One Laptop Per Child (OLPC) global expansion, market entry and marketing strategy.

1.
Marketing
the
$100
Laptop
to
a
Global
Education
Audience
One
Laptop
Per
Child:
A
Case
Analysis
Zeenat
Rasheed

2. I. EXECUTIVE SUMMARY
In 2005, One Laptop Per Child (OLPC) developed the “$100 Laptop” and created a new product category
within the technology industry: low-cost, lightweight, durable and modern computers that could be used
to educate children in the world’s poorest nations, and help alleviate poverty.
OLPC offers a unique, differentiated and feature-laden product, customized for developing countries, and
the market seems ready to adopt the new technology. However, OLPC also faces some challenges. The
company has not begun mass production, as it has yet to meet its self-imposed minimum requirement of 5
million orders needed to keep costs low. OLPC’s minimal clout among suppliers, low production volume,
and limited global sales and marketing functions also contribute to its challenges to remain cost-efficient.
Additionally, the company needs to negotiate with bureaucratic government bodies to secure
commitments of 1 million laptops per country.
The company must also respond to aggressive competitor activity. Indeed, since the “$100 Laptop” was
announced, OLPC has seen other players enter the category, including established companies such as
Intel, AMD and Microsoft. Since OLPC lacks the capital muscle and brand awareness of these entrenched
competitors, wars over customers have already begun.
In summary, OLPC needs to begin using aggressive marketing strategies in order to gain market share
and capitalize on its competitive strengths to ensure that it manages to become a successful enterprise and
the global educational tool of choice.
II. CASE ANALYSIS
OLPC’s potential for growth in this new product category can be examined through the following 5
factors:
1. Product
Life Cycle
5.
2. Market
Government
Drivers
Drivers
Industry
Potential
4.
3. Cost
Competitive
Drivers
Drivers
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3. 1) Product Life Cycle
The product category is still in the introductory stage. It has generated a great deal of buzz and excitement
within the technology and education sectors, but the nature of this PLC stage is characterized by some
challenges:
 Lack of Awareness
o The concept of a lightweight, ultra-thin laptop that is not highly priced has no current
point of parity. OLPC needs to educate foreign governments and ministries of education
about the features of the “$100 Laptop”, explain how the product works, why it is priced
the way it is, and, most importantly, how it is superior to their current education
techniques. OLPC needs to engage in significant negotiation in order to overcome the
confusion and suspicion and “make a sale”.
 Increasing Competition
o While some competition in this stage usually helps diffuse knowledge about the product
among potential buyers and builds demand, the technology industry is quick to innovate
and introduce new or copycat products. Thus, OLPC needs to capitalize on its first-mover
advantages and establish itself as the category leader to fend off competitor encroaches;
Intel has already launched the Classmate PC, and others are catching up as well.
 Cost Inefficiencies
o In order to benefit from economies of scale when launching the product for the first time,
OLPC has set a self-imposed minimum of 5 million orders before commencing mass
production. OLPC could begin production with smaller orders, but the lack of an
established supply-chain and the high costs of testing the product would likely inflate
costs and eliminate OLPC’s price advantage. Therefore, OLPC’s entry into the market
has been delayed, as threats of competition increase.
2) Market Drivers
OLPC’s market includes the governments of countries where the laptops will be sold, as well as the end
consumers who will use the product.
 Global Market Opportunity
o The bulk of future PC growth is expected to come from Brazil, Russia, India and China
(BRIC) and focusing on these countries would likely deliver the biggest successes to
OLPC. However, the need for education as a tool of empowerment is global, therefore
the solution should be global as well. The “$100 Laptop” was designed and created
through contributions from across the world, and OLPC is pursuing a global market
strategy by talking to 9+ countries across the world to address the common needs of
children in places “where kids are not starving, where kids want to learn more than
anything else.” OLPC could focus on countries where wireless penetration is high and
adoption may be easier, but that would eliminate many of the very countries that need
this technology. Therefore, OLPC is in talks with all markets where a sizeable need
exists, and the necessary economic/infrastructural capabilities are available.
 Diffusion of Innovation in Developing Countries
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4. o As proven by the growth of cell-phone technology, consumers in developing countries
have great potential to adopt new technology services. However, the speed of consumer
adoption is affected by a number of factors that OLPC will need to consider in order to
build and maintain market share:
Factor OLPC “$100 Laptop” +/- Affect
Relative  Product: Compact, power-efficient, durable, easily
Advantage powered, WiFi-enabled, and customized by country (+)
 Concept: New, interactive way for children to explore,
create, and problem-solve
 Children are not prejudiced about what a PC should look
like, and will likely accept the OLPC laptop easily
Complexity &  Simple operating system called “XO”;
Compatibility  However, may be too complex for consumers where cell- (–)
phones have not taken off and there is no basic
understanding of technology (electricity, power on/off
buttons, keyboards).
