Marketing  the  $100  Laptop  to  a  Global  Education  Audience  

One  Laptop  Per  Child:  A  Case  Analysis  

Zeenat  Rasheed  

 

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I. EXECUTIVE SUMMARY In 2005, One Laptop Per Child (OLPC) developed the “$100 Laptop” and created a new product category within the technology industry: low-cost, lightweight, durable and modern computers that could be used to educate children in the world’s poorest nations, and help alleviate poverty. OLPC offers a unique, differentiated and feature-laden product, customized for developing countries, and the market seems ready to adopt the new technology. However, OLPC also faces some challenges. The company has not begun mass production, as it has yet to meet its self-imposed minimum requirement of 5 million orders needed to keep costs low. OLPC’s minimal clout among suppliers, low production volume, and limited global sales and marketing functions also contribute to its challenges to remain cost-efficient. Additionally, the company needs to negotiate with bureaucratic government bodies to secure commitments of 1 million laptops per country. The company must also respond to aggressive competitor activity. Indeed, since the “$100 Laptop” was announced, OLPC has seen other players enter the category, including established companies such as Intel, AMD and Microsoft. Since OLPC lacks the capital muscle and brand awareness of these entrenched competitors, wars over customers have already begun. In summary, OLPC needs to begin using aggressive marketing strategies in order to gain market share and capitalize on its competitive strengths to ensure that it manages to become a successful enterprise and the global educational tool of choice. II. CASE ANALYSIS OLPC’s potential for growth in this new product category can be examined through the following 5 factors:

Industry Potential

1. Product Life Cycle

2. Market Drivers

3. Cost Drivers

4. Competitive

Drivers

5. Government

Drivers

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1) Product Life Cycle The product category is still in the introductory stage. It has generated a great deal of buzz and excitement within the technology and education sectors, but the nature of this PLC stage is characterized by some challenges:

Lack of Awareness o The concept of a lightweight, ultra-thin laptop that is not highly priced has no current

point of parity. OLPC needs to educate foreign governments and ministries of education about the features of the “$100 Laptop”, explain how the product works, why it is priced the way it is, and, most importantly, how it is superior to their current education techniques. OLPC needs to engage in significant negotiation in order to overcome the confusion and suspicion and “make a sale”.

Increasing Competition o While some competition in this stage usually helps diffuse knowledge about the product

among potential buyers and builds demand, the technology industry is quick to innovate and introduce new or copycat products. Thus, OLPC needs to capitalize on its first-mover advantages and establish itself as the category leader to fend off competitor encroaches; Intel has already launched the Classmate PC, and others are catching up as well.

Cost Inefficiencies

o In order to benefit from economies of scale when launching the product for the first time, OLPC has set a self-imposed minimum of 5 million orders before commencing mass production. OLPC could begin production with smaller orders, but the lack of an established supply-chain and the high costs of testing the product would likely inflate costs and eliminate OLPC’s price advantage. Therefore, OLPC’s entry into the market has been delayed, as threats of competition increase.

2) Market Drivers OLPC’s market includes the governments of countries where the laptops will be sold, as well as the end consumers who will use the product.

Global Market Opportunity o The bulk of future PC growth is expected to come from Brazil, Russia, India and China

(BRIC) and focusing on these countries would likely deliver the biggest successes to OLPC. However, the need for education as a tool of empowerment is global, therefore the solution should be global as well. The “$100 Laptop” was designed and created through contributions from across the world, and OLPC is pursuing a global market strategy by talking to 9+ countries across the world to address the common needs of children in places “where kids are not starving, where kids want to learn more than anything else.” OLPC could focus on countries where wireless penetration is high and adoption may be easier, but that would eliminate many of the very countries that need this technology. Therefore, OLPC is in talks with all markets where a sizeable need exists, and the necessary economic/infrastructural capabilities are available.

Diffusion of Innovation in Developing Countries

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o As proven by the growth of cell-phone technology, consumers in developing countries have great potential to adopt new technology services. However, the speed of consumer adoption is affected by a number of factors that OLPC will need to consider in order to build and maintain market share:

Factor OLPC “$100 Laptop” +/- Affect Relative Advantage

Product: Compact, power-efficient, durable, easily powered, WiFi-enabled, and customized by country

Concept: New, interactive way for children to explore, create, and problem-solve

Children are not prejudiced about what a PC should look like, and will likely accept the OLPC laptop easily

( + )

Complexity & Compatibility

Simple operating system called “XO”; However, may be too complex for consumers where cell-

phones have not taken off and there is no basic understanding of technology (electricity, power on/off buttons, keyboards).

