Techaisle Blog

Increasing profitability, improving workforce productivity and reducing operational costs are among the top five business issues for SMBs in the Asia/Pacific region. Cost is sometimes a tricky item to nail down as too often SMBs focus on short term costs. In most cases this approach is absolutely valid but it can lead to situations that cost them more. The choice between maintaining older PCs and replacing them with newer PCs is one such area. Techaisle, conducted a Pan-Asia survey of 2156 SMBs in five countries to understand the comparative differences in costs of maintaining older & newer PCs and associated quantifiable productivity lost and the impact of newer PCs. Findings from the survey, commissioned by Microsoft & Intel, and driving Microsoft’s “Make the Shift Campaign” in the Pan-Asian region, uncovers that the cost of upkeeping a PC older than four years can be used to purchase at least two new Modern PCs.

The study reveals that the cost of owning a 4 year or older PC by an SMB is US$2,736 which is 2.7 times the cost for a PC that is less than 4 years old. The study also revealed that an average of 112 hours is lost due to downtime of an older PC, a number that is 3.1X of newer PCs. This is a “stealth” cost that drains cash flow and adds to the operating cost of an SMB which they can hardly afford. Cost implications vary for SMBs of different sizes.

In the first part of a three-part series, this post examines the growth of BRIC SMB IT markets, and their ranking relative to other markets. Here we will discuss the Top 10 markets from an SMB IT Spending perspective, and while it is well known that emerging markets grow faster from a smaller base, the absolute rankings of large markets tend to be relatively stable except in the case of exceptional growth, making it an important milestone. This is the case for China, in this forecast as it replaces Germany in its’ longstanding position of the third largest SMB IT Market. Other changes in ranking are that Brazil replaces Italy, and India comes into the Top 10 by the end of the forecast period. Korea displaced Australia as #10 in 2011 and manages to stay within the group throughout the forecast. The primary reason for this displacement is similar to that of other economic segments: sheer volume increase based on population and higher GDP per capita.

According to this Forbes article, the equity value of the BRIC economy financial markets peaked at 18% of the global value in mid-2011, and grew four-fold in the previous ten years. As a general rule, technology adoption lags economic growth and depends on many factors. This accounts for the slower climb up the rankings when compared with the overall economy, and is exacerbated by the fact that SMB IT adoption radiates from Tier 1 Cities to Tiers 2 and 3 as infrastructure allows.

Even so, we can see the fundamental differences in the market structures between Germany and China shown in this graph, despite the huge volume increase in China. Germany demonstrates a much more mature mix of IT products and services, weighted toward value-added segments of Software and Services, while the China market remains very hardware centric; almost half the opportunity is still hardware devices by the end of the forecast period. However, China is different than many other emerging markets because it is not only strategic as an end user market, it is also critical as a supplier to the world and to its’ own domestic market. The history of the IT market in Asia Pacific, especially since introduction of the standard PC architecture, has been a race between US brands and local manufacturers whose production is adopted in the domestic market through osmosis along with cultural and distribution advantages. In the case of China, this is more serious as it becomes an increasingly important global segment; on one hand there is a push to open the market while on the other US giants like Apple, IBM, Intel and Microsoft become more reliant on the Chinese Consumer and Enterprise IT markets.

There will be increasing international pressure to make sure there is a “level playing field” in China, as we have seen from initial forays like the Huawei controversy earlier this year. PC maker Lenovo is going very strong in the global market, having reached the #1 vendor in unit shipments worldwide in a relatively short period of time, and snatching three times more domestic market share than the nearest competitor. Lenovo and Huawei have also pushed Apple to sixth place in the Chinese mobile handset market, despite Apple manufacturing tens of millions of handsets and tablets in China. Welcome to the global economy.

In India the Netbooks were launched about 16-18 months ago, however, growth in terms of sales has been seen only in the last couple of months. One of the major reasons for the growth has been product promotions by the respective vendors by introducing a low-cost “cousin” of the notebook during the economic crisis period. Though the ratio of notebooks to Netbooks remains low the channels see the growth as a positive trend. Netbook volumes are being driven by businesses.

While the Netbook market is still in its nascent phase in India, the channels in India feel that there is a latent market opportunity within three different segments driven by either usage or price-points.

First Segment: Mobile Segment
Initially the netbooks are being purchased by “new-age customers who have a desire to stay connected at all times”. These are:

• Students,


• Frequent travelers,


• Sales and marketing professionals

The market is seeing its usage in the corporate segment as businesses “are placing orders for Netbooks for those employees who were non-users of computing products earlier or for employees who are traveling. We are starting to see orders in batches of 10 netbooks to 25 netbooks for internal teams within SMBs and other businesses”. The low-cost is not the only factor for this segment driving sales, but portability, small size, internet connectivity and smooth functioning of Office applications are other reasons. The channel partners feel that netbooks successfully address an entry level price-point for the segment.