Trial-ability &  OLPC donated 160 laptops to a school in Uruguay and it
Observe-ability was a success; students tried it in school, and showed it to (+)
friends and family at home; created excitement and interest.
Factors Specific to Developing Countries:
Low Price  Priced at $100 per unit, OLPC laptops are currently the
(to gain market cheapest in the category, and costs are expected to decrease (+)
entry) as mass production begins.
Brand Equity  Although OLPC pioneered the category, it faces increasing
(to convey status competition from established computer manufacturers with (–)
and quality) high brand awareness (ex: Intel), and lacks the credibility
of a brand image that conveys status and high quality.
3) Cost Drivers
Despite being the “$100 Laptop”, OLPC products face challenges from a cost perspective.
 Surging Demand, Falling Prices
o As innovations in technology increase and cost efficiencies are built into the production
process, the prices of portable computers are falling. As a result, the potential for
competitors to quickly make an entrance in the category is strong.
 High Out-of-Pocket Costs
o OLPC has imposed a minimum of 5 million orders before going into mass production,
and requires an order of 1 million per country. While this would keep OLPC costs low,
the $200-250 million out-of-pocket expenditure (including laptops, server equipment and
other supporting costs) may be cost-prohibitive for developing countries that may not be
able to afford it, or would prefer to invest the funds in traditional education techniques
that they feel comfortable with.
o In 2006, OLPC had received purchase orders from Brazil for their laptops, but in 2007,
the Brazilian government reportedly ordered Classmate PCs from Intel instead. While
Classmate PCs were priced 47% higher than OLPC laptops, it is likely that Intel, with its
large capital reserves and modest production goal of 1 million laptops by the end of 2007,
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5. did not need to place minimum order restrictions on Brazil, and the lower out-of-pocket
cost may have sealed the deal.
 Not Exactly $100
o Since OLPC has yet to operate on a large-scale basis, its production costs are highly
subject to changes in exchange rates and prices of ingredient materials, such as nickel. As
a result, the actual cost per unit is usually higher than $100, however, OLPC intends to
have prices decline over time, while features remain constant or are upgraded.
4) Government Drivers
While the adoption of technology lies in the hands of the end consumer, OLPC’s first customers are the
ministries of education in developing countries. In this regard, OLPC faces a number of challenges:
 Bureaucracy
o Governments in the developing world are typically very bureaucratic and consist of
complex hierarchies of fickle officials who slow down the negotiation process as they are
often set in their ways and resistant to change. They may prefer to put money into
traditional methods of education, and be unwilling to invest in the infrastructure
necessary to operate the OLPC program in their country (ex: cost of laptops, server
equipment, importation, transportation, training, and maintenance).
 Systemic Problems
o Developing countries with poor literacy rates often suffer from problems that are beyond
the scope of OLPC, such as a lack of teachers, classrooms and textbooks, low school
enrollment, especially among girls, and no laws to make school compulsory.
o Additionally, there are environmental crises that may inhibit the success of the program:
a lack of basic necessities such as food, water, electricity, and medical care; teen
pregnancies, drugs; local violence, and forced fighting in regional conflicts.
5) Competitive Drivers
Despite pioneering the product category, OLPC is already facing competition from Intel’s Classmate PC,
and other products being developed by companies such as Encore, AMD and Microsoft, all targeting the
“next billion” consumers of PCs.
At the introductory stage of the product life cycle, competition helps combat the challenge of educating
consumers about the category. However, the technology industry is extremely competitive and quick to
innovate, and first-mover advantage can only last so long. Followers have the benefit of learning from the
first-mover’s mistakes, and can more carefully plan the timing, form and scale of their market entry.
Therefore, OLPC needs to analyze its competitive strengths and weaknesses, and implement a global
strategy to ensure it gains and maintains maximum market share.
