If you are with me so far, you know that I have argued here and here that the enterprise software industry must use the emerging lean model as an invitation to develop bottom-of-the-pyramid opportunities. This calls for radically rethinking the value/price equation. A simple thumb-rule is that if the new product isn’t less that a fifth, yes that’s right, a fifth of the price, it isn’t going to unlock the market at the bottom-of-the-pyramid. Naturally this is hard to do. But it can be done. Today I look at an example from the PC industry.
The business case for an ultra-low-cost PC is a no-brainer. One unusual proxy of the market potential is mobikes. In India there were over 7m mobikes sold last year for about $1K and the market is growing at 35% a year. Each family that buys a mobike has an aspiration to own a PC. Yet only estimated 3m PCs/laptops (out of a total of 5m) were sold in the consumer segment. If the price comes down, volumes will go dramatically up.
In this context, you have probably heard of the one-laptop-per-child (OLPC) effort. There are three sets of players involved. On one side is Nicholas Negroponte of MIT and his team’s $150 laptop. On the other side is the WinTel alliance with a $400 Classmate PC platform. In between the two is a quiet player, India’s Encore Software, offering a Linux based Mobilis laptop for $230.
Of the three, predictably, the WinTel Classmate is the most conventional design (see here). Encore’s Mobilis breaks the mould in some places (see here). But what surely is a break from the past is Negoponte’s XO-1 – it’s a great example of product synthesis from scratch (see here).
The politics is also fascinating. AMD powers the XO-1. Intel is behind Mobilis and Classmate. Windows is there only in Classmate, the $400 offering. India hasn’t signed up for XO-1. The main reason is that it’s funding Mobilis as an alternative. There is much debate as to which of these three will succeed.
Attacking the incumbent architecture
Out of the three OLPC efforts only XO-1 has really broken away from the traditional architecture. The other two are defeaturization plays. I am willing to stick my neck out to say that they are unlikely to succeed. I am pretty convinced that XO-1 will be the largest selling laptop of 2007. But they have a chink in their armor. They are too reliant on the top-down selling model of getting governments to buy their laptops. Hopefully they will focus on overcoming this limitation in their business model. Governments are never effective players of any value chain. If they manage to fix the sell-side of the equation, they would have reshaped the industry.
A key lesson in developing a product for bottom-of-the-pyramid is that it can’t happen through defeaturization. The right solution is not an existing product stripped down to meet a new lower price, but a truly new product designed from the ground up to carry the right price. It takes, as Jeffrey Immelt of GE says (covered here), going “from a defeaturing mind-set to a customer optimization mind-set”.
More Examples
I will look at a couple of more examples of products that are going after the bottom-of-the-pyramid market in the future posts in this series. The next one will be from the wireless industry.
Previous articles in this series:
Anatomy of New Growth in India
Another Reason to Not Ignore Emerging Markets
Can’t Escape In-Market Incubation Any Longer
Later article in this series:
Taking Inspiration from Ultra Low Cost Cellphone
[Growth Anatomy Series Roundup is here]
1522 Responses to “Growth Anatomy: Likely Lessons of OLPC”