A Lesson for BoP Technologists: Put the Business Model First

Submitted by Al Hammond on November 28, 2007 - 10:36.
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A recent Wall Street Journal article documents the demise of Nicolas Negroponte’s dream of a $100 "one laptop per child" for millions of schoolchildren in the developing world. (Thanks to Ethan Zuckerman for pointing it out.)  To give Negroponte his due, the idea stimulated significant technology development and focused market attention on the need for low-cost computing devices for BOP markets.  And from an engineering perspective, it's a magnificent machine.

But the $100 price was never realistic; the market is dominated by small businesses and only secondarily by educational systems, and the project lacked a real business model, including such essential details as training and technical support.  (We've written about OLPC's lack of training and tech support time and again here on NextBillion.)

It was from the beginning an inspiring but unrealistic vision—comparable to the "build it and they will come" belief that funneled hundreds of millions of development dollars into Internet access telecenters, 90% of which failed when the grants ran out. Technology push strategies just don’t work.

If there is any lesson that our studies here have shown, the essential starting point is a viable business model, grounded in a real understanding of needs, the value proposition as perceived by local people, and evidence of willingness to pay. Only then can technology opportunities really be evaluated. That is not to say that technology doesn’t have a critical role as an enabler for BOP communities—witness the still accelerating adoption of mobile phones (and their prepaid service business model).  But engineers—especially those that don’t know developing market well—should take to heart the real moral of the laptop story: First, it’s the business model.

The current campaign to "Give One, Get One" for the Negroponte laptop - trying to enlist US consumers to buy one for themselves and donate one to a schoolchild in a developing country, in effect marks the failure of the one laptop per child vision - a recognition that it will not succeed in getting developing country governments to buy millions of the devices. As the WSJ article documents, Intel, Microsoft, and other commercial vendors have produced similar devices that are available at competitive prices (about $300), with training and technical support plans, and they are already outselling the Negroponte device.

It is also pertinent that both Intel and Microsoft have divisions focused on low-income markets and their needs, and have spent years and management time understanding the needs of those markets.

(For ongoing coverage of the OLPC, add OLPC News to your bookmarks and RSS feeds.  A must read site managed by ex-Geekcorps director Wayan Vota.)
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Underestimated demand
Submitted by Tina Short on November 28, 2007 - 21:01.
Yes I agree with you, the lack of a business model was one of the main factors behind the failure of the OLPC project. I think Negroponte has neglected the low demand of poor people who are not interested in laptops, because they do not see a velue of having such kind of a device.
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It is disheartening to see
Submitted by Santosh Srinivas on November 29, 2007 - 00:35.
It is disheartening to see that some of the best technological initiatives intended to bridge the digital divide more often than not lack a sound business model. I'm curious to know how the best of the technological brains who are behind this initiative break the basic problem of willingness-to-pay.
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Give one, get one is a success
Submitted by Cat Laine on November 29, 2007 - 12:31.
Business models, like business plans change or sometimes go right out the window. What were Google's or Facebook's or MySpace's business models when they first started?

I would completely disagree with you that the Give one Get one campaign is a failure of OLPC's business model. Rather it is a very clever add-on. A lot of tech nerds REALLY REALLY wanted to get their hands on the machine and had been begging Nick Neg for the opportunity to have one of their very own. (I bought one the first day the program started as did many bloggers from what I can see.)

Rather I would say that the campaign is a testament to the success of the design and implementation of the system that people in the first world are essentially willing to pay double the price for an item designed for 3rd world consumers.

Also given the current price of an iPhone or Amazon's Kindle, the $200 pricepoint of the XO-1 is amazing given what the machine can do and its durability. I think it is somewhat of a humbug to fault OLPC for not getting to $100. It's like faulting an engineer for was shooting for a supersonic plane, because he only made a much better 747.

It should be noted that the fact that it hasn't been able to start at $200 doesn't mean that it won't one day end up there. How much was a VCR when they first hit the market.

It's early days yet.
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To Cat Laine re OLPC
Submitted by Allen Hammond on November 29, 2007 - 17:09.
I don’t fault the OLPC for not getting to $100. Even at $300, the technology is a bargain—it’s really great! But please—a few hundred thousand units will not make a viable business, and the evidence so far is that countries are not willing to buy millions of them. Nor, conceivably, should they when they can’t even afford to pay teachers or provide electricity in classrooms.

I would love to be proved wrong—because students in developing countries have miserable options for education. But the hard fact remains: who will pay for laptops for those students? Who will pay to maintain them? Where is the curriculum development and teacher training (critical to introduction of technology even in US schools)? And what prevents the laptops from migrating to the informal market, where they are worth more than $300 to small and micro businesses? In short, what is the business model?

Without a viable business model, the OLPC laptop is one more piece of well-meant technology on the scrapheap of failed development ideas. And in the meantime, there are already signs of a more viable educational technology platform for the low-income parts of emerging economies: it's called a mobile phone, and low-income consumers in India are buying 9 million units a month.
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OLPC Google Phone?
Submitted by Cat Laine on November 29, 2007 - 18:58.
Okay, true. I did think getting governments (or even the World Bank through some crafty loan/grant scheme) to pony up the money for the machines was always going to be a long shot.

Ultimately OLPC will have to market an "adult" version of the machine to sell far and wide. I think the manufacturer had designs on doing that anyway. Personally, I hope it comes to that. The kid-only idea was great to start because it captured people's imaginations and brought in the initial funding. I think without the hype of $100 pretty laptop for poor kids, they wouldn't have made it this far. But given they have created such a great product, it seems silly not to sell to whoever will buy it and use that revenue to pay for their main mission. Hopefully, that would dampen some of the black market demand.

