We saw from the OLPC example (here) that radical value engineering requires confronting incumbent product architectures. This is one of the reasons why upstarts have an advantage. Another reason why this is so difficult for incumbents is because you have to confront the current way of doing things inside the firm. Occasionally market leaders succeed in doing an orbit shift in their way of doing things. Texas Instruments is an example of that in the cellphone chipset market.
The story starts with a 2005 competition by GSM Association for a $30 phone. They promised an order of at least 6m handsets to the winner. Motorola won that competition, Nokia got religion and Texas Instruments (TI) swung into action.
The business motivation behind the ultra-low-cost cellphone (ULCC) is pretty clear. A Business2.0 article captured the essence: “The next billion cell phone users won’t come from the developed world, because so many of us have phones already. That next wave will come primarily from China and India.” What the GSM Association’s competition did was to bring home this reality to all the major players.
TI quickly realized that to get to the breakthrough price, their traditional mould of how phone chipsets are designed and made had to be broken. The result is an ultra-low-cost chipset called LoCosto (see InfoWorld story here). Its requirements were based entirely on India and China needs; it was designed in India, tested in Europe, and the chipset packaging was done in the US. The focus was on cost and speed. Now TI is rolling out the LoCosto model to the rest of its product set. A wave of organizational changes is taking place as a result.
A cellphone is a complex product and it takes a whole ecosystem to get it right. Just last week, a key missing piece also fell in place. SASKEN, an Indian communications technology company, announced the availability of its ARIA application framework for LoCosto. Now handset vendors can quickly create differentiated mobile phones without having to give up on software reuse and portability across phone designs and platforms.
Its taken a couple of years since the GSM Association started evangelizing this bottom-of-the-pyramid market but now the whole ecosystem of chipsets, software and handset designers is in place (and the first phone has just been launched by Motorola).
Attacking the incumbent way of doing things
Market leaders rarely cannibalize their own high-end product like TI has done with LoCosto. That’s one thing to their credit. The second one is that they have not shirked significantly changing their way to doing things to get LoCosto out of the door. Oftentimes, the initiative starts with loads of enthusiasm but then deflates as it confronts the legacy way of doing things. That’s how, typically, an upstart company races ahead of the incumbent and wins with the disruptive innovation.
As we have seen so far, the bottom-of-the-pyramid market is disruptive to either the current product architectures (as with OLPC) or to the current way of doing things within the firm (as with ULCC). In my next post in this series, I will look at an example that highlights the value chain challenges in developing the bottom-of-the-pyramid market. Eventually, I will tie it all back up to the opportunity before the enterprise software industry to use the emerging lean model to ignite growth at the bottom-of-the-pyramid.
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
Likely Lessons of OLPC
Later article in this series:
Thinking Beyond Product and Company Architecture
[Growth Anatomy Series Roundup is here]
549lfil48uiyj0db