoption.

Software as a Service (Saas) - Opportunity in Emerging Markets

Hubert Selevanathan discussed the opportunity for Software-as-a-Service (Saas) in Vital Wave Consulting’s seminar series event last Friday, July 24th. He noted that although SaaS is in the early stages of its evolution, the SaaS business and delivery model has a unique opportunity for explosive growth in emerging countries.

Some key points from his talk…

Local Saas firms emerging: several local SaaS firms have started up in emerging markets. Initially these firms are focusing on serving local markets, but they are increasingly looking towards customers across the globe. Asia Pacific appears to be a leader in SaaS – this could be caused by (or be causing) a high concentration of local SaaS firms – including:

• India’s HRMantra & Pyxis
• China’s 800CRM
• Singapore’s Justlogin & Nothacker
  

Local SaaS firms are differentiated from international SaaS firms in two main ways:

1. Have a firm grasp of local dynamics – understand customer nuances, selling environmental and also do not need to “localize” their solutions as they start local. The challenge they face will be to globalize their solutions.
2. Strength/depth of local partnerships.

Who is using, will use, SaaS?

• Early adopters of SaaS solutions in emerging markets tend to be regional divisions of MNCs, large local enterprises and in some cases government sponsored initiatives. The government sponsored initiatives tend to be primarily in the health and education sectors and is restricted to those countries that have gov’t mandates to improve health and education.
• Next wave of SaaS users - the holy grail for SaaS vendors in emerging markets is the SMB segment. India, China and Brazil collectively have more than 20M SMBs.

Several participants asked questions during the session – below are a few of them that we were not able to get to during the session:

What about Unified Communications? Is this one of the top application areas?

• There is a great deal of interest and excitement about Unified Communications in emerging markets, but it still does not seem to have reached the top 2-3 applications. MNCs will likely deploy it worldwide, so you will see it in satellite offices, but we are not sure that large local firms are adopting it and think it will be a while before higher-end medium-sized firms will adopt it.

How do SaaS vendors overcome area-limited, slow, expensive, and unreliable connectivity conditions prevalent in emerging countries?

• One example we have seen to overcome some of these issues is with a SaaS firm in Brazil. Their system allows you to work offline and then synchronize when you have connectivity. This way, people can still be productive when connectivity goes down of if it is not present in their current location. We recommend keeping an eye on local firms that understand these issues intimately and are likely considering solutions to them as we speak.

What is the adoption pattern from various vertical industries? e.g. Telco, Public Sector, Life Science, etc?

• There is not one vertical industry that bubbles to the cop, seems to be country-specific. In China, for example, manufacturing firms are starting to use ERP/SCM and in India the high-tech industry (s/w developers, ISVs outsourcing firms) ar gravitating toward SaaS as well.

Could you please explain the rationale why SaaS would reduce piracy? Pricing concerns? Wouldn't multiple people use the same login and erode margins?

• Excellent question. The anti-piracy ability of SaaS may be application-specific. For example, CRM software is meant for each individual sales person so that this person can manage individual sales activity. You can indeed share a single name/password, but that would negative the value of managing your our sales funnel. Vendors are also trying to use technical approaches to detect this type of sharing.

An audio recording and the sides from this session will be posted on the Vital Wave Consulting website (http://www.vitalwaveconsulting.com/) later this week.

In the interim, we invite more comments and discussion on this topic.

Expecting the unexpected: technology in emerging markets

Vital Wave Consulting’s CEO, Brooke Partridge discussed the market dynamics across the developing world and how they shape the unprecedented innovation and impact of technology use in these emerging markets at a PARC Forum event on July 23rd in Palo Alto.

Mobile, particularly mobile services (mServices) were a lively topic of discussion. mServices includes things like:

• mobile money (i.e., immigrants and migrant workers sending money back to their families)
• mhealth (i.e., using SMS messages to remind people with TB to take their medicine or people with diabetes to do a glucose test)
• mAdvocacy (i.e., Greenpeace Argentina has used SMS messages to ask people to call their legislators to lobby for policy action, to immediately alert people about urgent environmental issues)

There are literally hundreds of mServices projects being pilot tested across the globe, but even some of the most visible (i.e., M-PESA in Kenya) have not achieved scale. Some of the obstacles are regulatory (particularly with regards to cross-border transmissions), financial (solidifying the business case) and some are in the nature of the projects themselves. Many of the projects were set up just as that – projects – and were not structured to become viable, scalable businesses. Management teams, business models and the service itself often all need to be transformed in order to bring solutions to scale and that is not trivial undertaking. Time is also required and many of these are very new initiatives.

Would be interesting to return to the PARC Forum in July of 2010 and repeat this conversation – hopefully there will be many examples of successfully scaled mServices at that time.

Spotlighting the "B" in BRIC

The Council on Foreign Relation's recent backgrounder on Brazil calls out the country's increasing presence on the world stage on issues of trade and energy. The article points to currency stability and export-led growth as driving Brazil's robust economy, already the eighth largest in the world.

While most multinationals focus their attention on China and India, Brazil is certainly earning its keep in the BRIC (Brazil, Russia, India, and China) club. Like China and India, Brazil is expected to recover quickly from the global recession. Foreign investment has spiked in the country, drawing venture capital and significant investments from multinational giants such as Wal-Mart, Telefonica S.A., and Alcoa. Brazil's potential is not lost on China either. China has surpassed the United States to become Brazil's biggest trading partner.

