Massputer

Om Malik writes about the $300 Massputer for the emerging markets:

A computer that costs $300 for the computing hungry masses in emerging economies like India, China and Brazil. Users of this massputer should be able to do basic tasks like writing documents, Internet surfing, email and perhaps some business-related tasks like data entry.

There are nearly four billion people who live in these emerging markets and assuming that only 10 per cent of them can afford $300 it is still a market of 400 million. Currently, the PC troika of Intel, Microsoft and Dell typically charge $750 for every computer, which most people in these emerging markets find unaffordable. Even the so-called network computers cost an unaffordable $500-plus.

At $300 a machine, the market is going to split wide open. In India alone nearly 55 million such machines could be sold to schools, colleges, government, and small businesses, estimates Netcore Solutions, a Mumbai, India-based company. Multiply this many times, and you see the numbers add up. The total market opportunity for the lower priced machines is upwards of $16 billion. (This is a concept championed by Rajesh Jain.)

The $300 sticker is vital- it keeps the devices affordable, and at the same time allows the corporation selling this massputer makes a decent profit. Gizmos such as color televisions, washing machines, refrigerators and air conditioners were snapped up in large numbers once they were priced right around $300. The proliferation of mobile phones in the emerging world is proof that at the right and affordable price people everywhere will adopt the right technology. There was a time when a mobile phone cost $400 and a mere 10 million people had the service. Now more than 400 million phones will be sold this year and 1.4 billion people, many in not very rich countries, will make mobile calls. That is because the price of the phone at $100 is now affordable in these emerging countries. More users means the price-per-minute has come down as well. In short, everyone benefits.

The social implications of Massputer cannot be underscored. Popularity of cell phones and text messaging promoted social revolutions, and peaceful protests in hitherto turbulent societies in Asia. Philippines comes to mind. I believe the availability of a Massputer connected to the Internet will help develop more educated, more informed and more open societies. If rest of the world has to embrace the principles of free markets, they need the tools. Massputer is a perfect example.

Om is right about the need. While $300 would be a good starting point, and is probably reachable with lower-end processors and open-source software, there is more which needs to be done to make computing penetrate deeper in the emerging markets.

The three problems that need to be addressed are affordability, manageability and piracy. The three key trends that can be leveraged in providing the solution are IT commoditisation (cheap silicon and storage), open-source software and emerging broadband networks. The primary opportunity going ahead lies in providing the solution for a monthly subscription fee with the devices available at costs-plus to drive consumption in the emerging markets.

In India, the upfront cost needs to be about Rs 5,000 ($110) with a monthly subscription fee of $5 for the access device and access to software. Connectivity will cost another $10 or so. This way, the computer’s business model becomes like the cellphone. That is the key to opening up the next markets for computing.

A couple of my earlier articles in this context:
The Rs 5,000 PC Ecosystem
The Next Billion

Michael Mandel’s New Book

Business Week has an extract from a new book, “Rational Exuberance: Silencing the Enemies of Growth and Why the Future Is Better Than You Think” by Michael Mandel, who argues that many economists pay too little attention to tech-driven expansion.

Ultimately, we are faced with the question of whether to be optimistic or pessimistic about our economic destiny. Can the good times of the 1990s — with its low unemployment, fast wage growth, and soaring stock market — be repeated? Or was that era just a flash in the pan, the product of an out-of-control bubble mentality? Will we soar or struggle?

Here’s the straight answer: The ability of Americans to thrive during the next 10, 20, or even 30 years does not depend on the budget deficit or the potential exodus of a few hundred thousand jobs to other countries. Rather, our economic future is inextricably linked to our ability to come up with more technological breakthroughs that equal the Internet in magnitude. Such large-scale innovations drive growth, create new jobs and industries, push up living standards for both rich and poor, and open up whole new vistas of possibilities. This is what I call “exuberant growth.”

How can we be so sure of this? The lessons of history and economic research are very clear. Over the long run, economic progress in a highly developed country such as the U.S. depends mainly on technological advances. It was a succession of innovations — including electricity, telephones, radio, automobiles, and antibiotics — that revolutionized life in the first half of the 20th century. By contrast, the drought of economically significant innovations in the 1970s — including the unanticipated failure of nuclear power as a cheap energy source — helped pull down growth. It is no coincidence that the rise of the Internet in the 1990s coincided with the biggest rise in household incomes, and the biggest drop in poverty, in 30 years.