( – )

Trial-ability & Observe-ability

OLPC donated 160 laptops to a school in Uruguay and it was a success; students tried it in school, and showed it to friends and family at home; created excitement and interest.

( + )

Factors Specific to Developing Countries: Low Price (to gain market entry)

Priced at $100 per unit, OLPC laptops are currently the cheapest in the category, and costs are expected to decrease as mass production begins.

( + )

Brand Equity (to convey status and quality)

Although OLPC pioneered the category, it faces increasing competition from established computer manufacturers with high brand awareness (ex: Intel), and lacks the credibility of a brand image that conveys status and high quality.

( – )

3) Cost Drivers Despite being the “$100 Laptop”, OLPC products face challenges from a cost perspective.

Surging Demand, Falling Prices o As innovations in technology increase and cost efficiencies are built into the production

process, the prices of portable computers are falling. As a result, the potential for competitors to quickly make an entrance in the category is strong.

High Out-of-Pocket Costs o OLPC has imposed a minimum of 5 million orders before going into mass production,

and requires an order of 1 million per country. While this would keep OLPC costs low, the $200-250 million out-of-pocket expenditure (including laptops, server equipment and other supporting costs) may be cost-prohibitive for developing countries that may not be able to afford it, or would prefer to invest the funds in traditional education techniques that they feel comfortable with.

o In 2006, OLPC had received purchase orders from Brazil for their laptops, but in 2007, the Brazilian government reportedly ordered Classmate PCs from Intel instead. While Classmate PCs were priced 47% higher than OLPC laptops, it is likely that Intel, with its large capital reserves and modest production goal of 1 million laptops by the end of 2007,

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did not need to place minimum order restrictions on Brazil, and the lower out-of-pocket cost may have sealed the deal.

Not Exactly $100 o Since OLPC has yet to operate on a large-scale basis, its production costs are highly

subject to changes in exchange rates and prices of ingredient materials, such as nickel. As a result, the actual cost per unit is usually higher than $100, however, OLPC intends to have prices decline over time, while features remain constant or are upgraded.

4) Government Drivers While the adoption of technology lies in the hands of the end consumer, OLPC’s first customers are the ministries of education in developing countries. In this regard, OLPC faces a number of challenges:

Bureaucracy o Governments in the developing world are typically very bureaucratic and consist of

complex hierarchies of fickle officials who slow down the negotiation process as they are often set in their ways and resistant to change. They may prefer to put money into traditional methods of education, and be unwilling to invest in the infrastructure necessary to operate the OLPC program in their country (ex: cost of laptops, server equipment, importation, transportation, training, and maintenance).

Systemic Problems o Developing countries with poor literacy rates often suffer from problems that are beyond

the scope of OLPC, such as a lack of teachers, classrooms and textbooks, low school enrollment, especially among girls, and no laws to make school compulsory.

o Additionally, there are environmental crises that may inhibit the success of the program: a lack of basic necessities such as food, water, electricity, and medical care; teen pregnancies, drugs; local violence, and forced fighting in regional conflicts.

5) Competitive Drivers Despite pioneering the product category, OLPC is already facing competition from Intel’s Classmate PC, and other products being developed by companies such as Encore, AMD and Microsoft, all targeting the “next billion” consumers of PCs. At the introductory stage of the product life cycle, competition helps combat the challenge of educating consumers about the category. However, the technology industry is extremely competitive and quick to innovate, and first-mover advantage can only last so long. Followers have the benefit of learning from the first-mover’s mistakes, and can more carefully plan the timing, form and scale of their market entry. Therefore, OLPC needs to analyze its competitive strengths and weaknesses, and implement a global strategy to ensure it gains and maintains maximum market share.

