Four IT trends that lure investors to schools

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.