Second Segment: Second PC Household Segment
There are essentially two different types of consumer segments that are either purchasing netbooks or are currently investigating purchasing netbooks. The first type consists of students and children within households:

“Netbooks are essentially being purchased as a second PC by consumers in India. Netbooks may never become the choice for most Indian consumers, who are yet to buy their first PC, however parents are buying Netbooks for their younger children/toddlers for their educational needs or in lieu of video gaming products. This shift from notebook to Netbook preference is due reasonable price, low risk and easy maintenance.”

They see its usefulness in day to day activities like simple office applications or for music, entertainment, instant connectivity to social networking websites, video chatting, video streaming, E-mailing.

The second type of consumer segment is also buying Netbook as a second PC but who require and have a pressing need to segregate work units such as specifically for accounting or for side-business such as real estate or life insurance. They view that the basic applications for which a Netbook are web based applications, simple office applications like Word, Excel and PowerPoint presentations. They see its usefulness in day to day activities like financial transactions and E-mailing.

Third Segment: “White Goods” Segment
Currently a Netbook is “tagged” as a computer/computing device and its price point is in the INR15,000 – INR20,000 (US$330 – US$450) range. Once the price point comes below INR10,000 (US$220) the market will likely explode. And that time the vendors should sell Netbooks as “white good gadget” and not as a computer. It will establish itself as an essential item to purchase by females within households, a “must-have” gadget/device/appliance. “We have seen many women of the household buying a Netbook but hesitatingly”.

Why hesitatingly? Channels feel that Intel should bring in some concrete marketing and promotional activities to create awareness for its Atom Processor as many consumers are more processor conscious. If consumers are buying a PC it is because they have the money to buy one and therefore they try to go for a notebook. This trend has been witnessed in the non-metro cities like Nashik, Cochin, Chandigarh, Lucknow, Allahabad , Ranchi to name a few where many consumers are buying their first PCs. With no space constraints and no travel needs, the consumers in Tier 3 and beyond cities follow the mantra of “Bigger the Better”.

Consumers buy cell phones based on price, plan and usage requirements. They do not know and do not care about the processor inside a cell phone. Netbooks although fitting a space between mobile phones and notebooks due to its inherent initial marketing is forcing the consumer to inquire about processors. “It is perceived as an advanced version of a PDA and a far better alternative to high end mobiles”. Channels themselves are selling PCs based on type of processor. Many channels in India believe that either Intel should create more awareness of its processor or take the discussion of processor completely out of the equation and lower the price points.

All major vendors such as Dell, HP, Acer, HCL and Lenovo have launched their Netbook models in India. Brands like MSI, Simmtronics Asus, Benq, Samsung, LG and Sony also have a presence in the Indian market. Many channel partners are of the opinion that if the respective vendors bring the price somewhere below INR10,000 with restructured margins there is no second thought that the demand for Netbooks will grow by leaps and bounds as it aims to provide mobility solution for users including traveling salesmen, housewives, teenagers and consumers who require a stylish internet-surfing device. Then it would not be used as a computing product but also be able to penetrate the market as a “white good gadget” fulfilling needs like video streaming, audio communication & entertainment and gaming. It would clearly become a single product substituting the mobile, MP3, MP4 players, DVD Players and PSP consoles.

A planned intelligent marketing strategy for netbooks is required.

Gitika Bajaj
Techaisle

We at Techaisle just completed a large 10 country survey of SMBs. I will showcase interesting data from that study from time to time. One of the key things the data reveals is that small businesses are very likely to drive Netbook sales in the coming months. There are two things that the data reveals

1. SBs in emerging markets are particularly interested in acquiring netbooks

2. SBs with > 20 employees show higher purchase intent than smaller SBs

The last point is particularly interesting because while the Netbook was conceived as a low cost consumer device, it is being rapidly adopted by businesses. This has several implications

- There is significant latent demand for a low cost ultra-mobile device in business markets

- The lines between "consumer" and "business" devices in the mobile computing world are clearly blurred. Thank the Blackberrys and the iPhones for that. Any distinction now is typically propagated by device manufacturers to avoid potential cannibalization of existing products

- Computing is no longer defined solely by "Intel/AMD + Microsoft + Google". While these players remain dominant, there is a lot of entropy in this eco-system now. nVidia is spreading its wings with the Tegra chips for mobile devices and GPU based processing (already available in the MacBook Air).

While a lot of applications on these new devices will likely be purely consumer oriented, there is no doubt that the creativity of software developers will lead to interesting applications for the business world as well. For example, Tegra chips deliver 1080P HD video - a boon for consumer devices but no doubt business users could use it for HD videoconferencing and other applications.

For small businesses it will invariably mean more choices for computing on the go. Ultimately though the decision to use one device over another depends upon the applications available once the initial excitement and hype of a new user experience has waned. So while these devices will be battlegrounds, the defining battles will largely be between software companies.

More information about the survey can be found here

Abhijeet Rane

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