Going forward, such technology-driven growth is essential if we are not to drown in our problems. The Internet is terrific, but by itself it can’t power long-term growth. Without cost-saving breakthroughs in medical science, it won’t be possible to supply health care to a generation of aging Americans without bankrupting the young. Without new industries created by innovative companies, it won’t be possible to generate enough good new jobs to replace the ones going abroad. Without breakthroughs in energy production and distribution, it won’t be possible to provide inexpensive power for industrialized countries while supplying the energy needed to bring up living standards in the developing world. And without rapid growth, it won’t be possible to simultaneously pay for national defense and the retirement of the baby boomers.

In India, we too need greater adoption of technology across the board if we are going to get rapid, sustained growth. This is one of points I make in my Tech Talk series this week.

Google vs Microsoft: Beyond Search

Jim Fawcette writes:

Microsoft and Google are on a collision course, but the battle is about much more than searching for Web pages.

Google has the potential to become a primary interface for computing. Much as Lotus Notes aficionados spent their entire computing lives in Notes, Google potentially could and wants to become the platform through which users view the world.

You can see this evolvingeven before Google has its IPO money to spendwith the introduction of Google News, Google Local, Gmail, Froogle, and ambitions for mobile products that are barely scratched by today’s offerings. Google already has a little publicized “enterprise appliance,” which is a server with Google search to use inside corporate firewalls.

In the extreme, this means Windows would be reduced to a bloated BIOS and a bunch of device drivers. You boot Windows, go to Google, and work from there. Microsoft kindly provides the browser stack, printer, and video drivers, so Google doesn’t have to develop or deliver them, thank you very much, but Google, in this scenario, becomes the face of computing.

Search will become exponentially more important as the costs of storage asymptotically approach zero. Vannevar Bush’s concept of a vast personal repository that stores everything about your life becomes conceivable when we all have a personal terabyte of portable storage, the focus of Microsoft Research’s MyLifeBits project.

To predict what direction Google, Microsoft, Yahoo and other companies in the search business will head in, a good starting point is to figure out what business they think they are in. The classic B-school example of what not to do is the railroad industry. This was the dominant form of transportation at the turn of the century, and literally shaped much of our society. B-school logic has it that they atrophied because they thought they were in the boxes-on-rails business instead of recognizing that they were in the transportation business, otherwise today we’d be flying Union Pacific Airlines.

At a high level of abstraction, Google’s business is charging auction-based prices to advertisers while its own operating costs plummet as storage becomes nearly free. The users that do searches are merely a necessary evil, an expense of doing business. That’s quite different from Microsoft’s approach, where the individual PC user is seen as the primary customer, at least in those Microsoft groups that are most successful. Is Google a “firefly” that flits brightly and burns out, as IBM’s then-CEO Lou Gertsner derisively referred to dot-bombs in general? Or is Microsoft a railroad that won’t become an airline?

More from Carr

Nicholas “IT Doesn’t Matter” Carr writes in Wired:

The way big IT companies are acting in the marketplace is actually accelerating the commoditization of their products and services. Commoditization lies at the very heart of their competitive strategies.

Look at Intel. According to The Wall Street Journal, Intel is selling its Centrino Wi-Fi chips for its cost to fabricate them. Why? For one thing, turning Wi-Fi technology into a cheap commodity is a good way to crush would-be competitors. More important, making Wi-Fi chips broadly affordable encourages people to buy laptops, and selling laptop chipsets is far more lucrative for Intel than selling desktop chipsets. It’s in Intel’s interest to commoditize Wi-Fi as quickly as possible.

Other companies are finding that commoditization is a great weapon to use against an archenemy. Sun Microsystems, for instance, is heavily promoting StarOffice, its inexpensive open source alternative to the ubiquitous Microsoft Office. Sun knows that if it can commoditize basic business apps, it can begin to break Redmond’s stranglehold on the PC desktop. On a larger scale, IBM is also attacking Microsoft by spending billions to promote the adoption of Linux, rather than Windows, for PCs and servers.

Before you start feeling sorry for Gates & Co., remember that they are the masters of the commoditize-thine-enemy’s-product strategy. By giving away Explorer, Microsoft destroyed potential rival Netscape. It’s been trying to do the same to RealNetworks by bundling Windows Media Player with its operating system. Its next target is Google.

