Success for Alternative PC Form Factor in Brazil

Though it hasn’t been officially confirmed by the Brazilian government, the Canadian company Userful announced last week that they and their Brazilian partners had won a contract to supply computing access to 360,000 students in all 5,560 local municipalities. Userful offers a software solution that allows up to 10 people independent use of one desktop PC. The solution, which runs only on a Linux platform, reduces the initial per-seat cost of computing to less than $100.

The Brazilian project was prefaced by a similar mega-deal in Macedonia in 2007; that 180,000-seat contract was awarded to Userful’s main rival, NComputing. PC companies probably feel the sting of losing a Brazilian tender a little more than a Macedonian tender because of the comparative size and prominence of the markets. But both deals demonstrate a critical aspect of the emerging-market business environment that may alarm traditional market leaders – that is, some emerging-market governments (and officials in key segments like education) are becoming more open-minded to alternative platforms and form-factors. The primary concern for public sector officials in emerging markets is getting the most from a limited budget. They may also be less concerned with legacy systems, particularly for greenfield and rural deployments, and some harbor an overt bias against leading mature-market companies.

The shifting decision-making environment creates opportunities for smaller hardware and software companies, training and service providers, and software developers. Companies like Userful and NComputing overcome resistance to abandoning the 1:1 computer-to-user model by offering a compelling price advantage. They may also win points by partnering with local hardware providers, a common concern among local officials who want to see a direct benefit to the local computer industry. The increasing willingness of emerging-market buyers to adopt alternative form factors and business models increases the importance of strong local relationships (among potential buyers and partners). It also means that traditional market leaders must broaden their list of possible competitors in an environment where cost savings are paramount to decision-makers in both mature and emerging markets.

mHealth Alliance Launched in Barcelona

At the Mobile World Congress in Barcelona this week, attendees saw fewer new product announcements than in years past. But some exciting opportunities were still to be found. One such opportunity was the timely announcement of the global mHealth Alliance to be launched in the coming year. The organization is intended as a collection of private-sector companies, governments, health organizations and non-profit foundations that aim to support mobile health initiatives through research, funding, advising and promoting common standards. The mHealth Alliance is spearheaded by global founding partners including Vodafone Foundation, Rockefeller Foundation and the United Nations Foundation.

Vital Wave Consulting played a role in the creation of the mHealth Alliance, facilitating an international mHealth conference in Bellagio, Italy last July and authoring the United Nations Foundation and Vodafone Foundation Technology Partnership’s mHealth for Development report. Research on early mHealth initiatives showed overwhelming interest and support among all participants – public health practitioners, government officials, NGOs and corporate managers. It also revealed a promising industry that has the opportunity to achieve sustainability and broad geographic impact while addressing some of healthcare’s more critical issues such as a global shortage of healthcare workers and the continuing spread of communicable diseases. Industry leaders interviewed as part of the report agreed that scale is essential and its potential is dependent on the services’ ease-of-use for healthcare workers, adaptability to low-end handsets, and the ability to install and maintain on operator networks. Without scale, such programs have the potential to be relegated to corporate social responsibility programs rather than revenue-generating enterprises.

To accelerate the growth of mHealth and fully unleash the potential of its applications, dynamic multi-sector collaboration is needed between groups as diverse as governments, multilateral organizations, and the private sector. Joint action such as the mHealth Alliance has the potential to create a global mHealth infrastructure that lays out common standards and guidelines, and serves as a repository for shared resources and best practices. Private-sector stakeholders in mHealth, mBanking and other mobile service areas would do well to participate in emerging alliances to support the scale of applications, services and business models that have clear social benefits and tremendous potential for profitable returns.

Low-cost Devices Take Heat for Poor Low-cost Strategies

Initially heralded as a lifeboat for the PC industry and the single largest growth area for handsets, low-cost devices are now taking a beating in the press. Analysts last week blamed Motorola’s dismal quarterly results on their overly eager entry into the ultra-low-cost market and claimed Intel’s foray into netbook-powering Atom processors is disastrous for the company and the industry.

What you’re hearing is the common industry lament over razor-thin margins and the limited buying power of emerging-market consumers. Such challenges caused some low-cost PC manufacturers to abandon emerging markets to sell second devices to current technology users in mature markets. For other manufacturers, miscalculated strategies in developing countries have caused hiccups in their growth. Motorola’s low-cost handsets, for example, sold well, but the slow pace of innovation and lack of breadth in their product portfolio sent their customers to other companies when it was time for an upgrade.