Competitive Strengths Competitive Weaknesses
 Lowest price per unit in the category ($100)  Lacks well-established supply chains and
 Durable, modern, form factor; designed and manufacturing operations, so unable to drive
tested for extreme conditions down costs further at this stage
 Customization by country, ex: taller tablets for  Low volume production and limited bargaining
Thailand to accommodate the Thai alphabet; power with suppliers means prices are more
hand-crank power generator; WiFi networking likely to fluctuate with the market
 Quanta can produce 1 million laptops per  Lacks a well-established brand name and
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6. month with rigorous testing, although global positive associations of credibility, status and
monthly production is 5 million units high quality
 First in the category; considered pioneer,  Limited global sales and marketing networks to
credible, innovative promote product in different countries
 Non-profit status increases trust and reduces  OLPC manages only one product, so cannot
skepticism; focused on improving education, cross-subsidize from another successful
not making profits venture
 Receiving funds and technological expertise
from industry leaders such as Google, Red Hat
and News Corp.; provides credibility and
ability to continuously innovate
III. MARKETING PROBLEM
At this stage, the key marketing problem facing OLPC is this: how can OLPC reach the minimum order
of 5 million laptops it needs to commence mass production?
Market drivers suggest that developing countries are ready for OLPC’s innovation. However, it will be
cost-prohibitive for the company to launch with less than 5 million units, therefore OLPC needs to
promote wide-scale adoption of its concept and technology in order to get started and introduce cost
efficiencies into the production process.
As mentioned above, OLPC faces challenges from a cost, governmental and competitive perspective.
However, another inhibitor to growth may be the attitude that OLPC is in the “human rights business”
and that Intel is not a competitor. While noble, this stance may inhibit the success of OLPC. In order for
the project to take off and become the educational laptop program of choice, it must be approached as a
struggling business that needs a cohesive, global marketing strategy, not simply a philanthropic endeavor.
IV. RECOMMENDATION
OLPC should maintain its 5 million minimum before commencing mass production. Given its limited
supply-chain capabilities, a commitment threshold is the most cost-efficient way to bring the product to
market, build supplier relationships, and get to a stage where the per-unit price can stabilize and begin to
decrease, which is OLPC’s long-term goal.
However, the company should not require a 1 million laptop commitment per country. OLPC’s customers
are indecisive government officials in developing countries with limited resources, complex bureaucracies
and, often, conflicting priorities. It is likely that a $250-275 million upfront commitment will turn these
officials away, especially as this is an untested and unknown product category.
Also, these countries are often economically or politically unstable, and therefore price sensitive. It may
be difficult for them to discriminate between competing products solely based on features, as all the
options are likely to be improvements over the current situation and there is no prejudice for what a PC
should look like or do. Thus, decisions may well come down to price and while OLPC is offering the
lowest per unit cost, the minimum order limit is likely acting as a deterrent to final commitments.
Since OLPC’s production capacity through Quanta is 1 million units per month, the goal should be to ship
that many units per month, with less of a focus on the size of the individual orders placed by countries.
Instead, individual commitments can be customized to each country’s needs and capacities, and based on
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7. a laptop to student ratio (ex: 1:10) that is determined by a number of factors, including:
o Market size (number of needy children)
o Educational resources (teachers, schools, text books)
o Infrastructure (availability of basic resources, roads, supervisory bodies)
o Environmental factors (corruption, violence, law enforcement)
o Local laws (regulations about non profit operations, access to distribution channels)
Finally, OLPC should maintain its geocentric market approach, and employ an aggressive and
competitor-focused global marketing strategy. The objectives of this strategy should be:
 Gain market share and neutralize competitive threats through product differentiation
 Establish category leadership through strategic brand positioning
OLPC can employ some of the following tactics in order to achieve these objectives:
 Create product differentiation, by highlighting:
o A learning philosophy that places students over teachers, which is advantageous where
teachers are a scarce resource
o Lowest cost per unit, and a total cost per child that is lower than just the Classmate PC
laptop
o Unique power generation and WiFi features that require no existing infrastructure
o New OS that focuses on teaching skills, not computer literacy
o Ability to deliver 1 million laptops per month; Intel has that goal as annual output
 Develop an innovative and leadership brand image, by emphasizing:
o Innovative pioneer with original “$100 Laptop”
o Credible non-profit organization with no hidden agenda; focused on the “last billion”
o Global solution to a global problem; buy into this global trend and allow your country to
reach its potential on a world scale
o Powerful partners to help with continuous innovation
o Low priced product, but not a gadget or toy; high quality and high status product
o Customized to individual country; global solution with local adaptations
o Easy and effective learning tool for every child who has the passion for learning
o Willing to allow consumers to try and observe the laptop, worthy of trust
 Promote product trial-ability, by operating:
o Pilot donation programs within each country to gauge student response, create excitement
among government officials, and gain insights for product customizations
o Free teacher tutorials
o Bundled laptops with educational and training software
These tactics will allow OLPC to meet its goal of 5 million units and kick-start mass production and
begin its entry into mainstream markets.
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