August 2, 2004 4:00 AM PDT

A billion PC users on the way

By the end of the decade, a billion people will be clicking away at computers, but generating a profit out of newly wired portions of the world is going to take a lot of work.

The number of PC users is expected to hit or exceed 1 billion by 2010, up from around 660 million to 670 million today, fueled primarily by new adopters in developing nations such as China, Russia and India, according to analysts.

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What's new:
The number of PC users worldwide is expected to reach 1 billion by 2010, up from about 670 million today, fueled primarily by new adopters in developing nations.

Bottom line:
PC and software makers are ready to make new sales but have their work cut out for them. Poverty, unreliable energy supplies, a multiplicity of languages, regional laws and education levels are all potentially major obstacles.

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"It took more than 20 years to grow the worldwide base of PC users to 600-plus million. By 2010, I expect that to grow to 1 billion, due to opportunities in emerging markets and new scenarios and form factors," Microsoft CEO Steve Ballmer wrote in a recent e-mail to employees, outlining the company's growth potential.

Selling computers to people in these countries, however, won't be easy. Poverty, unreliable energy supplies, a multiplicity of languages, regional laws and education levels are all potentially major obstacles. And they could all get more daunting, rather than easier to manage, as time goes on.

"The problem isn't with the first billion, but the second or third billion," said Roger Kay, an analyst at IDC.

To penetrate these markets, companies are creating the sort of nation-building programs more often associated with organizations like the U.S. Agency for International Development (USAID) and the United Nations. Microsoft, for example, has set up an initiative called the Local Economic Development Program for Software, in which company employees advise government officials on building tech programs at local universities, intellectual-property laws and other issues. Brazil is one of eight countries in the program.

"A lot of companies want to get into the export business, but you have to build your internal capabilities first."
--Maggie Wilderotter, senior VP of Microsoft's worldwide public sector division
"A lot of companies want to get into the export business, but you have to build your internal capabilities first," said Maggie Wilderotter, senior vice president of the worldwide public sector division at Microsoft, who, as part of her job, meets with people like Brazilian President Luiz Inacio Lula da Silva and ministers of Jordan's national cabinet.

Designing products to be cheaper is also an issue. Hewlett-Packard's 441 system is an early attempt to grapple with the price and management issues. Introduced in South Africa, the computer features four keyboards with mice and monitors so that four different people--in a variety of the local languages--can work simultaneously. The Linux-based computer may get introduced to Southeast Asia later.

If technology can be seeded in a national economy, the gross domestic product will grow and in turn lead to future customers, said Maureen Conway, vice president of emerging market solutions at HP.

"But you've got to start the cycle somewhere," Conway said. "The low-cost access device is critical to product development."

In South Africa, the company has also taken over an abandoned university to train people on call center procedures and PC repair. In September, President Thabo Mbeki will speak at an HP-sponsored event.

Intel, Microsoft and others are developing cheaper components and software for these regions, along with technologies like voice and handwriting recognition.

One billion? Sooner than you think
Hitting a billion in a few years appears inevitable. IDC estimates that there were 670 million PC users worldwide in 2003. A little more than a 152 million PCs will leave factories this year, and that tally is expected to grow over time. With about half of these going to new users, IDC believes that the PC user population will grow to 1.2 billion by the end of 2009, a 79 percent increase over six years.

Gartner says there were 631.8 million PC users at the end of 2003 and 661 million now. The number will hit 953 million at the end of 2008 and cross over the billion mark in 2009. While those are huge numbers on paper, the annual compound growth rate is about 8 percent, Gartner analyst George Schiffler said.

Prices, however, will increasingly become an issue as the user population expands. A low-end Windows PC costs about $350 without a monitor. That's just above the $340 per-capita income of Vietnam, according to statistics from that country's Can Tho University. Not all the new users will own their own system: Many will likely first learn through places like the PC baangs in South Korea.

