Tapping the Bottom of the

Pyramid
Innovating Business Strategies to Serve
the Next Billion Digital Consumers

February 10, 2006

Rice University

The Landscape
The Opportunity
Being the first to serve the next billion computing
consumers
Initial experiences yield tremendous brand loyalty
Localized offerings improves defensibility

The Challenges
Creating alternative business models to meet the billion
customers core needs
Affordability
Relevance
Usability
Availability

Helping drive industry changes to better support the

alternative business models

Global Market Opportunity

Market TAM
500Mu

Secure
Client

Desktop
132Mu

PC Market TAM*

ULCPC

191Mu

OLPC
Micro Financing

Subscription

Mobile
52Mu
Workstation

Pre-Pay

Server
1.4Mu

5.5Mu

Subsidized

$1K

$7K

Increasing income
Learnings:
Fastest growing price band for growth markets is $0-$499
New business models are evolving:
Micro-financed payment plans
Subscription ISP plans
Pre-paid (per minute) plans
Subsidized plans (e.g. Government subsidized for education)

* PC TAM from June 2004 PCDB

The Opportunity and The Challenge

Estimated world
population in 2008

Global population and income distribution (2004 World Bank)

High income
(>$20,000
PPP* / year)

Middle income
($4,000 20,000
PPP* / year)

Low income
(<$4,000
PPP* / year)

Population:
528 million
GNI**:
US$ 21 trillion

Population:
115 million
GNI:
US$ 3 trillion

Population:
Very small
GNI:
Very low

Population:
427 million
GNI:
US$ 6 trillion

Population:
1,000 million
GNI:
US$ 8 trillion

Population:
50 million
GNI:
US$224 million

Population:
6 million
GNI:
Very low

Population:
2,800 million
GNI:
US$ 6 trillion

Population:
1,000 million
GNI:
US$ 1 trillion

Developed
countries (e.g.,
US, W. Europe,
Japan)

Emerging
countries (e.g.,
Brazil, China,
India)

650 million
people

1.5 billion
people

3.8 billion
people

Underdeveloped
countries
(e.g., Somalia)

Legend
Mature markets
* PPP = Purchasing power parity
** GNI = Gross national income

high-growth markets

Bottom of the Pyramid

markets

Hi Income
(250MM HHs)

Medium Income
(500MM HHs)

Low Income
(550MM HHs)

The Next Billion Consumers: India & China

Total population living in households earning
more than USD 5,000 per year*
Million people
CAGR ~10%

925.1

Change in number of people in households

earning more than USD 5,000 per year
Millions

544
1,466.7

Consumers
earning USD > 5,000
growing at ~ 10%
CAGR over next
10 years

541.6

268

55
2005

New con- 2015

sumers

India

China

* Countries included are India, China, Russia, Brazil, Mexico, Romania, Poland, and Bulgaria
Source: EIU Market Forecast Database

Russia

38
Brazil

16
Mexico

Economic Realities Drive Business Models In

Emerging Markets
Growth of mobile phone user base*

1200
1000

Prepaid

800
600
400

Subscription

200

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

% Prepaid cellular phone users

USA
China
India
Russia
Thailand
Indonesia

* Excluding W. Europe and North America

Philippines

10
60

65
70
80
85
92

484m

Income often unpredictable and irregular

Resistance to high
up-front payments
Discomfort with fixed
monthly payments
Desire the best for
their families

1400

1,025m

Earning and Consumption

Patterns in Emerging Markets

Million moblie phones

1600

Clear and Growing Demand for Affordability

Approach so far: lower cost & thus price
Only major approach to date
Using existing HW, SW, ODM, OEM, etc chains & designs
Puts most of the load on HW chain

Alternative approaches
Spread cost over time
Microfinancing
Payments tied to related service

Purchase as needed/afforded
Prepayment

Subsidize purchase
Subscription
Subsidization

Income, access to electricity, phone

Subscription, Prepaid and Subsidized Must

Be Tailored To Customer Needs And
Expectations
Classical (a la carte) Computing
High
Income
(250M
HHs)

Medium
Income

Subscription Computing

(500M HHs)

Prepaid Computing
Low
Income
(550M
HHs)

Estimated world
population in 2008

Subsidized Computing

Subscription Computing Model

Income, access to electricity, phone

Subscription Computing
Implementation partner: Fixed-line Telco
High
Income
(250MM
HHs)

Medium
Income
(500MM
HHs)

Low
Income
(550MM
HHs)

Estimated world
population in 2008

PC sold through telco at subsidized upfront price (could be $0)

Fixed monthly payment for PC and
broadband (~$20 per month for 24 m.)
Convenience of one provider/monthly bill

Income, access to electricity, phone

Prepaid Computing Model

Prepaid Computing
High
Income
(250MM
HHs)

Medium
Income
(500MM
HHs)

Low
Income
(550MM
HHs)

Estimated world
population in 2008

Implementation partner: OEM

PC sold through traditional channels at
reduced up-front price (40-60% full price)
Flexible payments enabled through
prepaid cards (~$.40-$1.00 per hour)
Cards must be purchased until target
hours are achieved (~800-1,200 hours)

Microsoft: Prepaid Market Trial Structure in Brazil

Up-front payment by consumer

$267

$444

$622

$0.22

N/A

3,400

2,120

$0.44

2,340

1,700

1,060

$0.88

1,170

850

N/A

$1.32

780

560

N/A

Cost/
hour of
usage

Values in green cells represent hours of use until consumer

no longer needs to purchase prepaid cards

Full Retail
Price =
~$800

Microsoft: Sales In Prepaid Market Trial in Brazil

450
400
350
300

Full Retail
Price =
~$800

250
200
150
100
$267

50

$444

0
Market A
($0.22/hr) Market B Market C
($0.44/hr)
($0.88/hr) Market D
($1.32/hr)

Hourly price

$622

Up-front
price

Income, access to electricity, phone

Subsidized Computing Model: Providing the

Greatest Affordability?

High
Income
(250MM
HHs)

Medium
Income
(500MM
HHs)

Low
Income
(550MM
HHs)

Estimated world
population in 2008

Subsidized Computing
Implementation partner: Service Provider
Subsidized business model should provide
the greatest degree of affordability
Possible subsidizing services:
Advertising
Banking
Other

Key questions not yet answered:

What will target markets accept?

How much subsidization can services provide?

How will physical products be tracked?

Have to Get Several Things Right

Challenge: Creating alternative business models to meet

the billion customers core needs

Affordability
Relevance
Usability
Availability

Affordability via sustainable business model

Relevance: Core application valued by target market

Usability: Product offering must match above seamlessly

Availability: Industry Structure (mfg, distribution, support,

financing, etc) must tie with above

Large screens for entertainment

Secure control for pre-paid & subsidized
Ease of use for first time users

Non-standard vendor-customer relationships

Alternative payment/timing/valuation approaches
New partners in the supply/support chain

Technology designed with the complete system in mind

Financial institutions, Telcomms, Secure Distribution, etc

Thank You