Battle of the Form Factors: Tablets vs. Ultrabooks

A glance at the headlines over the past several weeks makes clear the battle of computing form factors continues to rage. HP announced it will sell or spin off its PC division, including its struggling TouchPad. Meanwhile, in India, Lakshmi Access Communications announced the launch of a new US$99 tablet computer. The tablet, which runs Google's Android OS and connects to the Internet using both Wi-Fi and 3G networks, comes only a few weeks after Bharti Airtel and Reliance Communications launched tablets to compete with Apple's iPad and Samsung's Galaxy Tab. In the United States, Intel said it would invest US$300 million in companies that develop new technologies for Ultrabooks, a class of thin and light laptops, signaling that the company believes there is still a market for the notebook form factor.


These announcements recall the debut of OLPC's ultra-low-cost XO laptop several years ago and the subsequent netbook craze. The netbook category, which took off and then promptly fizzled, was a response to demand for low-cost computing devices that were lighter, consumed less power and accessed most functions and content via the Internet. Yet its demise illustrated that fickle consumer preferences and technological convergence, especially coupled with the rise of mobile networks, can cause a category to stall just as quickly as it rose. Companies, like Intel, may be hoping that snazzy devices combining the best features of the tablet, smartphone and laptop form factors might help drive demand for devices packing its higher-margin processors. This is especially true in emerging markets where consumers may own just one or two devices and demanding more functionality from each device. 


While it may be impossible to predict device trends with any accuracy (few foresaw the tablet boom), it is fair to say that only categories that address both a deep consumer need and align with market characteristics will have staying power. Purchasing power, evolving tastes and ICT infrastructure will continue to drive consumer decisions in both developed countries and emerging markets. A differentiated device strategy that caters to local market characteristics and needs can help multinational firms capitalize on convergence trends in diverse markets.

Tablets, Tablets Everywhere: Time to Stop and Think

Each day seems to bring the announcement of a new tablet product by a major computer or mobile handset maker. Recent weeks have seen the launch or planned launch of new tablets by Research in Motion, Toshiba, HP and Dell. Since Apple's iPad was launched, the tablet has become the hottest form factor in hardware. Tablets were once a product category considered by some observers as a niche area, but manufacturers are now feeling the pressure to offer compelling functionality and sleek looks so as not to fall behind the market leader. This trend is not confined to developed markets. Lenovo, China's leading PC maker, announced but then recently delayed a "hybrid" unit that combines the functionality of a laptop and a tablet. The government of India sponsored the prototype production of a new $35 tablet that drew inevitable comparisons to the OLPC laptop. It has pleasantly surprised some reviewers with its performance, although considerable skepticism remains.

The flurry of activity in the tablet space recalls the explosion of interest in the netbook category several years ago. Netbooks took off in 2007 after the release of the ASUS Eee and the OLPC XO-1 on the premise that they were ideally suited to low-end consumers (especially in emerging markets) because of their lower price point and emphasis on accessing Internet content rather than hard drive-based content. In early 2009, ABI Research predicted that almost 35 million netbooks would be sold globally, with the total rising to 139 million by 2013. A year later, however, the tablet phenomenon happened, and netbook sales are now falling globally, which many are attributing to the rise of tablets such as the iPad. 

Whether tablets (or other factors) are responsible for the slowdown in netbook sales, these events illustrate the dangers of making long-term predictions about the growth of products or product categories based on current sales data. This risk is particularly relevant in emerging markets, where young, urban consumers often want to be seen using the most cutting-edge devices. Sales projections based on current or historical trends can provide useful context for managers, but firms would be wise to supplement these numbers with a critical analysis of the broader ecosystem and underlying consumer needs in the markets in which they operate. Market intelligence that capitalizes on rich qualitative information can yield important insights on anticipated behavioral trends for key market segments.

Asus Turns a White Box Play into Branded Success

Asustek Computer (Asus) capitalized on the U.S. pre-holiday news lull by generating coverage on the Eee PC. This PC solution seems to be catapulting Asus ahead of its low-cost computing competition. Announcements ranged from the introduction of new channel partners, to rollout into new geographies, and the availability of a Windows version of the Eee PC. An announcement of an increased sales forecast for 2008 to 5 million units of the Eee PC followed this week. But, in spite of the attention and growing forecasts, Asus’ CEO and President, Jonney Shih and Jonathan Tseng, claim Asus is not concerned that low-cost devices will cannibalize its more profitable PC business.

Asus’ sudden visibility in the low-cost laptop market may mislead business managers and industry watchers into overlooking the company’s primary business. Asus is, in fact, cited as the “mother of all motherboard producers”. With highly diversified manufacturing services, Asus produces components for cell phones, desktop and notebook computers, graphics cards, optical drives, servers, and networking devices for some of the world's leading ICT companies. One country-specific success story for Asus is in the Russian PC market where more than 80% of desktops are sold through the white box (unbranded) channel. The company entered this strategic growth market through this white box channel and developed a reputation for providing value and quality desktop PC components. Capitalizing on its brand recognition as a high-quality component provider, Asus has also become a highly competitive manufacturer of branded PCs in the Russian market.

HP, Dell and other hardware companies can take a page from the Asus playbook. To date, direct competition with white-box assemblers in emerging markets has proved largely unsuccessful for most global brands. Hardware companies could, instead, participate in this dominant emerging-market channel. With careful mapping of the value chain, global PC manufacturers can identify opportunities to provide aspects of their own competitive advantage (e.g. economies of scale, efficient tools and processes, pre-kitted and branded components, and even support services). With the white box market dominating the emerging-market PC business, hardware companies would do well to learn how to participate profitably in the revenue stream rather than swimming against the current.

