Steve Ballmers $100 PC dream so users will pay for software like the lower-priced Windows XP Starter Editions and AMDs $249 reality are important harbingers of change when it comes to thinking about the emerging markets. A $100 PC as envisioned by Ballmer may be too restricted in what it can do and the purpose will be defeated if software adds on a significant amount. A $249 computer with a limited set of applications is not a disruptive innovation. The problem in both approaches is that they show a distinct lack of understanding about the reality in emerging markets and the expectations of the next users. What will hobble the IT majors from coming up with the right solutions for the emerging markets is their legacy they have multi-billion dollar businesses in the developed markets which need to be protected. It is the classic Innovators Dilemma. The need is for real disruptive innovations.
Even as we look at what is needed, let us first look at the realities in emerging markets:
The 10-90 Chasm: The top 10% in the emerging markets can use developed market solutions (not just in technology but in everything else). There is a chasm that separates this group from the next 90%, which needs locally developed (or relevant) solutions at completely different price points. To develop these solutions, one has to start from scratch, not tweak existing solutions. This is exactly what the Tatas did when they built their IndiOne hotel in Bangalore and priced rooms at Rs 900 ($20). This is exactly what they are doing when they want to create a car for Rs 1 lakh ($ 2, 200).
The 1-9-90 Split: Even among the top 10%, there is the problem of piracy when it comes to soft goods be it music or software. The result is that a company like Microsoft has only a 1% share in most emerging markets. Piracy has 9% and non-consumption 90%.
Price(Intel+Microsoft) = Low Constant: What this means is that the total spend that can happen on computing is a low constant. For Intel to make money, it has to limit spend on software this is what is happening with the PC makers deciding to bundle Linux with their desktops. [The fact that Linux has a lifetime of barely an hour on the desktop and is quickly replaced with pirated Windows reinforces the previous point.] For Microsoft to make money, it has to reduce the spend on hardware.
The ADAM Challenges: I have written earlier about the four key challenges that need to be addressed in markets like India Affordability, Desirability, Accessibility and Manageability. Most solutions tend to first focus only on the affordability mention. So, Microsoft is trying to offer Windows XP in Hindi (with limitations) at about half the price point of the standard edition. AMD is trying to address affordability and manageability with its PIC, but doesnt go far enough on both fronts. [$249 is still too expensive, and a local hard disk is asking for trouble in terms of support.]
Leveraging Broadband: Computing in tomorrows world cannot be disassociated from communications it is about CommPuting. Emerging markets are going to leapfrog to always-on connections be it over cable, DSL or wireless. In fact, I would argue that the problem is not the lack of availability of broadband in emerging markets, but the lack of the endpoints low-cost computing devices and the services (software and content) located at the right places along the broadband pipes.
Focus on the Middle of the Pyramid: Even before we get to focusing on the bottom of the pyramid, there is a middle of the pyramid that we need to pass through. While the poor of the world are large in numbers and have been made into an attractive segment by CK Prahalad and others, there is a huge opportunity in the middle in the emerging markets. Think small- and medium-sized enterprises, educational institutions, upper- and middle-class homes before we think about the poor.
Think Systems: The mistake that is made many times in trying to solve problems is that the focus is on a silo, rather than the whole system. Addressing one issue and solving it is not good enough what is needed is a radical rethink across the entire value chain. This calls for not incremental and iterative thinking, but radical and disruptive problem-solving. Similarly, when talking to enterprises, the focus needs to be not on adding another few computers in the next year, but on asking them how they would do their business differently if all the employees had a computer on their desktops tomorrow!
So, what should the likes of Intel, AMD and Microsoft be doing for bringing Massputers to the worlds emerging markets?
Tomorrow: Emerging Market Solutions