A New Business Frontier

Highlights of the Creating Digital Dividends Conference

No one disputed how difficult it will be to provide six billion people with access to digital networks and the opportunities, services, and social empowerment they can provide. But speaker after speaker made the case for real business opportunities in creating a new portfolio of digital products and services to meet the needs of developing regions and to address growing environmental challenges. These opportunities for creating profits and social benefits -- digital dividends -- and novel business approaches to achieve them were the focus of the conference. Among the highlights:

• Hewlett-Packard Chairman and CEO Carly Fiorina not only underscored the importance and the historical significance of the global transformation now underway, describing it as a "digital renaissance," but also eloquently called for the digital industry to step up and play a crucial role in that transformation -- as business. She also put her company's money behind her vision, announcing a new HP division focused on "World e-Inclusion" that expects to sell, lease, or donate $1 billion in HP products and services in developing countries next year.

"We are now at the beginning of a second renaissance, the digital renaissance. Invention is once again the prime virtue. But this time the tools for invention can be extended to every corner of the earth."  Carly Fiorina, Chairman and CEO, Hewlett-Packard

• University of Michigan business guru C.K. Prahalad, in a spelbinding presentation that received a standing ovation, shared a compelling analysis of the market opportunity serving the "bottom of the economic pyramid" -- the four billion people with incomes less than $1,500 a year -- and gave inspiring examples of real businesses already tapping that opportunity.

"Don't look at the poor and say there is no hope. Selling to the poor may be more profitable than selling to you and me. This is where the future is. Opportunities are everywhere. This (digital divide) is not about lack of opportunity; it is about lack of imagination."  C.K. Prahalad, Professor of Business Administration, University of Michigan Business School

• Renowned KPCB venture capitalist Vinod Khosla argued the power of entrepreneurial energy to drive beneficial change, and pointed out the potential for a historic partnership between the increasingly talent-constrained but capital-rich industrial world and the capital-starved developing regions with their huge pools of under-utilized human talent, from incipient programmers to entrepreneurs.
• RealNetworks Chairman and CEO Rob Glaser described how digital tools can become agents of social progress. He cited the inherent ability of the Internet to "route around" censorship and thus help ensure the openness of society. He described the impact of broadcasting globally over the Net in 50 different languages from 90 different countries on social consciousness. He also announced the creation of the RealNetworks Foundation where the company will put five percent of each quarter's profits to foster the progressive social impact of digital technologies.

"The Internet's openness to communication is profound. Its benefits as a global medium, as a medium impervious to censorship, as a medium that lets anybody be a broadcaster, will continue to accrue to everyone." Rob Glaser, Chairman and CEO, RealNetworks

• Amazon.com's Founder and CEO Jeff Bezos pointed to the huge efficiency gains possible from digital technologies and e-commerce and their potential to reduce environmental impact. He also emphasized that developing regions could leapfrog traditional development by skipping entire layers of infrastructure.

"The developing world may have the opportunity to skip entire layers of infrastructure... telephone poles with all the copper wire... billions of dollars on malls... that could save a tremendous amount of energy, building materials, time, and money." Jeff Bezos, Founder and CEO, Amazon.com

• Entrepreneurs provided specific instances of how new business models could transform social and environmental problems into profitable opportunities. Martin Varsavsky, Founder and Chairman of Jazztel, described the remarkable public-private partnership, Educ.ar, that he launched with the government of Argentina. The initiative plans to use private money and e-commerce skills to put 10 million Argentine students online in four years. Iqbal Quadir, the entrepreneur behind GrameenPhone, described how that venture, by aggregating demand, is profitably providing commercial phone service to poor rural villages in Bangladesh. Jonathan Campaigne described the digital tools he has developed to help expand PRIDE AFRICA, the microfinance entity that serves 100,000 poor clients in six East African countries. These entrepreneurs were joined by spokespersons for nearly a dozen novel business models or untapped new markets for digital technologies, including George Weyerhaeuser Jr., Senior Vice President for Technology at the forest products giant that bears his family name. (See case studies.)
• The former President of Costa Rica, the head of Jordan's brand-new IT Ministry, and the Chief Minister of the Indian state of Andhra Pradesh provided compelling examples of what governments in developing regions can do to open markets, enact policies to encourage rapid IT and telecom development, and utilize technology to deliver improved e-government services. 

