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TECH TALK: The Next Billion: The Economics and Ecosystem

September 11th, 2003 · No Comments


Let us consider the economics of the solution. The desktop (virtual PC) costs USD 100-150. Let us assume the higher figure. Assume an annual maintenance costs of 10%, with a replacement happening every 5 years (even though in theory there is no need for a change or upgrade). Thus, the total costs over five years are USD 150 + USD 60, for a total of USD 210. The server will cost USD 750 for about 10 users in an SME, going to USD 5,000 for about 100 users to support a small residential colony. Assume a 15% annual maintenance cost on the server and another 10% for upgrades. Thus, over five years, the maximum per user cost comes to USD 150. Taken together, the client and server costs come to USD 360 per user over a five-year period, or USD 6 per user per month. [Financing costs have been ignored for now.]

Let us assume a software subscription cost of USD 2 per user per month. Thus, for an SME with 10-users, the software company gets a realisation of USD 240 per year, which should be good enough to deliver all the utilities and applications that are needed. In addition, we need to add costs for setting up the networking infrastructure, which at best would be USD 50 per user, adding USD 1 to the monthly per user cost.

Thus, the entire technology infrastructure can be set up for about USD 9 per user per month. Add financing, support costs and profit margins for the distribution channel, and a figure of USD 10 per user per month for hardware-software-support is definitely achievable. This would compare with todays costs of about USD 600 for the hardware and USD 400 for just the OS and Office suite, with a 4-year upgrade cycle. It comes to about USD 30 per user per month. Compare this with our USD 10 price point we are looking at a cost reduction by two-thirds. There is little doubt then that end users would adopt PCs at homes and at work.

Wheel of Penetration

To get to a mass market for computers and computing, it is necessary to build out the complete ecosystem think of this as the wheel of penetration. Besides hardware, software and support, we also need to think in terms of banks who need to get involved in helping finance the solution to reduce the upfront costs that need to be paid, training institutions who can educate users on the various tasks that can be done with computers, engineering colleges who can provide the human resource for providing the support and applications development, the existing assemblers who can serve as the distribution channel, and software and content developers who can develop solutions given the large user base that will emerge.

In other words, the entire value chain will benefit by piggybacking on the new architecture. Today, the industry is in a low-equilibrium state, with low or no profits and small growth. By co-ordinating its actions, the industry can move to a high growth situation, which would be beneficial for everyone.

Tomorrow: Distribution

TECH TALK The Next Billion+T

Tags: Tech Talk

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