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

Build on Existing Distribution Networks

Nokia Siemens Networks announced a “Village Connections” pilot project in Eastern Cape, South Africa last week. The initiative, part of a broader goal of providing wireless access to 5 billion people by 2015, is an attempt to lower the capital and operating expenses that keep most operators away from remote, rural villages. Wireless subscribers to this service are also expected to benefit from lower fees.
Nokia Siemens Networks (NSN) claims the reduced costs are enabled by an innovative “distributed architecture.” These technology and business-model advances push call control and customer management out to rural access points, each of which serves approximately 80 subscribers and runs on a basic computer equipped with a simple software application and wireless card.

With this initiative, NSN moves toward a potentially lucrative opportunity – a franchised service model for phone and Internet connectivity. NSN claims its GSM Access Points are “plug-and-play” and backed up by solar or battery power. The challenge remains, however, in identifying, training, supporting and managing a large number of geographically-scattered rural franchisees.

NSN (or other multinationals) will maximize their chances of success by identifying and securing good distribution partners. While every rural village has a small shop or retailer, networking companies don’t have enough boots on the ground to train entrepreneurs or install and service even the most self-contained access points at each location. They may, however, be able to piggyback on distributors who regularly supply soft drinks, beer, soap or other goods to those retailers. Distributors would gain a new revenue stream and operational efficiencies (i.e., shopkeepers could place orders using the new phone network). Village retailers could benefit from offering a new product line to their customers, beginning with phone service and extending to handsets, additional airtime and phone accessories. These shopkeepers are also the most likely to know how to run a business and protect valuable equipment. Schools might also be potential partners. In many rural villages, the school is the first (or only) place with a PC, electricity, adequate security and sufficiently educated personnel. And, if bureaucratic snags can be avoided, it may be worthwhile to partner with a government entity. Such alliances might help technology companies solve the rural distribution riddle.

Also in the news:

• OLPC Punts
• Dell Joins HP on Chinese Shelves
• M-banking Programs Supported By World Bank (and Gates)

Are Mobile Phones Going the Way of Refrigerators?

A recent study by Enterprise Africa! on emerging-market technology trends examines the poverty-alleviating aspects of mobile phones in Africa. The organization looked closely at the small, Southern African nation of Botswana, where cell phone subscribers jumped from zero in 1998 to 823,070 by March 2006. With mobile technology now reaching roughly half the population, Botswana is a model for other developing economies striving to impact development through access to technology. Most notable about the study is the utilitarian rationale provided for cell phone ownership - safety and business expansion.

As handsets penetrate ever-lower rungs of the economic ladder, new buyers are more concerned that the purchase can be justified as an essential utility. Mobile phone companies in developing countries are competing for a share of the wallet with non-traditional competitors such as household appliance retailers. Vital Wave Consulting research found that many low-income residents of developing countries consider a stove, TV and refrigerator to be “essentials” and all other electronic and durable goods, including mobile phones, “luxuries.” In one study of prospective phone buyers in six emerging-market countries, TVs were preferred over both landline and mobile phones by two-thirds of respondents.

In order to capture growth opportunities in these rapidly-expanding markets, mobile phone service providers and manufacturers would do well to convey the safety and business benefits of cell phones to potential customers who live on little more than $1 per day. Low-income consumers are required by virtue of their limited resources to conduct a careful cost-benefit analysis for all purchases. With refined value-proposition messaging that includes the utilitarian functionality of cell phones, the mobile industry may accelerate the growth of their market opportunity among lower-income segments in developing countries.

Also in the news:

• The XO Computer may hit US retail markets by Christmas
• Microsoft Expands Pay-As-You-Go Model for Office ’07
• World Bank and Google Mash Development and Business

Raising the Bar on the PC Price Debate

Microsoft and AMD teamed up last week to launch the IQ PC, a desktop computer targeting the education market in India. Using local partners such as Zenith Computers to produce and distribute the hardware, the PC is being piloted in select Indian cities with plans for a national rollout later this year. The computer comes equipped with a basic version of the Windows Vista operating system, an assortment of educational software such as Encarta and Student 2007, and an online content repository. The PC appears to be a well-designed education solution, but with a $513 price tag, Microsoft’s latest effort to join the low-cost PC race is being criticized by bloggers and the press for being too costly for developing countries.

Increasingly, media and online coverage of PC initiatives for education in developing countries have focused disproportionately on the price tag of the computing device. Dell’s EC280 sells for $336; Intel’s Classmate PC is coming in at $249; and the One Laptop per Child program’s XO computer (formerly called the $100 laptop) costs $175. Attention on the price of the PC, however, may ultimately be misleading buyers. The total cost of PC ownership (TCO) also includes standard costs such as support, training and installation as well as often-overlooked expenses such as electricity consumption and insurance which can be significant in an emerging-market setting.

For price-conscious customers in emerging markets, understanding the real price tag of technology purchases requires an assessment of costs over the life span of the product. With more comprehensive TCO analyses, buyers are better equipped to make informed decisions. Corporations seeking to combat apples-to-oranges comparisons between education computing solutions will deepen the discussion to one of total cost of ownership. It is only then that the public discourse will address the true cost of computing devices for the classrooms of developing countries.

Also in the news:

• AMD Builds Ultra-Mobile PC with Chinese Company
• Financial Services See New Markets in the Developing World
• Intel Inside the Third World