Huge New Markets?

C.K. Prahalad captivated the audience by insisting that companies should think of the poor not as a problem to be dealt with by government, but as a significant market for business. He pointed to the scale of the untapped market -- four to five billion people that in aggregate have huge purchasing power. This market is now totally ignored by most global companies. Prahalad argued that business executives need to rethink business models, products, and services developed for industrial countries. Companies should not take cost structures as given, he argued, illustrating the point by citing one new business that through use of a heat shield drastically cut the cost of refrigeration and now profitably sells ice cream in tropical India at 3¢ a serving. Another Indian company provides laser cataract surgery, including counseling in several local languages, for $10 per patient. He described a new retail point-of-sale system, developed in India for Indian conditions, that copes with dust and highly variable voltage, manages stock and prints invoices in six languages, incorporates a barcode scanner, is Internet enabled -- and costs less than $1,000 a terminal. Moreover, Prahalad pointed out, the return on equity for these businesses is higher than that of most multinational corporations: "Selling to the poor may be more profitable than selling to you and me."

Microsoft Chairman Bill Gates argued for the overriding importance of meeting basic needs, such as health, in poor communities.

Prahalad went on to say that companies need to listen to the poor in markets like India, China, and Brazil, because they can not only be customers, but also an important source of innovation. As an example, he told a story about illiterate kids in New Delhi given access to a networked computer but with no instruction or supervision; within a couple of months, the kids taught themselves to use it and to navigate the Internet. If a software company wanted to create a universal, icon-based language for the Internet, Prahalad asked, where better to experiment than with such kids?

One of his key insights was that access to digital systems is not the same as ownership (the dominant model in industrial countries). With village phones, cybercafes or other pay-per-use systems, the entire community becomes the customer. "It is a huge, counterintuitive opportunity," he concluded. "You cannot approach these markets unless you have a fundamentally different view of how to use technology." 

Reinforcing this message was 3Com Chairman and CEO Eric Benhamou. "What has worked so well [in digital technology] for the relatively few may not work for the vast majority without profound redesign," he said. What is needed is "complex research to create radical simplicity" in order to broaden access and make digital devices much easier to use. A prototype that could represent a first step toward such devices is the Simputer, showcased at the Digital Dividends Idea Lab expo associated with the conference. Designed by the Simputer Trust of India, the handheld device is a powerful Internet access tool with a touch screen, a voice chip that can "speak" different languages, and a smartcard reader. It runs on free Linux software, can be manufactured by anyone without license, and is expected to cost under $200. 

One major company that seemed to "get" Prahalad's message is HP. Their new World e-Inclusion Initiative, according to Debra Dunn, Vice President for Strategy and Corporate Operations, will open branches of HP labs in China and India to develop solutions that address the basic needs of people in those countries and will create an "ecosystem of partners" around the world. The company is launching this new initiative not only because it thinks it is a good business opportunity, but also because it believes that the "digital renaissance" will lead to an explosion in human and social advancement. "We must give everyone everywhere a chance to participate in the benefits of this digital age," Dunn said. "HP is passionate about working to improve the lives of the four billion people at the bottom of the economic pyramid." William B. Plummer, Nokia's Vice President for Government and Industry Affairs, agreed. He said, "Providing the technologies to connect people everywhere is an urgent social mission."

