Focus on Affordability Would Help Low-cost Device Makers

2008 is off to an interesting start for the technology industry. Analysts are forecasting slower growth in IT spending globally and banking on emerging-market growth to keep the global economy afloat. Topping the list of IT drama this week is the collapse of the partnership between Intel and OLPC. Though this may not be earth-shattering for the industry, it hurts an initiative that has influenced the growth strategies of many computing device companies.

Even before Intel’s move, it was clear that OLPC is a troubled organization. Many industry and education experts have provided candid recommendations on how the organization can improve its business model, support and installation plans, and usage models in the education environment. However, there remain many positive opinions of the XO machine itself, which features great innovations – a useful monitor, low power consumption, a simplified user interface, and a pull-cord generator. These innovations, accompanied by bold claims and abundant PR around the OLPC initiative, prompted some of the world's largest companies to develop rival low-cost computing solutions. In this way, the OLPC initiative has changed the landscape of the PC industry in developing countries. Regardless of whether this non-profit organization can move beyond its current challenges to successful scale, recent sales and shipments suggest that, at least for now, the OLPC initiative is competing in some way against industry giants.

The dramatic price reductions of low-end PCs are an enormous step for the IT industry in penetrating low-income markets. But IT organizations keen on maximizing their growth, and doing so profitably, would do well to understand the difference between low-cost and affordable. Vital Wave Consulting research shows that affordability is less aligned with actual price than it is with customer cash flow. The majority of computing customers in developing-country markets struggle to make a one-time payment even at the lowest end of PC (and even mobile handset) prices. Yet, they are increasingly willing to take on debt to accelerate their ability to purchase a computing device. Technology acquisition in emerging markets would be dramatically increased through business models that provide a financing component to overcome the cash flow limitations of aspiring yet low-income customers. These business models would also relieve the pressure for ever-decreasing prices and allow the providers of computing devices to maintain reasonable profit margins.

Also in the news:

• Samsung competes for low-end mobile space
• OLPC to dual-boot Windows and Linux
• Laptop sales growing faster in emerging markets