You mention cell phones. A next step or maybe a parallel step could be getting their Sugar operating system on some common cells phone or PDAs. Google Phone, anyone?
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Business model
Submitted by Paul Rigterink on November 30, 2007 - 11:49.
Poor people need a complete set of supplies necessary to make a living. A $100 laptop is not the only item that might need. Given that the poorest people in many countries may only make only $2/day, it is difficult to believe that a $100 laptop would be a good investment.
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Its not the technology stupid!
Submitted by Bal Joshi on December 1, 2007 - 11:00.

I love the line it’s not the Technology Stupid! That is a mantra IT companies need to embed in their head prior to delivering a value either in developing country or developed country. Bet it OLPC or just a simple shovel to dig a ditch..as long as there is no sound value proposition that makes a positive impact delivering social and an economic value, NO ONE WILL ADOPT IT! So the question is WHAT IS THE VALUE you are delivering to that market segment and HOW are you planning to deliver that value? Any business smart person would put this out as “What is the business model? Or in Silicon valley “what is the secret sauce?”

Irony in most of the talks around BOP issue is the market is always identified as a market of “POOR” people. Poor relates to a segment that can only sustain thru charity…if you want to do business with them treat them like a potential market who has 2 dollar a day budget…How or Can you reposition your product to deliver your product mix? Walmart the most successful retail chain in the Universe, never market it self as “Walmart! Saving money for the poor people”…They have identified an approach that caters to market that is price sensitive… I think the similar approach needs to be considered in rolling a product in BOP market.

Negroponte like many of the other folks who tried to approach these markets have failed horribly. The top down Techno-centric approach will NOT work. The responsibility for failure is due to approach (business model) than the market. I think world has to learn from the success of cell phones. Why in these emerging economies where their spending capacity is branded as economy earning $2/day is suddenly the fastest growing market for cell phones…. Dissect their success…you will find the right “Sauce Recipe”

 


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Reports of the OLPC's death are premature
Submitted by Larry Press on December 8, 2007 - 10:07.
A few comments:


Its hardware and software innovation make the OLPC machine qualitatively different than the Intel/Microsoft/AMD offerings -- it remains to be seen how they will be received.


One should not view the OLPC machine as a laptop a poor person might buy instead of buying a TV set or food, one should view it as educational infrastructure purchased by the government.


It remains to be seen what sort of software development community forms around the OLPC. If it is substantial and creative, the qualitative difference mentioned above will grow.


Uruguay plans to roll the OLPC out in conjunction with Internet connectivity. I believe that is critical. The value of the OLPC (or any other computer) is significantly enhanced by the complementary infrastructure of the Internet.


Internet connectivity should also be viewed as infrastructure. Yes, many telecenters have failed, but that does not mean connectivity infrastructure is a poor investment. The ongoing lesson of the Internet, since the NSFNET days, is that a relatively small investment in infrastructure can yield enormous returns in investment and innovation at the edge of the network.

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The OLPC works for a lot of Nigerians
Submitted by LawrenceH on December 13, 2007 - 07:14.
Today, thousands of university students and workers in Nigeria are buying refurbished Pentium 2 laptops that have less functionality than the XO for about $250 and most of the machines die within 9 months. I believe that if the XO is offered commercially in Nigeria at $200, it would be possible to sell 1 million in a year. Many middle-class Nigerians like myself would buy them for our children, instead of mobile phones; the banks would easily give loans for the purchase using the laptop as its own collateral. The target customer has to change to parents and young adults buying their first PCs to do wordprocessing, check mails and access the Internet (which is what computers are used for 90% of the time here) The power saving features are huge benefits given the epileptic power supply even in urban areas. The XO is not a toy. Like microfinance, it meets needs for people in the BoP, not only children.
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Finally - a OLPC business model
Submitted by Allen Hammond on December 13, 2007 - 09:19.
Here, at last, is the beginnings of a business model for the OLPC. It is precisely by listening to the market that the real value proposition can be discovered, and that is the beginning of a sustainable (profitable) business strategy. But usually it is useful to do this kind of market soundings before investing years and many millions of dollars in developing the technology. Again the point is, especially for the developing world, start with market knowledge and then with a business model--not with the technology. And yes, the XO does meet the needs of the BoP, but it is specifically designed for children - not for entrepreneurs, not for university students. That's the sort of thinking that needed to happen years ago.
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How is taking away the poor's money good for poverty alleviation
Submitted by Jakob on December 28, 2007 - 17:46.
Hello, I am new to this 'Next Billion' and 'Bottom of the Pyramid' concept. I don't understand how taking away the poor's money is good for poverty alleviation. There are just a very few basic things the poor need: 1. nutrition & health 2. education 3. energy These three (and other such basics) are all typically services that only the state can deliver. Privatise these, and more poverty is the result. It seems to me that the 'BOP' and 'Next Billion' idea is a bit passé, in that it simply wants to privatise the very basics that cannot be privatised. Is it just an exercise to be as evil as possible?
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XO computer
Submitted by Steve Cisler on January 3, 2008 - 17:55.
I don't think the XO will go the way of the Simputer (remember that one?) but it may not achieve the targets hoped for by NN. Selling millions was his business model, and it has not happened. It will be important to watch what happens in Uruguay, Peru, and Mexico (Carlos Slim's foundation has ordered about 50,000 or so). I took part in the give one/get one and am amazed at what they stuffed into a machine costing about $180. However, it needs decent manuals for teachers, for other adults, and for kids. And not just a wiki. Ongoing local support is a must. Without relatively fast connectivity I think it will be hard for remote schools to handle the patches and upgrades that are sure to follow in 2008. I don't think there will be a common set of ways of measuring success of this program from country to country. Strong sales are just the start.
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