The same thing’s happening on the enterprise side. SAP is aggressively promoting the open source database MySQL as a way to break Oracle’s franchise. Sun is talking up Salesforce.com’s customer relationship management software as a cheap substitute for Siebel’s dominant CRM suite. And Dell has built its entire business around the commoditization of computer hardware.

There’s nothing strange about what’s going on here. It’s typical when industries mature and buyers start focusing on prices rather than features. Unable to distinguish their goods, vendors begin to compete ruthlessly for market share, often by trying to undermine the distinctiveness and importance of rivals’ products.

But because every company is some other company’s rival, this kind of infighting just adds fuel to the general commoditization fire. It’s great for buyers – the intense competition slashes prices and increases choices – but not great for those sellers who fail to win the war.

The IT industry is looking more and more like a traditional, mature manufacturing business. Plagued by undifferentiated products, global overcapacity, and falling prices, hardware and software companies are consolidating, shifting production offshore, and making money on maintenance and other fee-based services. They’re competing on cost rather than innovation and features.

Jeff Nolan comments on his blog:

Carr’s point is that IT is cheap and available to everyone, therefore it’s not the actual technology that gives you a competitive advantage but changing the way you do business. In short, good leadership and tactical execution, whether it’s with IT or not, is what gives businesses a competitive advantage.

I really don’t expect anyone from the tech industry to suggest that IT is not a factor in the productivity gains that we have seen over the last two decades, in fact I am among the group that thinks that IT is the biggest productivity lever that business has today. But productivity alone is not a measure of competitive strength, it simply a measure of doing more with less.

When technology was super expensive and only a few businesses could afford it, well the ones that had it enjoyed some advantage over their competitors. Fast forward today and you have a small business with 2 employees and a $60 a month subscription to Salesforce.com, and they have the same functional capacity that a larger competitor with Siebel or SAP does, and needless to say it cost them a lot more. So did IT give the large player an advantage or did it level the playing field for the small player. Well neither, because if either end of the spectrum simply bought software and didn’t address the way they conduct their business.

I’m thinking, and betting on, a different scenario in the future where companies come together by building value around low cost business models featuring highly talented experts on specific technologies and markets, rather than attempting to create some disruption through a dramatically different product or technology. In my scenario IT doesn’t matter if the playbook is the disruptive technology play, but it does matter if the playbook is the disruptive business process play manifested in some small series of loosely connected technology and application advances brought together by experts who understand how those businesses work.

We have to leverage the commoditisation of IT for creating solutions for the next users in the emerging markets.

Online Gaming

News.com writes:

Unlike previous editions of the E3 game trade show, this year’s event had few launches of high-profile online games for the PC, a market dominated by fantasy games such as “EverQuest” and “Star Wars Galaxies.”

On the console side, publishers say they’re happy with consumer acceptance of new online gaming services but need to find a business model somewhere between the current extremes of free online play and games that require monthly subscriptions.

The answer for most is minitransactions, small purchases that would allow game players to pay a few cents to download a slick new piece of armor for a role-playing game or a new map for a shooting title.

Andrew House, executive vice president at Sony Computer Entertainment America, said market expectations have already been set by the first wave of online console games, and consumers will have to be eased into the idea of paying extra for online assets.

“Our belief is that consumers expect basic head-to-head multiplayer online play to be included in the game they buy,” he said.

“The subscription-based model is inherently self-limiting,” he said. “The preferable model, we think, is based on downloadable content and minitransactions. You’ll see the fruits of that emphasis from us over the next year.”

Microsoft is already working the online angles, though, with the Xbox Live online gaming service for its Xbox console. The software giant has more than 800,000 subscribers paying $50 a year for the service, which allows access to online portions of more than 100 games.

On the PC side of online gaming, publishers appear to have given up on the idea of dethroning “EverQuest” and building a user base in the millions. McMillan said the comparatively tepid response to “The Sims Online,” the online version of the smash PC game, was a tough lesson for EA.

“The thing I think we learned is that expecting packaged good sales to be an indicator of subscription sales isn’t realistic,” he said. “They’re very different things. For a person to actually put down their credit card and say–‘I’m going to pay so many dollars a month to play this’–that’s a big decision.”