In spite of (or due to) these missteps, there are still large, relatively untapped markets in developing countries. Business managers who explore new business models will find that low cost does not necessarily mean low margin. Support for alternative payment strategies can bring down the perceived cost of a device and help bring technology to first-time buyers and new customer segments, offsetting (rather than further eroding) declining sales in mature markets. Alternative payments require the right partners and new business models. Companies that put rigor behind all aspects of their emerging-market strategies will follow the demand for affordable devices into new markets and find a better balance between revenues and growth.

Emerging Markets Definition and World Market Groups

Apparently, Michael Dell and Vladimir Putin don’t agree on the definition of a developing country. In a surprising exchange at the World Economic Forum in Davos last week, Mr. Dell asked the Russian prime minister how the IT sector could help Russia make the best use of its talent and technology. Putin replied that Russia doesn’t need any help and is a technologically advanced country with strong science and math programs and a robust software industry.

Putin may see Russia as highly advanced, but technology executives like Dell, who closely monitor the country’s market potential, view it as firmly seated among the ranks of other developing countries. Russia’s per capita gross national income (GNI) rests at $14,400, similar to Argentina, Mexico and Libya, and, like other developing countries, it still suffers from neglected infrastructure, rising inflation and food costs, and a large disparity of wealth between urban and rural residents. Though the debate over emerging market definitions does not generally happen on such a big stage, it is commonly discussed by analysts and business managers, since there is no single accepted definition. For business leaders like Dell, the classification of individual countries can have a profound effect on investment decisions and business strategies. Depending on the product or service offering, target customer segment, or geographic focus, these analyses may include data on infrastructure availability, distribution of wealth, technology diffusion, education levels, business climate, and governance, to name a few.

Emerging market definitions that rely solely on broad economic indicators provide a useful high-level view of the market opportunity for technology companies (see Vital Wave Consulting’s Emerging Markets Definition and World Market Groups). However, the actual market for certain products and services is often determined by a range of non-traditional, hard-to-find data. While most technology companies are focusing heavily on Brazil, Russia, India and China (BRIC), there may be an opportunity for medium-sized enterprises (or product groups within larger corporations) to gain a competitive advantage in strategic, second-tier emerging markets which, if measured appropriately, may have comparably-sized addressable markets.

New Metrics for New Markets

There has been a bit of turbulence among IT industry analysts trying to predict the impact of low-cost notebooks (or netbooks) since they were first proposed by OLPC and validated as a viable product by Asustek, Intel and others. Gartner initially posted lukewarm sales forecasts for the devices, and IDC actually excluded netbooks from its definition of a PC, saying they did not compete directly with traditional computers and targeted “the education segment in emerging markets that wouldn't have bought a PC anyway.” Since then, IDC has changed its definition of PCs to include netbooks and both companies raised their global PC shipment forecasts on the strength of robust netbook sales. In fact, Gartner now predicts that 30% of all laptops worldwide will sell for under $300 within 3 years.

These fluctuations show that forecasts based on historical metrics such as shipments or on manufacturing capacity can be wildly inaccurate for new markets or disruptive technologies. Low forecasts that fail to anticipate new-user demands or technology and business-model innovations can have a profound impact on decision-making at multinational technology companies. Intel, for example, considered creating an Atom-like processor as early as 2003, but forecasts did not support the volume benchmark for profitability. Atom processors are now a major growth driver for the low-cost segment, and a bridge into other markets (e.g., handhelds and smartphones).

There is an opportunity for technology companies that develop forward-looking forecasts for new markets or innovative technologies. Apple and AT&T had the confidence to ignore forecasts when they introduced the iPhone. NComputing’s multi-user form factor invalidates some of the key assumptions traditional forecasts are based on, and the company is remarkably healthy after only four years. These companies made strategic investments and based their own projections on non-traditional metrics, weighting unmet demand and user preferences more heavily than historical shipping trends. In hindsight, this looks like courage or luck, particularly in a mature-market environment, where forecasts by leading industry analysts may seem irrefutable. But in emerging markets, where millions of new users have different preferences and there is a different set of competitors, non-traditional metrics and the ability to forecast based on contingencies, innovations and new market scenarios is an essential part of doing business.