Competitive Strengths Competitive Weaknesses Lowest price per unit in the category ($100) Durable, modern, form factor; designed and

tested for extreme conditions Customization by country, ex: taller tablets for

Thailand to accommodate the Thai alphabet; hand-crank power generator; WiFi networking

Quanta can produce 1 million laptops per

Lacks well-established supply chains and manufacturing operations, so unable to drive down costs further at this stage

Low volume production and limited bargaining power with suppliers means prices are more likely to fluctuate with the market

Lacks a well-established brand name and

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month with rigorous testing, although global monthly production is 5 million units

First in the category; considered pioneer, credible, innovative

Non-profit status increases trust and reduces skepticism; focused on improving education, not making profits

Receiving funds and technological expertise from industry leaders such as Google, Red Hat and News Corp.; provides credibility and ability to continuously innovate

positive associations of credibility, status and high quality

Limited global sales and marketing networks to promote product in different countries

OLPC manages only one product, so cannot cross-subsidize from another successful venture

III. MARKETING PROBLEM At this stage, the key marketing problem facing OLPC is this: how can OLPC reach the minimum order of 5 million laptops it needs to commence mass production? Market drivers suggest that developing countries are ready for OLPC’s innovation. However, it will be cost-prohibitive for the company to launch with less than 5 million units, therefore OLPC needs to promote wide-scale adoption of its concept and technology in order to get started and introduce cost efficiencies into the production process. As mentioned above, OLPC faces challenges from a cost, governmental and competitive perspective. However, another inhibitor to growth may be the attitude that OLPC is in the “human rights business” and that Intel is not a competitor. While noble, this stance may inhibit the success of OLPC. In order for the project to take off and become the educational laptop program of choice, it must be approached as a struggling business that needs a cohesive, global marketing strategy, not simply a philanthropic endeavor. IV. RECOMMENDATION OLPC should maintain its 5 million minimum before commencing mass production. Given its limited supply-chain capabilities, a commitment threshold is the most cost-efficient way to bring the product to market, build supplier relationships, and get to a stage where the per-unit price can stabilize and begin to decrease, which is OLPC’s long-term goal. However, the company should not require a 1 million laptop commitment per country. OLPC’s customers are indecisive government officials in developing countries with limited resources, complex bureaucracies and, often, conflicting priorities. It is likely that a $250-275 million upfront commitment will turn these officials away, especially as this is an untested and unknown product category. Also, these countries are often economically or politically unstable, and therefore price sensitive. It may be difficult for them to discriminate between competing products solely based on features, as all the options are likely to be improvements over the current situation and there is no prejudice for what a PC should look like or do. Thus, decisions may well come down to price and while OLPC is offering the lowest per unit cost, the minimum order limit is likely acting as a deterrent to final commitments. Since OLPC’s production capacity through Quanta is 1 million units per month, the goal should be to ship that many units per month, with less of a focus on the size of the individual orders placed by countries. Instead, individual commitments can be customized to each country’s needs and capacities, and based on

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a laptop to student ratio (ex: 1:10) that is determined by a number of factors, including:

o Market size (number of needy children) o Educational resources (teachers, schools, text books) o Infrastructure (availability of basic resources, roads, supervisory bodies) o Environmental factors (corruption, violence, law enforcement) o Local laws (regulations about non profit operations, access to distribution channels)

Finally, OLPC should maintain its geocentric market approach, and employ an aggressive and competitor-focused global marketing strategy. The objectives of this strategy should be:

Gain market share and neutralize competitive threats through product differentiation Establish category leadership through strategic brand positioning

OLPC can employ some of the following tactics in order to achieve these objectives:

Create product differentiation, by highlighting: o A learning philosophy that places students over teachers, which is advantageous where

teachers are a scarce resource o Lowest cost per unit, and a total cost per child that is lower than just the Classmate PC

laptop o Unique power generation and WiFi features that require no existing infrastructure o New OS that focuses on teaching skills, not computer literacy o Ability to deliver 1 million laptops per month; Intel has that goal as annual output

Develop an innovative and leadership brand image, by emphasizing:

o Innovative pioneer with original “$100 Laptop” o Credible non-profit organization with no hidden agenda; focused on the “last billion” o Global solution to a global problem; buy into this global trend and allow your country to

reach its potential on a world scale o Powerful partners to help with continuous innovation o Low priced product, but not a gadget or toy; high quality and high status product o Customized to individual country; global solution with local adaptations o Easy and effective learning tool for every child who has the passion for learning o Willing to allow consumers to try and observe the laptop, worthy of trust

Promote product trial-ability, by operating:

o Pilot donation programs within each country to gauge student response, create excitement among government officials, and gain insights for product customizations

o Free teacher tutorials o Bundled laptops with educational and training software

These tactics will allow OLPC to meet its goal of 5 million units and kick-start mass production and begin its entry into mainstream markets.