Service/Wireless Device Bundles Have Potential in Emerging Markets

The two largest carriers in the United States, Verizon and AT&T, are ramping up efforts to woo more 3G-service customers by subsidizing already low-cost netbooks. This weekend, Verizon began offering the $300 HP Mini 1151NR for $200 after a mail-in rebate and a 2-year service plan. Service plans range from $40 per month for 250MB monthly download, up to $60 per month for 5GB of downloads. The plan is similar to AT&T’s, which will offer similar deals starting this summer. AT&T and Sprint Nextel (service provider for the Kindle reader) have both created new business units to expand their networks through new wireless devices.

Companies that have attempted to bundle services with wireless devices, both in mature and developing countries, are working hard to find the right business model. In the US, consumers may balk at committing to $1000 to $1,500 in service plans over two years to save $100 on a machine that connects readily (and at no cost) to public Wi-Fi signals, albeit for lower data speeds. In emerging markets, companies like MTS (Russia), Telefonica (Latin America), and Orange, Vodafone, and T-Mobile (Asia and Eastern Europe) have had to find willing, reliable subscribers among consumers with a shallow credit history and a preference for pre-paid mobile phone services.

Nevertheless, several factors make service/wireless device bundles an attractive opportunity in emerging markets. First, the wireless infrastructure in many urban areas is maturing rapidly due to continued investment and a strong competitive landscape, prompting increased demand for mobile web-enabled devices. Second, a comparatively low monthly service charge is a proven method of overcoming high initial capital costs and the lack of easy financing and credit faced by many emerging-market consumers. A decade ago, Telmex radically increased Internet penetration in Mexico by bundling PCs with fixed-line Internet services. And consumers in countries like Brazil and Mexico have amply demonstrated a willingness to buy consumer electronics in installments through retail outlets like Casas Bahia and Grupo Elektra. These retailers are leading candidates for partnership with service providers and device manufacturers, since they have already invested heavily in credit and payment tracking systems. Finally, hardware and software companies may also be supportive of service/device bundles if they get legitimate, branded versions of their products into the hands of a particularly wired sub-segment of the market. Operators will still have to do their homework to identify the right markets and craft pricing and partnership agreements that make everyone happy. But a well-conceived service/wireless device model may be a winning idea for many companies with the goal of increasing their revenues in emerging markets.

Txt to Citizens...

by Karen Coppock
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Citizens across Sri Lanka learned of rebel leader Prabhakaran's death via a text message sent out by the Sri Lankan government. The message was also broadcast on TV.

More than 50% of Sri Lankan's own mobile phones while only around 5% own PCs. This ratio is pretty typical of emerging markets where mobile phones dominate due to their low cost (often facilitated by business model innovations such as pre-paid calling, calling party pays, please call me back services) and utility (in a study Vital Wave Consulting conducted on mobile phones in emerging markets, everyone from maids to dry cleaning store employees to tamale street vendors cited the importance of the mobile phone for their business and earning potential).

When developing solutions for emerging markets, keep in mind that even the Sri Lankan government sees the mobile phone as a key component of its outreach strategy.

Check Assumptions When Marketing to Emerging Markets

Two Harvard Business School professors argued last week that, despite the economic crisis in the United States and elsewhere, companies should not slash marketing budgets too severely, and that even reduced marketing funds can yield good results if spent appropriately. Their formula for success includes staying focused on core customers, combining research efforts with trusted partners, cutting advertising programs selectively, and – of note to Vital Wave Consulting – shifting the research focus to emerging markets.

The professors argue that emerging markets are a better target for market research because “the costs of research in emerging economies are less and the payoff from incremental insight can often be greater. [Also,] brand preferences and consumption levels in emerging markets such as China, India and Brazil tend to be more fluid.” These assertions invite a little scrutiny, however. Research in emerging economies does not necessarily cost less. In developed countries, there are inexpensive tools and a robust market research industry. In emerging markets, the lack of secondary data often necessitates primary research, which can be time-consuming, labor-intensive and costly due to the limited reach of basic research tools such as phone lists and Internet connectivity. It is true that the payoff from incremental insight in emerging markets can be greater; mature markets are much more familiar and there is a great deal more reliable data available. By contrast, many multinational technology companies have less reliable data and know comparatively little about emerging-market customer segments, local languages and cultures, or the business environment. Good research can help companies make crucial decisions on all elements of market entry and expansion. Brand preferences and consumption levels in emerging markets can be fluid, but in some instances brand preference is very steady due to nationalistic support for local heroes (e.g., Baidu’s stubborn market leadership over Google in China). In other cases (e.g., mobile operators), “fluidity” or churn can be ascribed to price sensitivity, unlocked mobile phones and a flurry of new entrants to the market.