"There is a remarkable reliance on cybercafes in many of the emerging markets, especially in Asia and Africa...We are sometimes talking about just a battered old PC sitting on the sidewalk in a lane off a busy street."
--Genevieve Bell, anthropologist
"There is a remarkable reliance on cybercafes in many of the emerging markets, especially in Asia and Africa--and these are not the cybercafes as we imagine them, either. We are sometimes talking about just a battered old PC sitting on the sidewalk in a lane off a busy street," wrote Genevieve Bell, an anthropologist at Intel who has been researching PC use in Asia for the past few years. "At least 70 percent of the market in India and many other markets is still 'assembled PCs' that are built for a particular person."

Microsoft is already facing some of the thorny price disparities. HP sells Pavilion desktops in China with Windows and Linux. Spot checks at stores show a basic Linux Pavilion with a monitor, selling for $700 (5,499 yuan), while the Windows XP version sells for $60 more.

Dell has certified its business laptops and desktops to work with Red Flag Linux, a local variant of the operating system, and sells some PCs with DOS, which can be loaded with Linux later. Lenovo sells Linux PCs, but only to the government. The price is lower, but a Lenovo spokesman would not specify how much lower.

The price delta gets even larger with regional manufacturers. In Kuala Lumpur, Malaysia, a dealer called PC Zone can put together an Intel Celeron 2.0GHz PC and a 15-inch monitor for about $272. Installing Windows XP adds $83, a 31 percent price hike. Piracy, of course, also remains a problem. Microsoft has developed cheaper, cut-rate versions of Windows XP for Thailand and Malaysia.

Wilderotter acknowledged that Linux is gaining popularity in some sectors of the world but asserted that open-source software comes with hidden costs. Additionally, Microsoft has developed programs to familiarize developing nations with its software. In 67 countries, schools can obtain a certified copy of Windows at no cost for a donated PC and can buy a copy of Office for $2.50, she said. The company is also providing millions in educational grants.

Meanwhile, multinational hardware manufacturers must contend with local, often cheaper providers. In Mexico and China, multinational PC makers are making gains. Dell will likely soon become the No. 1 PC maker in Latin America, which is currently the fastest-growing geographical market, according to Charles Smulders, an analyst at Gartner.

But in Eastern Europe, Russia and other places, local manufacturers like Optimus and Kraftway remain strong.

Component makers, similarly, have to contend with a sea of their own recycled parts. In Western China, some schools are tacking down motherboards and other parts onto pieces of wood to make school computers.

"You can get a PC price tag down to 100 bucks," IDC's Kay said.

Lands of opportunity
On the other hand, the opportunity is immense. If 670 million people are currently using PCs, that only comes to 11 percent of the global population. Although declining prices lead to lower profits per unit, low prices can also lead to increased shipments, larger aggregate profits and a ubiquity of use that fuels further sales. That happened in North America, after all.

"The success of the PC platform is its ability to adapt to new forms and capabilities," Smulders said. "That is going to be a major influence."

People in these regions also adapt to technology fairly quickly in the right circumstances, HP's Conway said. In India, HP gave a group of village women solar-powered printers and cameras. The idea was that they would create a business out of making ID cards, a requirement for Indians to have but difficult for rural villagers to obtain without hours of bus travel.

The women have tended to double their family incomes, not so much through ID cards but rather portraits. "Instead of owning a camera, they are very happy to have a picture of their children taken every couple of days," Conway said.

In another Indian experiment, the company has stocked a van with PCs and wireless connectivity that drives between villages and allows farmers to test their soil, get information about crop prices, or receive advice from agricultural experts in Bangalore. HP is now looking at ways to turn the van over to local entrepreneurs.

Developing nations are also not necessarily bargain shoppers. China adopted the Pentium 4 at a more rapid rate than the United States, according to Intel.

Many technology companies have also honed the art of breaking into new markets. Company executives hold high-level meetings with local leaders to discuss the growth of the local high-tech industry. Intel CEO Craig Barrett, for instance, regularly conducts regional sweeps. Partnering with local companies and universities has become commonplace.

In the end, though, it comes down to a question of the PC's utility.

"If (potential consumers) see it as a productivity tool, then they can see it as an investment--like a car," Kay said.

Wang Dan of ZDNet China in Beijing and Winston Chai of CNETAsia in Singapore contributed to this story.

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The estimate was quite off, check this out: http://www.pcuser.com
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