Why Cheap is Important & How to Get There —
By Suneet Singh Tuli — The Mark News —
The power of the Internet is unquestionable. For many of us, over the last 20 years, it’s become an integral part of our lives. The positive impact of Internet access is even more evident across the developing world. The Arab Spring illustrated the power of social networking in helping to overthrow authoritarian regimes. Remote learning tools are helping deliver quality education to students in rural India, where teacher absenteeism has reached epidemic proportions. Online education at home offers girls in certain regions of Afghanistan a safe environment in which to learn until security can be restored.
Despite this, the number of Internet users in Asia, Africa, and South/Central America is dismally small. In India, a country with more than 1.2 billion people, less than 15 million broadband connections exist, and less than 10 percent of the population has any online access. In all, around 70 percent of the world’s population is still offline.
This lack of Internet penetration is often blamed on the lack of electricity, the lack of network access, or even the perceived complexity of computers. Over the last few years, however, the spread of mobile phones has cast doubt on such arguments.
Globally, more than five billion people utilize six billion mobile phone connections, while two billion people access one billion Internet connections. Clearly, those three billion additional mobile phone users have figured out a way to get electricity to charge their phones. Even if they don’t have home access to electricity, charging stations (which are now common across Africa) and pay-per-use solar panels provide access to electric power.
Mobile phone users also have access to networks for connectivity. Network optimization technologies similar to those deployed by DataWind deliver online access even across highly congested 2.5G mobile networks in the developing world, without requiring network operators to make new investments in infrastructure or purchase additional wireless spectrum.
Those of us that started using computers in the 1970s understand the learning curve that existed for computer users 30 years ago. But things have gotten easier with new graphical user interfaces and touch screens common to tablet computers. Over time, we’ve seen “fruit walas” (who sell fruits and vegetables off carts) adopt tablet devices in experiments conducted in India, where users may have low levels of literacy. The economic benefits to their business were a strong motivator. The complexity of computers is no longer a barrier to Internet adoption.
Affordability is the primary cause of the digital divide. Our analysis shows that mass adoption of computers in the United States was enabled when prices dropped below $1,000 per computing system, which at the time reflected less than a week’s salary for the target American customer. For the same to happen in India, we realized that devices would need to sell for less than $50. The challenge of building a capable tablet computer that could be delivered to the consumer for less than $50 required more than making lower-cost hardware. It required innovating a new business model and disrupting traditional distribution models.
While traditional hardware manufacturers burden the consumer with their full profits at the point of sale, we realized that significant revenues are generated over the life of the product, and that a new business model could be developed to shift the burden of margins over the product’s life. For instance, the ability to sell content such as e-books, music, movies, and a broad range of applications, as well as to run advertising on many of the applications and the web browser, generates revenue opportunities even after the sale of the hardware. These recurring revenue streams allow a reduction in margins allocated to hardware, making devices more affordable and accessible.
By designing products to fit a low price, and maintaining sufficient (what we call “good enough”) capability, we were also able to achieve a more economical product design. To further impact hardware costs, we focused on key components with the highest gross margins and developed the technology necessary to make them ourselves, thus allowing us to pass on the savings to consumers.
These “frugal innovations” are no longer small-scale experiments. Our efforts have resulted in the world’s lowest-cost tablet computers and allowed the tablet market in India to grow by a factor of more than 10 times. (It will exceed the size of the PC market by next year.) The next billion Internet users are coming on board fast and furious, and the resulting empowerment of humanity can’t be underestimated.
Suneet Singh Tuli is the founder and CEO of DataWind Ltd. He was included in Forbes magazine’s “Impact 15” list in 2012.