The basic argument by the Harvard business scholars is correct – despite the economic downturn, now is not the time to abandon near-term and long-term opportunities in emerging markets. But the companies that realize the most from their emerging-market strategies will be those that allocate appropriate resources to market research, understand the limitations of available data, and address the challenge of overcoming those limits. Knowledge of the market dynamics in emerging markets and a research-supported strategy will save critical time and resources.

Opportunities for Content and Digital Distribution Alliances

Pearson, the publishing company responsible for numerous textbooks, fiction and non-fiction books (including the popular Penguin brand), and publisher of the Financial Times, announced this week optimistic growth figures for their first quarter of 2009. The company had a neat $1 billion in revenues, representing 26% growth over last year, and strong continued demand for their products. Of interest to technology and telecoms companies focusing on emerging-market growth is Pearson’s plan to re-invest these profits in long-term growth opportunities in digital businesses and emerging markets.

Pearson is representative of a number of companies in the publishing, healthcare, tourism, education, entertainment, media, and financial industries that have seen their potential market expand broadly and rapidly due to the phenomenal growth of digital technology in the last decade. As computers, mobile phones and Internet connectivity become more and more accessible in developing countries, the challenge has shifted to delivering appropriate content at the right price and with the right business model. This results in a powerful and potentially lucrative alignment of interests for content owners and companies that manufacture devices or manage networks.

Mobile operators, software companies, and PC or handset makers looking to bundle content into segment-specific devices all have much to gain from companies that create and own content with a strong brand and proven market value. In addition, many of these companies possess critical market knowledge in several key verticals – health, education, publishing, finance, and the public sector to name a few. The potential benefits of such an alliance are also clear to the content owners. Hardware manufacturers, operators and software companies can speed market entry, assist with product development and help solve the riddle of distribution and monetization of content. Partnership also offers a distinct competitive advantage for multinational corporations in both the technology and “content” industries. Local competition in most countries is small and fragmented, and effective technologies and business models that multi-national firms create in one country or region may transfer well to other emerging markets, further accelerating growth for both parties.

Who Wants the African PC Market?

Computer Aid International (a non-profit supplier of computers to developing countries), ZDnet UK, and a trio of African universities just released the results of a comparative study of low-cost, low-power computers for the African market. Few media outlets reported on the study, and those that did provided a somewhat inaccurate conclusion: Asus Eee is more suitable than OLPC’s XO machine for Africa. Other devices reviewed included Inveneo Computing Station, Intel’s Classmate PC and NComputing’s X300.

In fact, the full report is more nuanced in specifying which solutions are more suitable for individual users (Asus Eee) and which are better for school computer labs (NComputing X300). Computer Aid International (CAI) and its partners deserve credit for raising some important issues about the African PC market, including infrastructure challenges that can impact the suitability of computing solutions, particularly for rural areas. The report’s emphasis on power consumption and the changes they made to methodology (e.g., playback of downloaded rather than streaming video) is necessary for an honest evaluation of computing solutions for many developing countries. However, some critical issues were buried or not addressed in the study. For example, the Asus Eee tested by three of the four evaluation teams was the 701 model running a Linux operating system, a product that has been essentially abandoned by Asus in favor of models with Windows XP and a larger keyboard and screen. Similarly, the report promises to shed light on the total cost of ownership (TCO) for each of the evaluated devices, but estimates of critical cost factors such as maintenance, training, and replacement from theft or damage are not included in the analysis (see Vital Wave Consulting’s report, Affordable Computing for Developing-country Schools, for a thorough consideration of TCO for school computing solutions).

