Friday, August 15, 2008

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.

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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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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), 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.

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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.

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