There are several reasons Brazil may be an attractive target for multinational corporations. First, Brazil is a consumption-oriented society with a population that is wealthier on a per-capita basis than both India and China. Second, unlike the savings-oriented Chinese, Brazilians embrace credit - when they can negotiate zero or extremely low interest rates - as a method of smoothing out their often unpredictable earnings. This increases the affordability of goods and expands the market to include greater portions of the lower-income classes. Finally, 85% of Brazil's population is in urban areas. This concentration of demand makes it easier to get products and services into the hands of consumers. It may be worthwhile, therefore, for multinational corporations to take a close look at the "B" in BRIC when setting strategies for future growth.

China is not singing Bing's praises

by Brendan Smith

Microsoft's big investment in its new Bing 'decision engine' is paying some early dividends in the form of glowing reviews and renewed credibility in the search market (even if early share gains are modest). But it is already running up against the 800-pound gorilla that has long bedeviled market leader Google: China's government. The government recently decided to block Bing because of a feature called smart motion preview that allows users to see a preview of videos produced by searches by navigating over them. China (as well as child advocacy groups in the U.S.) says that the feature exposes children to pornographic or violent materials. The move is the latest in a series of moves by the government to install mandatory software filters on PCs sold in China, all steps the government says are aimed at protecting children.

Other foreign websites, such as Google-owned YouTube, Facebook, and Flickr, have also been blocked as a result of China's stepped-up efforts to regulate Internet content access. Though protecting children is the stated aim of the policy, these moves come at a time when the Chinese government is concerned about commemorations of the twentieth anniversary of the Tiananmen Square crackdown and nervous about the explosion of ethnic violence in its restive Xinjiang region. Many observers, therefore, think the more stringent regulations are more about asserting political control than shielding young eyes.

Western Internet sites are caught between a rock and a hard place with China's latest regulations. Failure to comply shuts them out of the huge and growing Chinese market, but appearing to bend to what many view as censorship opens them to criticism that they are complicit with China's authoritarian government, and that may hurt them in Western markets.

The implications of these moves are considerable for foreign companies trying to wrest market share from Beijing-based leader Baidu. Google has recently lost further share to Baidu, and Bing will have to overcome this latest hurdle if it wants to make a splash in China. Western technology companies need to consider how their products and services may be affected by government policies on content, and whether gains they may make by complying with Chinese rules are worth the cost they may incur elsewhere.

It's all about services...

by Karen Coppock

___________________

When cyber cafes took off in developing countries, everyone cheered – now previously unconnected and marginalized populations will have the world at their fingertips. The enthusiasm continued with the explosive growth of mobile phones in these countries. Stories abounded about income levels rising (Kerala, India fishing example being the most prominent), financial services for all (think M-PESA) and political change (SMS messages are credited with helping topple President Joseph Estrada in the Philippines).

Technology in and of itself – mobile handsets and computers – is powerful, but an article in CNNMoney.com points out that devices are not enough. Firms from all industry sectors – healthcare, publishing, retail, consumer goods – will benefit from thinking about the services that can be layered on top of these technologies. These services could be tailored to consumers or businesses (additional revenue potential) or directed toward achieving internal efficiency gains. Either way, the technology industry has paved the way by successfully placing devices in the hands of consumers and business people around the world, now is the time for these firms as well as content providers and other industries to begin thinking about which services can be deployed to increase the value of these devices to the end users and the firms’ bottom line.

From 'E' to 'M': Banking Goes Mobile

International high finance may still be down in the dumps, but the market for mobile banking is starting to look up in a very big way. A recent KPMG survey in India found that 64% of Indians are "at least somewhat likely" to conduct banking over a mobile device in the next 12 months. Growth in the Indian market is reflected globally, with a Gartner report predicting that the number of people using a mobile phone to make payments would rise from 43 million in 2008 to over 73 million in 2009, with the total reaching nearly 200 million by 2012. More affluent customers who want to access their bank accounts using their mobile device may represent the most immediate market, but the billions of unbanked consumers in emerging markets around the world are the ultimate prize, as mobile banking allows people who have not previously had bank accounts to join the formal financial sector.

The pervasive use of electronic ("e") transfer systems for financial transactions has essentially obviated the term eBanking. The use of digital computing equipment in financial services is so firmly ingrained that eBanking is now simply banking. However, the concept of banking through one's mobile phone, or mBanking, is still in development and warrants a separate label. Other verticals ripe for digital forms of delivery – health, government services, and commerce – may also manifest initially through stationary electronic IT systems. But in many countries where mobiles are leapfrogging computers as an access point, the "m" version of the service – mHealth, mGovernance, mCommerce - will lead. This will impact the development of the services themselves as well as the computer infrastructure that supports them.

The influence of mobile devices, especially in emerging markets, will reach across industries. Traditional IT companies, as well as health and commerce-related corporations will do well to consider the ways in which the pervasiveness of mobile phones will affect their marketing and delivery channels. Firms that tailor their products and services to the mobile channel might end up ahead of the curve.

Universal Financial Services - Opportunity for IT firms and mobile operators

by Karen Coppock
_________

Sanjay Bhargava, previously a Reuters Digital Vision Fellow at Stanford and one of the initial brains behind the PayPal business, is now spearheading a movement for universal financial services in India.

Millions of people in India, and in emerging-markets around the world, do not have access to formal financial services and pay obscene amounts for access to cash via loan sharks, check cashing services and even pawn shops. Without access to credit, individuals cannot build up a credit history and continue to be relegated to informal financial services. Without credit, or the ability to save, consumption is hindered.

Sanjay lobbies for a technology-centric solution to providing universal financial services - one that firms should keep an eye on and understand. Firms could potentially play a role in pushing Sanjay and its own agenda forward - or at least use the momentum he may be creating - for the good of society and the bottom line.