Tech Giants, Nonprofits Make Ambitious Push With Cheap PCs

With every computing advance, the digital divide widens, pushing already disadvantaged parts of the world further down the opportunity curve. Now, after years of hand-wringing over the problem, the tech industry is addressing it. Researcher Nicholas Negroponte left a cushy job as head of MIT's Media Lab to pursue his dream of developing laptops that, at $100 each, are within reach of schools in remote parts of the world. And just last week, Advanced Micro Devices, Intel, Microsoft, and others put more of their skin in the game by promoting new models of PC distribution and financing that will put full-featured computers into the hands of people who otherwise couldn't afford them.

Microsoft is leading a trial in Brazil under which thousands of consumers will be able to buy PCs at half the usual cost, then pay off the balance through hourly usage fees. Microsoft is teaming with Intel and AMD on the project, which will expand to China, India, Mexico, and Russia in the coming months.

Meantime, AMD, Intel, Microsoft, and others are investing billions of dollars in research, engineering, and marketing to target consumers in China, India, Latin America, and Russia, which represent promising markets for their products as growth slows in the United States, Europe, and Japan. They now recognize that the pricing, products, and distribution tactics that work in developed countries don't always work in the developing world. And if they're successful, they'll make some additional waves by creating work and educational opportunities in places where technology has made few inroads.

Microsoft began testing the new PC distribution model in Brazil last year. Under the pay-as-you-compute program, a PC running Windows XP with a 17-inch monitor that normally would sell for $600 will be sold for between $250 and $350, with 10 hours of usage time. Pre-paid cards available in stores give users additional time for about 75 cents per hour, says Mike Wickstrand, a director in Microsoft's market expansion group. When time expires, the PC enters a special limited mode and eventually will lock up unless users buy more time. The strategy is based on the belief that consumers won't settle for a stripped-down PC that lacks the features they already know about from Internet cafes and schools. "The person isn't making sacrifices," Wickstrand says.

Crank Them Up
The One Laptop Per Child initiative led by MIT and Negroponte takes a different tack. The goal there is to provide $100 laptops--including one that can be powered by a hand crank--to schoolchildren in developing countries starting next year. Another initiative, called pc-1 from processor maker VIA Technologies, already has seeded China, India, Vietnam, and other countries with tens of thousands of sub-$250 PCs.

Bringing technology to the developing world was a main focus at the World Congress on Informa- tion Technology in Austin, Texas, earlier this month. There, Hector Ruiz, CEO of home-town microprocessor maker AMD, outlined the company's 2-year-old 50x15 program, whose goal is to extend Internet access to half the world's population by 2015. Only 15% of the world's 6 billion-plus people now have Internet access, and at current growth rates it would be 2030 before half the world gets there, Ruiz said.

Much of AMD's efforts to date have centered on its Personal Inter- net Communicator, a hardened PC that uses the company's Geode processor and comes equipped with a 56-Kbps modem, an internal hard disk, and four USB ports. The system, which sells for less than $200 without a monitor, is being used in Brazil, the Caribbean, India, Panama, Turkey, Russia, and Uganda, says Billy Edwards, an AMD senior VP and chief innovation officer (see story, Johannesburg, Austin Benefit From Inexpensive Computers).

Intel CEO Paul Otellini used the World Congress to debut the World Ahead Program, under which the chip maker will invest more than $1 billion over five years to improve computing accessibility, Internet connectivity, and education in developing regions.

The Next Billion Consumers
There are more than 800 million Net-connected PCs today, and Intel will reach former CEO Andy Grove's 1 billion goal in 2007, a quarter century after the PC's birth. Reaching 2 billion Net-connected computers is achievable within five years, thanks to the perpetual decline in computing costs. "Forty-one years ago, a transistor cost $5 to manufacture," Otellini said. "Today, that cost is one-millionth of $1. It's now cheaper to produce a transistor than to grow a single grain of rice."

