The laptop wars

Tuesday, January 8, 2008

Will charity or profit end the digital divide?

When a plan to create a $100 laptop was announced three years ago at the World Economic Forum, it seemed like a stroke of genius. Here was an opportunity for the global business elite gathered in Davos to show they had a heart, and to do so in a genuinely useful way?by developing a cheap way to bridge the digital divide and extend the benefits of the IT revolution to millions of children in the developing world.

Nicholas Negroponte, the MIT professor who came up with the idea, was celebrated (once again) as a visionary. Several firms stumped up an initial $2m each to get the project going, including AMD, NewsCorp, eBay, Google, Nortel and Red Hat. The United Nations also was an enthusiastic supporter.

Today, everything looks a lot messier. Not for the first time, Mr Negroponte has found himself at war with a giant of the computer industry, Intel, which last week quit the One Laptop Per Child (OLPC) consortium that is making the education-oriented laptop, called the XO. Intel had long been critical of the project, but seemed to change its mind last summer, joining the OLPC board and agreeing to supply its chips as an alternative to the original AMD chips.

But on January 3rd, it pulled out, citing a “philosophical impasse.” The firm, which already has a low-cost laptop of its own, says it believes there should be competition to supply cheap laptops to children in the developing world, but that OLPC wanted it to focus only on the XO.

The XO had been making slower progress than hoped towards the $100 price tag, despite a two-pronged cost-cutting strategy. One prong was to save on software by keeping the machines fairly simple?”good-enough computing”?and using an open source “skinny Linux” operating system.

The other was to avoid retail sales, marketing and distribution, which account for around half the price of a typical laptop. Instead, the laptops would be sold directly to governments and allocated to schools using existing textbook distribution channels.

But in November 2007, Mr Negroponte launched a “Give One, Get One” scheme in America to encourage people to pay $399 for two of the laptops, one of which would be given to child in the developing world. This valued the laptop at nearly double the hoped for $100. Reportedly, some 162,000 have been sold since early November, raising $35m (Mr Negroponte hopes to sell 2m-3m laptops in 2008).

Such a scheme was necessary not least because the expected?and, in several cases, promised?governmental demand has not been forthcoming. Mr Negroponte blamed this in part on Intel, which he said had aggressively marketed its own education-oriented laptop, the Classmate.

Although the Classmate costs $285, it includes a branded Intel chip and Microsoft software, both of which the XO lacks. Moreover, Intel salespeople had allegedly been bad-mouthing the XO. According to Mr Negroponte, quoted in Fortune, they told a representative of the government of Peru, which had just ordered 270,000 XOs, “the XO doesn?t work, and you have no idea the mistake you?ve made.”

Moreover, Intel was allegedly even using its membership of the OLPC board as evidence of the validity of its negative information. “Intel?s own people tell us Classmate is a dog,” Mr Negroponte told Newsweek after Intel?s decision to quit.

If true, Intel?s behaviour shows the chip giant in a poor light. Yet the underlying issue is whether Mr Negroponte and his fellow do-gooding Davos men and women simply underestimated the power and vitality of market forces. Nobody disputes the merits of making laptops available cheaply to children in the developing world. But does this need to be done as an act of charity? After all, this is supposedly the era of “bottom of the pyramid” markets, when companies are discovering there are fortunes to be made designing products for the world?s poorer consumers.

Already, the booming mobile-phone business in developing countries like China and India has shown that digital technology can spread at an incredible rate among poor consumers when pursued as a for-profit activity. No one thinks that mobile phones would have spread so fast if the task had been left to non-profit providers.

The key question is whether there is a potentially profitable market for cheap laptops in the developing world. If the for-profit option would only be viable at a price that makes it too high for many of the neediest children, then the case for charity remains powerful. If there is a viable for-profit strategy, however, then there are strong grounds to believe that supplying these laptops is best done for-profit, rather than out of charity or corporate social responsibility.

Attracting capital for large-scale operations is easier for corporations than charities. Such capital may have more staying power than donations, which can easily dry up if some other cause becomes more attractive or the donor?s finances get squeezed and it needs relatively painless cost-cutting.

Judging by Intel?s enthusiasm for selling the Classmate, there may be a decent for-profit market to be created.

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