Start-up Linden Labs, however, is confident it has sidestepped the financial pitfalls of online PC gaming.

The company has been running the game “Second Life” for a little more than a year with a business model that combines a number of novel approaches. Aside from an initial fee of $10 to set up a user account, the company makes most of its money by selling real estate in the game’s virtual world. Players buy lots at an average of $100 an acre and pay monthly property taxes, neatly covering the costs of installing and maintaining game servers, one of the biggest ongoing expenses in running an online game.

Ongoing development costs are minimal, because every bit of content in the game–from virtual nose rings to futuristic vehicles–is created by players, using online tools or graphics programs such as Photoshop. The game currently has more than a million user-created items, and players are free to resell their creations for the game scrip, “Linden dollars,” which can be exchanged for real U.S. dollars on any of several trading sites. Sales average $100,000 a month.

The key, said Linden Lab founder and former Real Networks executive Philip Rosedale, is delivering the game as a streaming service, which means the game world can be constantly updated without requiring the user to install lengthy downloads or CD-based content.

China is seeing a lot of action on the online gaming front. One of the leading companies, Shanda Interactive Entertainment, recently did an IPO on Nasdaq and raised $165 million. WSJ wrote:

Shanda specializes in what is known in the gaming world as “MMORPGs,” or massively multiplayer online role-playing games. Users pay Shanda a fee (usually between three cents and seven cents an hour) to play one of the games. At its peak, Shanda had 1.4 million people playing games simultaneously, according to offering documents filed with the Securities and Exchange Commission.

Shanda is profitable. Last year, it reported net income of $33 million, on $76.5 million in revenue, according to SEC filings. Much of its revenue is derived from just one game, “The Legend of Mir II,” which accounted for 57% of its $29 million in sales in the first quarter. Combined, “Legend of Mir” and a second game, “The World of Legend,” accounted for 88% of revenue.

TECH TALK: An Agenda for the Next Government: Mixed Feelings

After a popular, peaceful rebellion by the ballot, India has a new government at the Centre. The victory of the Congress and its allies was unexpected it was a surprise even for the victors. It just goes to show how much the media and we people in urban India are out-of-step with the opinion of the majority. So, after eight years in the political wilderness, the Congress returns to power and Vajpayee leaves the helm of India after six-and-a-half years. The election results will cause a lot of soul-searching across the Indian political spectrum. Even as the post-mortem takes place, it is time for a new government to take over. This column looks at the challenges for the new leadership.

India stands at the crossroads today. Even as the Indian economy grew by a record 10.4% growth in the December 2003, the spectre of uncertainty and potential reverse of economic reforms has sent the stock markets plunging in the past few weeks by more than 15%. Even as the BJP government was ousted at the centre, the two technophile chief ministers of the southern states of Andhra Pradesh and Karnataka were also dispensed with by the electorate. The first decision by the new chief minister of Andhra Pradesh was to give free electricity to farmers (at a cost of more than Rs 300 crore), and also write-off more than Rs 1,000 crore ($220 million) in arrears.

Where does India go from here? Will there be a hark back to the socialistic policies of the past (considering that the Left is likely to be a key element in ensuring the Congress stays in power) which kept us submerged in poverty or the intermittent market-orientation of the past decade? Are we in for short-term populist measures or do we have the courage to tackle the fundamental problems that plague the country? Of course, it must be remembered that the Congress was the pioneer of the reforms in India in 1991 at a time of great economic stress. What happens now? What should happen?

I am not a political commentator. I nearly ignored the elections, assuming that India (and Indians) had reached a level of political maturity that would keep us moving forward, irrespective of who comes to power. But events of the past few days have left me a little perturbed.

Over the past year or so, I had grown very optimistic about India’s future that we were finally starting to do things right. But suddenly, the applecart has turned over. There is a fog on the road ahead. What seemed like yet another clear sunny day has become overcast. Maybe, when the clouds clear, there will be a glorious rainbow. Equally likely, though, is that there could be a storm coming. The future of India is now not in the hands of its people they made their millions of individual decisions over the past month. India’s future now is in the hands of a few the ones who will become ministers and set policies. The greed of power does strange things to rational people. That is what worries me. And that is the sombre mood in which I write out this Tech Talk.

Tomorrow: Governance