amd bottomofthepyramid hector ruiz
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Tapping the Bottom of the
Pyramid
Innovating Business Strategies to Servethe Next Billion Digital Consumers
February 10, 2006Rice University
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The Landscape
The Opportunity
Being the first to serve the next billion computingconsumers
Initial experiences yield tremendous brand loyalty
Localized offerings improves defensibility
The Challenges Creating alternative business models to meet the billion
customers core needsAffordability
Relevance
Usability
Availability
Helping drive industry changes to better support thealternative business models
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Global Market Opportunity
Market TAM500Mu
191MuPC Market TAM*132Mu
52Mu
5.5Mu 1.4Mu
Desktop
Mobile
Workstation
Server
$1K $7K
* PC TAM from June 2004 PCDB
Increasing income
Subsidized
Pre-Pay
Subscription
OLPCULCPC
Secure
Client
Micro Financing
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)
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The Opportunity and The Challenge
Under-
developedcountries(e.g., Somalia)
Global population and income distribution (2004 World Bank)
Legend
Mature markets high-growth markets
Bottom of the Pyramid
markets
Developed
countries (e.g.,US, W. Europe,Japan)
Emerging
countries (e.g.,Brazil, China,India)
Low income($20,000PPP* / year)
650 millionpeople
1.5 billionpeople
3.8 billionpeople
Population:528 million
GNI**:US$ 21 trillion
Population:427 millionGNI:US$ 6 trillion
Population:6 millionGNI:Very low
Population:2,800 millionGNI:US$ 6 trillion
Population:1,000 millionGNI:US$ 1 trillion
Population:1,000 millionGNI:US$ 8 trillion
Population:115 million
GNI:US$ 3 trillion
Population:50 millionGNI:US$224 million
Population:Very small
GNI:Very low
* PPP = Purchasing power parity** GNI = Gross national income
Estimated world
population in 2008
Hi Income(250MM HHs)
Medium Income(500MM HHs)
Low Income(550MM HHs)
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Change in number of people in householdsearning more than USD 5,000 per year
Millions
* Countries included are India, China, Russia, Brazil, Mexico, Romania, Poland, and Bulgaria
Source: EIU Market Forecast Database
Total population living in households earningmore than USD 5,000 per year*
Million people
2005 New con-sumers
2015
541.6
925.1 1,466.7
5538
16
544
268
India China Russia Brazil Mexico
The Next Billion Consumers: India & China
Consumersearning USD > 5,000
growing at ~ 10%CAGR over next
10 years
CAGR ~10%
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Earning and ConsumptionPatterns in Emerging Markets
Income often unpre-dictable and irregular
Resistance to highup-front payments
Discomfort with fixedmonthly payments
Desire the best for
their families
* Excluding W. Europe and North America
Growth of mobile phone user base*
Millionmobliepho
nes
484m
1,025m
1600
1400
1200
1000
800
600
400
200
0
Prepaid
Subscription2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Economic Realities Drive Business Models InEmerging Markets
10USA
85Indonesia
60China
65India
70Russia
80Thailand
% Prepaid cellular phone users
92Philippines
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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 timeMicrofinancing
Payments tied to related service
Purchase as needed/affordedPrepayment
Subsidize purchase
SubscriptionSubsidization
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Income,a
ccesstoelectricity,phone
Estimated worldpopulation in 2008
HighIncome(250MHHs)
MediumIncome
(500M HHs)
LowIncome(550MHHs)
Subscription, Prepaid and Subsidized MustBe Tailored To Customer Needs AndExpectations
Subscription Computing
Prepaid Computing
Subsidized Computing
Classical (a la carte) Computing
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Subscription Computing Model
Income,
accesstoelectricity,phone
Estimated worldpopulation in 2008
Subscription Computing
Implementation partner: Fixed-line Telco
PC sold through telco at subsidized up-front price (could be $0)
Fixed monthly payment for PC andbroadband (~$20 per month for 24 m.)
Convenience of one provider/monthly bill
HighIncome(250MM
HHs)
MediumIncome(500MM
HHs)
Low
Income(550MM
HHs)
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Prepaid Computing Model
Income,
accesstoelectricity,phone
Estimated worldpopulation in 2008
Prepaid Computing
Implementation partner: OEM
PC sold through traditional channels at
reduced up-front price (40-60% full price) Flexible payments enabled through
prepaid cards (~$.40-$1.00 per hour)
Cards must be purchased until targethours are achieved (~800-1,200 hours)
HighIncome(250MM
HHs)
MediumIncome(500MM
HHs)
Low
Income(550MM
HHs)
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Up-front payment by consumer
$267 $444 $622
Cost/hour ofusage
$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
Values in green cells represent hours of use until consumerno longer needs to purchase prepaid cards
Microsoft: Prepaid Market Trial Structure in Brazil
Full RetailPrice =~$800
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Market A($0.22/hr)
Market B
($0.44/hr) Market C
($0.88/hr) Market D
($1.32/hr)
$622
$444
$267
0
50
100
150
200
250
300
350
400
450
Microsoft: Sales In Prepaid Market Trial in Brazil
Up-front
price
Hourly price
Full RetailPrice =~$800
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Subsidized Computing Model: Providing theGreatest Affordability?
Income,
accesstoelectricity,phone
Estimated worldpopulation in 2008
HighIncome(250MM
HHs)
MediumIncome(500MM
HHs)
Low
Income(550MM
HHs)
Subsidized Computing
Implementation partner: Service Provider
Subsidized business model should providethe greatest degree of affordability
Possible subsidizing services:AdvertisingBankingOther
Key questions not yet answered:What will target markets accept? How much subsidization can services provide? How will physical products be tracked?
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Have to Get Several Things Right
Challenge: Creating alternative business models to meetthe 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 Large screens for entertainment Secure control for pre-paid & subsidized Ease of use for first time users
Availability: Industry Structure (mfg, distribution, support,financing, etc) must tie with above Non-standard vendor-customer relationships Alternative payment/timing/valuation approaches New partners in the supply/support chain
Financial institutions, Telcomms, Secure Distribution, etc
Technology designed with the complete system in mind
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Thank You
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