Reaching that next billion users also will require a very different business model for Intel. The company has enjoyed profit margins of 60% or better on PCs, but if it's to meet World Ahead's aggressive price points, it will need to accept much lower margins.

Equipping the world's first billion users took decades because early PCs were underpowered and there was a dearth of compelling software. Intel and others have another factor on their side: Governments in the world's poorest nations, all of which would benefit from economic growth, are eager to cooperate. "Having computer skills can be the difference between making a decent living and forever being locked into poverty in some geographies," says Rob Enderle, a principal of the Enderle Group. "Most of these governments realize this and are very interested in getting computers out into their countries."

Intel has built three computing platforms for developing markets, primarily by using in-region computer makers and service providers that will sell the systems at 20% lower than prevailing prices. The systems will use Intel's mobile Core microprocessors, which are light on power consumption, and support broadband connectivity.

A "low-cost, full-featured" platform will be the first to hit the market. In a deal financed in part by the Mexican government and the Mexican Teachers Union, 300,000 of the PCs will be provided to teachers in that country, at a price of about $300 each. A second platform, the "community PC," is intended for markets such as rural India, where PC kiosks providing shared computing are prevalent. Those systems are expected to be priced at $500 to $600 and can be powered by a car battery. Next year, Intel plans to launch a third machine, a small notebook PC for students and teachers code-named Eduwise that will include interactive education software.

Market Realities
A billion-dollar investment in developing new markets might appear to be a big gamble, but if Intel could take in revenue of as little as $30 on each system sold, the net result would be billions in revenue if the company can reach hundreds of millions of potential new users, says Mark Beckford, general manager of Intel's emerging markets platforms group.

Enderle says Intel and AMD will have to accept lower margins if they expect to play in emerging countries. "The market is going that way anyway, so does Intel embrace it and try to benefit from it, or does Intel get hit right between the eyes?" he says.

Richard Brown, VP of corporate marketing for VIA Technologies, says the company views its pc-1 initiative as an extension of its research and development. VIA, a maker of processors and PC chipsets, has used pc-1 as a vehicle for developing complete PC reference designs and systems that it hopes will lead to millions of units sold annually within a few years.

"This is a two-way process," Brown says. "We are learning, and users are benefiting. This gives us a chance to test out our systems in the field and understand usage models. There's a huge potential demand out there, and you have to address it on a basis that is sustainable and profitable."

But entering emerging markets involves more than providing PCs for $250 or less. The systems go into regions that can be hot and dusty, and local service and support are spotty at best. Ruggedized designs and flash memory instead of fragile disk drives address the environmental challenges. These systems also are designed to work with alternative power options--not just car batteries, but also solar power cells and, in the case of the One Laptop Per Child computer, a crank that gives users 10 minutes of use for every minute they spend cranking.

The OLPC laptop will be equipped with a 2-watt AMD Geode processor, flash memory, built-in Wi-Fi, and a display that will be finalized after OLPC chooses among a dozen options headed to a June bake-off. The power crank has been moved from the laptop itself, as the original design specified, to a power adapter, reducing stress on the system. Although OLPC and its partners will work to ensure power capabilities at school installations, the crank is expected to be particularly useful to children using the systems at home, where there often is no power infrastructure.

OLPC's goal is to deploy between 5 million and 10 million laptops in Argentina, Brazil, China, Egypt, India, Nigeria, and Thailand by 2007. The first machines are likely to have a price close to 100 euros (about $128), but Walter Bender, president of software content for OLPC, expects them to hit $100 by 2008. OLPC intends to distribute 100 million laptops within two years.

The ultimate success of the "poor man's PC" will hinge not only on making it cheaper, but also on ensuring that the system meets the needs and expectations of users, says Roger Kay, an analyst with Endpoint Technologies Associates. "Certainly, people in developing markets are very price sensitive, but they have aspirations also, and they would like to have pretty much what we have," Kay says. "There are design elements that are specifically developing world-oriented, but one of the issues with cheap PCs is that if they are not full-featured, the user is going to be disappointed."

--with Aaron Ricadela