Four IT trends that lure investors to schools

Craig Warren Smith, Jakarta

The first article of this series, presented in this same space on Thursday, encouraged Indonesia's private sector leaders to formulate a strategy for connecting all Indonesia's citizens to digital networks. This article reveals four worldwide trends that make this approach possible.

Trend 1: The big IT multinationals, fending off new competitors from China, are ready to slash prices, create new products and tap their latest R&D to close Indonesia's digital divide.

The unwritten law of IT marketing has always been that the richest 20 percent of your customers provide 80 percent of your revenue. Now that's changing. After the first billion global customers were served, advanced markets have dramatically slows. The only way to absorb the new computing innovations emerging from laboratories is through devising new means of opening up new markets, especially in Asia. Companies such as HP, Cisco, Intel, Microsoftt, Sun Microsystems, Samsung, Oracle and IBM to set up R&D operations in India and China to address this theme.

One by one, they began differentiating their prices, dropping prices at the low end, and altering their product design to reflect the realities of middle class and poor consumers. They also catered, not just to consumers themselves, but to local government agencies, schools and health centers that cater to the poor. They know that, as high cost companies, they can only defend their market share in low-income markets by doing a more clever job of creating "solutions" for poverty than their competitors from low-cost countries like China.

The next step is to create new alliances that allow IT products to fit the realities of the poor -- like low cost PCs -- to be manufactured on a mass scale. Early this year, Thailand under the market-savvy framework of the Thaksin government was the first to broker a cheap (US$200) computer for the masses, reinforced with low cost Internet connection, which has since been adapted to Malaysia, Vietnam and other countries. To participate, Microsoft dropped its Windows and Office prices by nearly 90 percent and then launched a new stripped down version of Windows for the low income market.

Now every major IT company is searching for a formula to enter similar ventures without "cannibalizing" its affluent markets. The goal to "open pent-up demand" among the poor. To make it work the biggest companies need to draw upon their relationships in government and to look to their supply chains to join them in innovative pricing.

Trend 2: The wireless revolution in Asia changed the economics of telecommunications making it inevitable that broadband services and cheap devices can be extended to everyone on an affordable basis under innovative payment formulas.

It has long been known among telecommunications policymakers that connectivity is productivity. Those who aren't connected to the latest telecommunications networks have a much more difficult time generating income than those who are. That is why telecommunications is such a hot political issue. Trying to get the state telecom providers to pay the extra costs of serving the poor and rural areas has been a frustrating exercise for the world's governments.

However, in the past five years the equation suddenly changed when unserved phone markets turned into an opportunity for wireless carriers, who eventually introduced prepaid cards to reach fewer and fewer users, even those who had no credit.

Even more significantly, new wireless innovations has dramatically lowered the cost of building the infrastructure needed to create phone and Internet connections and, new innovations in laboratories, such as WiMax promise to drop these costs much further.

An innovation called "wireless local loop," tested in Indian villages, demonstrated in a South Indian region, show how all of India could be connected assuming that investors were to bring the innovation up to scale. Anticipating that possibility, the famed Bell Laboratories in the U.S., now owned by Lucent Technologies, has developed a model that shows how a nation's remote schools can get high bandwidth internet connection for all students at a remarkably low cost. Even energy constraints are not outside the scope of these models.

Trend 3: International aid agencies are increasingly investing their funds in ICT and, as they do so, they now see the need to enter new strategic alliances with private sector IT and telcom stakeholders.

In the past decade, a big new trend for these aid agencies has been to promote technology projects.

The important innovation in this area came from Bangalore's famous Grameen Phone, owned by the Norwegian company Telenor. Norway's own ODA agency induced its flagship to acquire Grameen Phone by funding the feasibility study for the new venture. Once it was launched, Grameen Phone created a partnership with a nonprofit bank, Grameen Bank, to offer cell phones to village microentrereneurs who rent them to other villagers.

This model is now very well known and imitated around the world. Less well known is the fact that the company's financing strategy was also assisted by its reputation for being socially responsible.

Trend 4: The education sector is where all stakeholders come together.

In the early years of the information revolution in Silicon Valley Apple Computers won its greatest success in school systems. It was partly because the company was able to get schools to see the value of computers before consumer markets were developed. It was also because Apple wanted students to become loyal to its brand and familiar with its platform so that, later on, they would purchase their own Apple Computers.

Apple's dreams of market dominance may not have been fulfilled but its education marketing practices were copied by all major IT and telecom corporations introducing digital innovations.

Now, in emerging markets such as Indonesia, the education sector is once again emerging as an "anchor" for alliance partners whose ultimate aim is to bring new consumers onto markets. What brings these education-marketers into alliance is a concept called "ecosystem."

As these marketers use the term is refers, not to natural environmentalist, but to an organic intertwining of supply chains in which large and small companies join together to create an "ecosystem" of products and services. Any one of these products may not be economically viable in itself but in combination with the others it can serve low-income consumers on a profitable basis.

Just as the corporate "enterprise market" the anchor for urban ecosystems, the education sector is the anchor for bringing together big and small IT corporations, telecommunications operators, software developers and many others to show how schools could better serve their customers -- the students.

Thanks to the four trends mentioned above, the stage is set for the new government to encourage new alliances the bring the very latest technology into the education system to jump-start markets in Indonesia's countryside.

Craig Warren Smith (craigwarrensmith@hotmail.com) has assumed several leadership role in the effort to close Digital Divide, including helping to establish the UN ICT Task Force.