Tech Industry Needs Emerging Market Champions

Vital Wave Consulting and other long-time emerging-market analysts attending the Consumer Electronics Show (CES) in Las Vegas last week were surprised when Intel Chairman Craig Barrett’s keynote address on emerging economies skirted the topic of business growth. Barrett spent his hour on stage sharing anecdotes about the benefits of technology for the economically disadvantaged and touted Intel’s support for a philanthropic partnership with Kiva.org and Save the Children. To be fair to Barrett, the Consumer Electronics Association structured the emerging economies session to focus on corporate social responsibility. And attendees were excited that CES included an emerging economies track at their annual show. However, the lack of discussion on scaled, profitable business growth in emerging markets denied the audience an opportunity to hear directly from Intel’s leader how a multinational corporation can have maximum impact in developing countries.

While Intel’s social initiatives are certainly laudable, they do not compare to the effect of the company’s truly scaled, self-sustaining for-profit activities throughout the developing world. Intel’s distribution channels and innovative technology have had enormous economic impact on local IT industries and the broader economy in many countries. In fashioning his address, Barrett had a rich palette to draw from, including:

• Intel’s development of the Atom processor – the energy-efficient chips have enabled netbook makers to scale, making laptops more affordable to hundreds of thousands of emerging-market consumers.
• The development of the Classmate PC reference design – Intel’s answer to OLPC’s XO machine has been borrowed and tweaked by many early netbook manufacturers.
• Intel’s investment in WiMax – a cost-effective network infrastructure that could extend voice and data services far into underserved areas in Africa, Asia and Latin America.

All of these business initiatives demonstrate that for-profit efforts are usually a better tool for scaled impact than pure philanthropy.

The technology industry could use an unapologetic champion who will talk straight about the benefits of emerging-markets to the bottom line. And, of course, a healthy bottom line means more investment, which brings greater social and economic development to the target market. But there’s little reason to suggest that these social benefits are the basis for the business decisions the company makes. Shareholders, business partners and local governments will all respond positively to the corporate leader who speaks of these markets as viable business opportunities. There are a number of candidates for the role of emerging-market champion. Cisco’s John Chambers came the closest in his inspiring keynote at the end of the CES emerging economies session, calling these markets important leaders in technology evolution and market transitions. But there is still plenty of room on the stage.

Also in the news:

• Indian entrepreneurs use high-pitched sounds for cash transfer
• Health applications for OLPC
• M-Pesa addresses pain point for students and schools

An Opportunity for Desktop Innovators

Tech industry analysts, bloggers and reporters had much to say about the fast-growing (and steadily evolving) notebook market in 2008, but Indian business weekly Express Computer capped the year with a dose of balance and perspective. They pointed out that, despite the remarkable rise in notebook sales in India, desktop PCs have maintained steady increases and retain a 3:1 market advantage over their portable counterparts. In India, the 6-million-unit desktop market will grow 30% to 8 million units in the next 3 years, according to IDC.

Notebooks have made headlines and gained market share through a rapid rate of innovation and good marketing. However, analysts of the Indian market (a pace-setter for many other developing countries) note that desktops are still the preferred form factor in many geographies and segments, including second- and third-tier cities, and the SMB, government and education verticals. Desktops have the advantages of familiarity, durability, security (from loss or theft), serviceability and lower prices for better performance.

With so much room for growth in India, there is a lamentable lack of innovation in the desktop space. Despite efforts by Dell and Zenith and others to introduce “green,” energy-efficient models in select markets, PC manufacturers have not kept pace with the innovation and marketing of notebooks. This may reflect a sense of security – that the preference for desktops will endure – but it ignores a potential opportunity. Improvements in infrastructure and service provision (e.g., reliable electricity and broadband) will make it increasingly easy for PC manufacturers to realize cost reductions by moving software applications and data storage to the cloud. More locally-relevant content, simpler interfaces, better co-ordination with local maintenance providers, and services tailored to the education, government and SMB segments could also stimulate desktop sales, claiming even more of the overall PC market for desktops in India and elsewhere.

Also in the news:

• Nigeria overtakes S. Africa as largest African mobile market
• Chinese carriers soar on 3G licensing
• Asus announces new designs before CES