Bottom-of-the pyramid markets - the sub-USD100 laptop and the search for the holy grail

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The idea is a simple one. Lower the price of a device and you will get more people to buy. Bottom-of-the-pyramid markets - those in the lowest global income band (below USD1500 a year) - provide a tantalising market opportunity. Wharton Business School academic C K Prahalad has argued this case in his book the Fortune at the Bottom of the Pyramid. This week saw the launch of MIT's Nicholas Negroponte's USD100 laptop which makes ambitious claims to becoming more "an education project" for school children than a cheap laptop for the masses. But the road to hell may well be paved with good intentions as Russell Southwood looks at the previous computer failures and asks what needs to go right if this kind of approach is to work.

Negroponte cannot be faulted for ambition and has a great deal going for him and his not-for-profit group called One Laptop Per Child. He has put together a detailed specification for a USD100 lap top that can also be powered by a wind-up mechanism.

The proposed design of the machines calls for a 500MHz processor, 1GB of memory and an innovative dual-mode display that can be used in full-color mode, or in a black-and-white sunlight-readable mode. The display makes the laptop "both an electronic book and a laptop," he said.

One display design being considered is a flat, flexible printed display developed at MIT's Media Lab. Negroponte said the technology can be used to produce displays that cost roughly 10 cents per square inch. "The target is USD12 for a 12-inch display with near-zero power consumption," he said. And this sounds more like a problem that has still to be solved than one that they have the answer to.

Power for the new systems will be provided through either conventional electric current, batteries or by a windup crank attached to the side of the notebooks, since many countries targeted by the plan do not have power in remote areas, Negroponte said.

Negroponte is in discussion with Governments of five countries - Brazil, China, Thailand, Egypt and South Africa - who will buy and distribute a projected (staggering) 15 million machines. On the basis of the math, this means that between them these governments will come up with USD1,500,000,000 and this is really only a sum that can in the main come from international donors.

But let's consider the history of India's much-touted Simputer. It started life as USD100 hybrid of computer and PDA and ended up costing USD215. Not only that but it was a year late to market which had a detrimental effect on those seeking to sell the machine. The original "talked-up" specification suffered some inevitable "de-speccing" as the device made its slow progress into production. Initial teething problems also slowed down production and sales. By April 2005 its two manufacturers - Encorus and the the state-owned Bharat Electronis - had sold under 5,000 units. Although of course both have been keen to stress that bigger sales are on the way. And if it is to survive, they will need to be...

The device's proponents were left arguing that price mattered less if the device was shared: "Even if a Simputer costing Rs 10,000 (US$215) is too costly, ten villagers could come together to own one," Deshpande explains. Others envision schemes where one device would be owned by a community, kept by the local shopkeeper or teacher, and accessed by villagers via smartcards, which at USD2 are much more affordable.

Like Negrponte, its promoters were relying on Government as a major customer. PicoPeta’s CEO Swami Manohar blamed a lack of financial support from the government and other agencies. "The major problem has been the non-realisation of our belief that once prototype Simputers were demonstrated there would be a huge groundswell of support [from these bodies]."

Simputer distributor African Digital Bridges who were appointed in 2002 to sell the Indian low-cost machine decided to quit because "it was not worth sustaining operations." According to Territory Manager - Africa Anrew Mang'ula: After reviewing the situation at Africa Digital Bridges (ADB) Dubai, UAE, prospects and the length of sales cycles etc, we concluded that it was not worth sustaining operations. ".

The second device worth remembering was Media Solv's sub USD25 PDA which underwent trials in a data collection project in Kenya run by the Environmental Liaison Centre International in Kenya.

This has now disappeared from view but suffered in concept from many of the same problems as the Simputer. The headline cost of the prototype which was designed to catch attention was even before anyone committed to building it, unlikely to come in at under USD30-35 if it contained a number of essential features not included in the lower price.

The VillagePDA as it was described operated (in a prototype form) in a wireless Personal Area Network (PAN) that used the Bluetooth standard. A single Internet connection linked to the PAN could be used by several concurrent users, thereby maximizing the utility of a single connection. The proponents argued:"The limitations posed by a handheld wireless device dictate restrictions on content that are well suited for efficient use of bandwidth". In other words, in order for it to be cheap, we're going to have to offer you second best. And like the Simputer, the VillagePDA was mainly aimed at donor funders and Governments.

Another device to join this low-cost queue is the sub-USD40 handset commissioned by the GSM Association from Motorola. The Ultra-Low Cost handset programme forms a major part of the GSMA's Emerging Markets Initiative. Although 80 per cent of the world's population has wireless coverage, today's 1.3 billion GSM users represent only 25 per cent of the potential.

"The price of the handset is only one hurdle. We are also pushing hard for further positive changes that can be effected by governments, such as more flexible regulatory decisions and a more favourable approach to taxation. In addition, we are encouraging innovative payment mechanisms that could further positively reduce the barriers to ownership, said Rob Conway, CEO of the GSM Association and Board Member."

The success of this device is not assured as markets - particularly in Africa - are full of "refurbished" and "reconditioned" handsets that are coming out of developed markets in great numbers. But at least in the handset market, there is a clear sense of who the customer might be and a strong desire for the device in all African countries. Try going to the informal settlements of most major African cities and explain to potential customers why they might want a cheap PDA or indeed a cheap laptop. Negroponte is giving them away because he knows what an unbearably difficult task it would be to have to actually sell the things to people who might actually want them and have the money to buy them.

Satish Jha in a contribution on the Deeshaa mail list caught the essence of the dilemma well:"We do need thousands of masters level project like simputer before we will come close to having the capacity to productise. We need several failures before we may succeed too. But most importantly we need to know what we do not or may not know and stop showing our ignorance about something we have never dealt with yet appear just too ready to opine. Similarly, entrepreneurs need to learn a lesson too-- idealism seldom sells products, least of all aspirants to what may have been a product. If it had any potential, there will be many global takers for it even if it had no publicity of the kind it got. A lack of interest by the market forces was itself a good proxy that it may be an idea whose time may have come and gone.. and may come back in some other form!"

So will Negroponte pull it off or will it join the previous car-crashes that have been "the graveyard of all our hopes"? Who now remembers the Volks computer from Brazil that was a hot topic when the WSIS process started? Buyer of IBM, China's Lenovo is selling its PC at USD400 (minus monitor) in Kenya. If anyone can close the gap between the current market price and a better "bottom-of-the-market" price it is likely to be a manufacturer from an emerging market like China. The staggering reductions manufacturers like Huawei and ZTE are offering on telecoms equipment (up to 60% reductions) could well be replicated for computing devices and handsets by others.