Enabling Technologies

One conference panel considered emerging technologies that promise to enable broader access and could also be disruptive of poverty and environmental mismanagement. Vivid examples included: 

• Non-geostationary satellite networks linking rural areas directly to the Internet. Russ Daggatt, Vice-Chairman of ICO-Teledesic, pointed out that such systems are inherently egalitarian, because operators of such systems would necessarily have to provide "the same quality and quantity of capacity to Africa as to North America."
• Third generation or 3G cellular phones that will provide high-speed, mobile access to the Internet without a computer. Kennet RÂdne, President of Ericsson Internet Solutions, pointed out that mobile phone networks are expanding so rapidly that they are likely to become the most common means for access to the Internet.
• Voice-enabled access to the Internet, based on voice recognition software. Mike McCue, CEO of Tellme Networks, explained that such systems, now being deployed in the United States, could readily be adapted to other languages and could enable access even for those who are illiterate.
• Much cheaper, smaller, and easier-to-use "carry-along" computers, part of a ladder of technologies that will expand access, according to Mark Anderson, President of Strategic News Service.

Also coming, said Kevin Werbach, Editor of Release 1.0, are peer-to-peer networking technologies that let people swap music or information or transact business directly with each other, and more powerful location-based computing tools that could enhance environmental management. 

Are Digital Dividend Opportunities Real?

Beyond technology, the core questions at the conference concerned access, financing, and the readiness of many developing countries for massive private sector investments in digital infrastructure. As Kevin Werbach pointed out, with the Internet "access is everything" because once people have access, they can get everything else virtually free. And because of shared-access systems, universal global access may come more rapidly than is generally expected. "My estimate," predicted Internet architect Dr. Vinton Cerf, "is that half the world's population will be online by the year 2010 -- about the same fraction that have access to the phone network today." 

WorldCom's Dr. Vinton Cerf, shortly before he revealed that he was wearing a T-shirt with the message "The Internet is for Everyone," the theme of his remarks to the conference.

Venture capital financing, the fuel for rapid innovation in technology, is not yet widespread outside the United States. It is mostly unavailable in developing regions, except to enable a few "foreign entrepreneurs to come to the United States and sell their products here," as Dan Rosen of Frazier Technology Ventures put it. "We need to find a way so that the next wave of venture investment outside the United States leads to creation of new markets in the developing countries themselves." Tom Alberg, Managing Director of the Madrona Venture Fund, proposed a possible mechanism to do that -- a new kind of venture fund with lower rate of return expectations targeted directly at such markets.

The digital opportunity task force, launched at the G-8 economic summit in July 2000, intends to help close the global digital divide. What will it do? The details are still being worked out, but the hopes are clear. As Markle Foundation President ZoÎ Baird described them: create strategies to help government, business, international organizations, and non-governmental organizations (NGOs) work together; develop country-specific strategies with and for developing country governments; and support specific projects. Kathy Bushkin, AOL's Chief Communications Officer, said that the key for the task force and for closing the digital divide will be "collaboration between companies and NGOs, between companies and governments, and between countries." 

Will such efforts be enough? Can private sector investments to close the digital divide, even if supported by governments, international agencies and non-governmental groups, really help alleviate poverty, improve human welfare, and create new tools to reduce environmental harm? Possibly, but calling attention to the health needs of the world's poor was Microsoft Chairman Bill Gates. He argued that poor people need more basic things than access to technology and doubted the business opportunities in indigent communities. Vinod Khosla also expressed caution about the goal of universal access, arguing that connectivity is most important for the perhaps 10 percent of a population who can be entrepreneurially active and create wealth. Nonetheless, the new initiatives and prototype ventures considered at the conference generated tangible enthusiasm, and the consensus of those attending was optimistic about the prospects for creating digital dividends. Most attendees seemed to agree that Fiorina's vision of a digital renaissance and Prahalad's business strategies for tapping the market at the bottom of the pyramid were on target. As World Resources Institute President Jonathan Lash put it, "We should not minimize the obstacles -- they are real. But if the opportunity is also real, then it is too important to ignore." 

Mark Malloch Brown, head of the UN's Development Programme, summed up the conference this way: "If we can make this a technology for all rather than for the few, then we are seeding an extraordinary revolution in the affairs of our world."

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