Though the CAI study is certainly welcome, it is perhaps most remarkable for what is not said – the competitive field vying for the African market is pretty thin. Their champion, Asus, has turned its attention to mature-market consumers, and neither OLPC nor Inveneo have the needed financial backing to rapidly scale in a market as diffuse and challenging as Africa. Intel’s Classmate PC (and other machines based on its reference design) is still around, but Intel’s focus on the low-end processor market may be waning. Of the 5 companies represented in the CAI testing, only NComputing (not yet one of the giants) seems committed to aggressively pursuing the education segment in emerging markets. These efforts may not be able to meet the steady growth in PC usage and private ownership in Africa. The completion of several large undersea cable projects could cause a spike in demand for all kinds of computing devices from Cape Town to Cairo over the next few years as a result of the imminent increase in low-cost bandwidth coming to the continent this year. CAI’s study suggests there’s ample opportunity for companies to step up and meet that demand.

US Mobile TV Initiative May Point to Opportunity in Emerging Markets

A consortium of television networks announced recently the launch of a free mobile television service in Washington, DC. The “mobile DTV” service, supported by the local CBS, NBC, PBS, Fox and Ion affiliates, will provide free access to local television broadcasts for anyone with a device equipped with a special receiver. Receivers can be built into cell phones, laptops, GPS or other mobile devices, and viewers will not need a data plan or Internet connectivity. Not surprisingly, mobile carriers are unenthusiastic about the new service, preferring to capture revenues from subscription-based, on-demand mobile content through their own networks. Nevertheless, equipment makers like Dell, LG and Samsung are building the DTV receivers into netbooks and handsets in anticipation of wider availability this fall. By year end, broadcasters will expand the service to two dozen other US cities – home to almost 40% of the US population.

Mobile TV could be considered the killer app that hasn’t killed anyone (yet), Early attempts to deliver TV content sputtered due to a poor viewing experience or resistance to high subscription fees, but new technologies and alternative service models such as DTV are gaining momentum thanks to the transition to digital transmissions in both mature and emerging markets. Indeed, Cisco and research firm ABI predict robust growth in mobile data traffic globally, with anticipated viewership jumping to 500 million by 2013.

Dell, LG and Samsung are smart to stay ahead of their rivals on this technology. They can maximize the opportunity by working with market-leading broadcasters in select emerging markets to extend the service to these countries. There is ample evidence that demand for all kinds of mobile content is growing rapidly in key developing countries like India and China, and a free service will have great appeal to cost-conscious consumers. Cisco estimates mobile TV viewers in the Asia-Pacific region (excluding Japan) will exceed viewers in Western Europe or North America within four years. Frequent power outages may also cause developing-country consumers to see a higher perceived value in such a service. Imagine the crowd around the netbook when a blackout interrupts the big cricket match.

Technology Giants Ramp up Wireless Health Investments

Several of the largest technology companies in the world announced last week that they are planning to increase their research efforts and investment in wireless healthcare solutions. GE and Intel announced they will co-invest $250 million over the next 5 years to develop remote patient-monitoring devices, a market they think will grow to $7.7 billion in three years. Similarly, Qualcomm will sponsor a healthcare institute in San Diego to support the development of wireless sensing applications. The announcements were likely timed to coincide with the government’s plan to invest $20 billion in healthcare modernization, and to reassure investors that the companies are keeping an eye on long-term growth opportunities despite the chorus of bad economic news.

Vital Wave Consulting notes that the announcements by Qualcomm, GE and Intel (as well as earlier initiatives by Microsoft and Google) are curiously confined to mature markets. Government investment in these markets is designed to address skyrocketing healthcare costs, an aging population and care for chronic conditions. In emerging markets, the drivers of remote healthcare are also significant, but not necessarily the same as those in mature markets. Emerging-market governments hope to provide better healthcare to remote areas, and initiate (rather than fix) comprehensive and efficient health records systems.

There are near-term and long-term revenue opportunities for a variety of health technology companies in both mature and emerging markets. In China, for example, the government recently detailed a massive $120 billion injection to their healthcare infrastructure, and the Indian healthcare industry is expected to grow from $17 to $40 billion by 2012. This increase roughly equals the US government’s planned investment in healthcare systems over the same period, but represents a 17% CAGR, or double the anticipated rate of economic growth in India. The paths to realizing opportunities in the US and India (or any other combination of mature and emerging markets) will be different, and require distinct rhetoric, strategies, and product development efforts. The companies that achieve the most mileage out of their healthcare investments will be those that consider mature and emerging markets in tandem, and if necessary develop specific solutions for each market.