Also in the news:

• Solar power charger launches in Kenya
• Financing opens doors for new handset buyers
• OLPC extends Give One Get One program

Cisco Invests in Designing for Local Markets

In today’s business climate, it is common for technology companies to be bullish on India, but Cisco is taking action by hunting for acquisition targets among Indian companies that design new technologies specifically for developing countries. Vital Wave Consulting closely follows the evolution of multinational corporate activity in developing countries. After decades of outsourcing to reduce labor costs, companies are now adding the creation of learning and innovation centers to their emerging-market strategies.

Outsourcing research and development (R&D) is not new to corporations; around 300 multinationals, including the majority of leading IT and telecommunications companies, have R&D centers in China. But creating innovation centers in developing countries for the purpose of designing products explicitly for those markets is still an anomaly. HP led the way with its i-Community initiative in South Africa and India in 2000. Intel followed with its Platform Definition Centers, and now Cisco is following a similar strategy through acquisition.

Cisco and its predecessors have realized that a growing consumer base in rapidly-developing economies is evolving into a profitable market with distinct technology needs and preferences. Companies can no longer recycle developed-world technology in emerging markets and hope to win a leadership position. To be successful, products must be developed with the needs of these markets in mind. And to truly understand these needs, it benefits companies to invest in on-the-ground learning laboratories in the heart of these emerging mass markets.

Also in the news:

• HP launches computer lab at Chinese University
• Hugo Chavez puts his personal stamp on the emerging-market PC race
• Vodafone and other mobile operators focus on emerging markets

Microsoft’s Gambit Strengthens Intel’s Hand

April 25, 2007

Microsoft’s Gambit Strengthens Intel’s Hand

Bill Gates’ splashy announcement last week in Beijing that Microsoft will begin to offer a $3 software package called the “Student Innovation Suite” to emerging market schools put the low-cost PC ball in the manufacturers’ court.

The terms of the deal – governments can only get it by providing free computers to students – suggest Microsoft is trying to compete with One-Laptop-per-Child’s $100 laptop, which runs on a version of Linux. Vital Wave Consulting notes, however, that Mr. Gates wasn’t sharing the stage with PC manufacturers, so Microsoft’s strategy may not be to compete directly with OLPC, but to stunt its growth by removing Windows as a barrier to offering low-cost PCs.
Microsoft’s announcement, together with a production delay for OLPC’s first shipment, presents an opportunity for local manufacturers and global PC companies. Chinese or Indian PC makers are working hard to market ultra low-cost PCs, but they will have trouble scaling outside their own countries. HP, Dell, Toshiba or Acer may eventually capture this market, but the real near-term beneficiary is Intel, whose Classmate PC can run on Windows or Linux. How long will it be before Intel announces the marriage (and resulting cost savings) of their Classmate PC and Microsoft’s Student Innovation Suite?

Also in the news this week

• How will mobile search business models differ from PC Search?
• Motorola stumbles with low-cost handset strategy
• Free mobile directory assistance launched by MS and Google

Social Entrepreneurs Can Help Build Emerging-Market Portfolio

April 11, 2007

This week’s news coverage of the world’s largest conference for social entrepreneurs lamented the lack of funds for developing-country projects. Entrepreneurs at the Skoll World Forum said fundraising and courting corporate partners is their biggest challenge.

“I believe corporations, especially ICT companies, should be actively investing in these enterprises,” said Kevin Jones, a principal with Good Capital and self-described serial entrepreneur. “Given the strong growth in emerging markets, all types of investors should see the advantages of partnering with international social entrepreneurs.”

Vital Wave Consulting understands the hesitancy of corporations. In many socially-oriented partnerships it is difficult to align incentive structures or demonstrate ROI. With social entrepreneurs, however, successful partnerships are more likely as both parties share the profit motive. Social entrepreneurs who do their homework and present a bullet-proof business case with an effective business model are certain to reduce the challenge of finding investors.

Corporations stand to benefit from these partnerships, as well. Social entrepreneurs can deliver expertise in target geographies, deep understanding of user needs and usage models, and in-country relationships. Successful social ventures are also excellent acquisition targets – for talent, technology and business models. Such partnerships could help speed the transition of emerging-market activities from the corporate social responsibility brochure to the company’s annual report.

Also in the news this week

• China Mobile adds 53M subscribers in 2006 for a total of 301 million

• Emerging markets capitalize on VoIP trends

• Innovation gets outsourced to “Chindia”

Google Looking for Traction with Online Apps

March 28, 2007

Google Looking for Traction with Online Apps

At the ICT for Sub-Saharan Africa Conference in San Francisco last week, Google’s Internet strategist Vint Cerf announced that the company will offer free Google Apps to universities in Kenya and Rwanda. Over 200,000 students and government employees will have free access to online applications such as G-mail, Google Docs and Spreadsheets, Talk, Calendar and Page Creator.

Google would clearly like to break Microsoft’s hold on desktop applications by making them web-based services. In Africa, they are searching for globally-viable marketing, pricing and distribution models. They’re also testing the acceptance of new models in a key demographic – university students. Vital Wave Consulting research confirms that that education is a high-growth segment for ICT in developing countries. And its connection to other market segments makes this a strategic play for Google.

Microsoft is not asleep at the wheel. The company hosted the “Under the Radar” conference last week, at which several start-ups demonstrated online applications that would complement or rival MS Office. If Google and/or Microsoft change the desktop software business model to web-based services, there will be an excellent opportunity for smaller developers to offer emerging-market buyers online applications with a competitive price, locally relevant uses, and the right mix of services.

Also in the news this week

• Cisco Capital extends its “Easy Lease” program to Turkey to spur SMB sales and increase the capacity of channel partners.
• SmartMoney and BusinessWeek discuss how HP and Dell are cutting into the Chinese PC market.
• Peripherals in India see remarkable incremental growth in ‘06.