Microsoft and Intel have backed a new pay-as-you-compute program to get PCs into the hands of more people in developing countries in Latin America and Asia. They say their approach to those untapped markets could be more successful than a low-cost laptop program funded by competitors and Massachusetts Institute of Technology professor Nicholas Negroponte.
The companies will disclose Monday the beginning of a second trial with several thousand consumers in Brazil of a program that lets people buy a PC at retail for about half its usual cost, then pay off the balance through hourly usage fees. The goal of the program is to expand the PC market in countries where many consumers have low incomes and difficult access to credit. Microsoft has run an initial trial in Brazil for the past year and plans to expand the program to China, India, Mexico, and Russia in the coming months.
Under the program, called "FlexGo," a PC running Windows XP with a 17-inch monitor that normally sells for $600 would be sold for between $250 and $350, with 10 hours of usage time included. Prepaid cards available at stores would buy additional time for about 75 cents per hour, according to Mike Wickstrand, a director in Microsoft's market expansion group. Once time expires, the PC enters a special limited mode and eventually locks up, unless the user purchases more time.
Consumers in developing countries want a full-featured PC like the ones they use in schools and Internet cafes, Wickstrand says. "The person isn't making sacrifices."
Next year, MIT Media Lab founder Nicholas Negroponte plans to start distributing a $100 laptop in countries including China, India, Brazil, and Thailand. The bright green machines feature a small, 8-inch screen and a hand crank for generating power where there's no electrical grid. Google, Red Hat, and Advanced Micro Devices have each invested $2 million in the program, called One Laptop Per Child. Prototypes of the machines use a monochromatic display for word processing and switch to lower-resolution color for Web surfing.
Willy Agatstein, a VP in Intel's emerging markets program, says Negroponte's laptop could wind up costing more than expected. "A $100 price point is a very ambitious goal," he says. As the venture draws closer to delivering a product, "the costs become real," he notes.
Microsoft, Intel, and other technology companies have been investing billions of dollars in market research, engineering, and marketing to consumers in Latin America, India, China, and Russia, which they see as new markets for their products as business grows more slowly in the United States, Europe, Japan, and other countries with high technology adoption. But the prices, products, and distribution tactics that work in the first world haven't succeeded in emerging markets.
Intel in India sells a "Community PC" that can withstand high temperatures and dust for about $425. In Latin America, an Intel-designed "affordable PC" sells for $230 to $320, depending on local taxes. The Mexican government is buying 400,000 of them to distribute to schools. Earlier this month, Intel CEO Paul Otellini demonstrated a prototype portable computing device code-named "Eduwise" for taking practice exams and viewing presentations. It would target India and Mexico, where students don't have enough textbooks, there aren't enough qualified teachers, and classrooms are overcrowded, says Agatstein.
Microsoft has sold a low-priced "Starter Edition" of Windows XP for emerging markets and has developed a similar version of the upcoming Windows Vista system for sale in India, Russia, Mexico, Brazil, Thailand, and Indonesia.
With the FlexGo program, Microsoft and Intel hope hourly payments can help smooth out the cost of affording PCs for consumers whose incomes are often unpredictable. That makes traditional financing programs hard to market. In the Brazilian trials, bank HSBC Holdings will handle the credit, and retailer Magazine Luiza will sell the computers and prepaid cards, which contain a special code that users can enter on their screens to buy more time. Changes in Windows and Intel's boards keep track of time spent computing and let users recharge the systems with more hours.
Other companies involved in the program include Mexican phone company Telmex and Chinese PC maker Lenovo Group, which will manufacture FlexGo machines for sale in China and India.