Comments for Return of the Cheap Decade

Return of the Cheap Decade

2009-01-08T21:15:24Z

In March 2003, Rich Kaarlgaard wrote a great article in Forbes detailing how the coming decade was all about massive reductions in costs and prices, driven by technology. We had grown accustomed to Moore's Law driving down PC costs. Kaarlgaard pointed out that this was happening across the spectrum of the economy. He was right, but many of the effects were hidden by the credit bubble. When money is so cheap, costs rise. Now we are in for an even cheaper decade, and today's headlines are showing the way.

]]> Selling to the Bottom of the Pyramid

Today's news from One Laptop Per Child was about layoffs due to difficulty in raising money. But the mission remains, and the core driver remains technology, as one of the commentors points out:

"You have done a great job so far, revolutionizing Moore's Law for X86 computing, initiating the industry-wide rush to sell netbooks in the developed countries, thus accelerating the shift to cheaper and lower-power computing.

"The next step I think should be shifting the PC and laptop to the ARM architechture. This would lower cost and lower the power consumption further. And it would accelerate also the industry-wide shift from the wasted CPU cycles and empty processing of X86 to the optimized embedded process and the complete removal of all bloatware from computers. How soon could XO-1.5 or XO-2 be ready with an ARM Cortex A8 core, running some Linux OS with a Sugar interface in collaboration with Google Android as software platform?"

OLPC is not the only outfit with this mission. In India, Novatium has the same mission, and it has a for-profit model. It has been pointed out regularly for a long time that selling to the "bottom of the pyramid" is a good business strategy. It is now more apparent that these strategies will impact developed markets as well. The current downturn will accelerate this as individuals and companies seek to reduce costs.

The Google Price

In manufacturing, we have the China price. In outsourcing, we have the India price. In software-as-a-service, we now have the Google price. Reading the Forrester report on the cost of managing email, what jumps out is how radically lower the Google price is: $8.47 vs. $20.32 for the lowest-priced alternative. Despite all the chants of "You get what you pay for," most businesses will take that differential pretty seriously. Google has set the new benchmark. Every vendor that sells for more will have to spend a lot of marketing dollars explaining why.

Skype on an Unlocked Mobile Device

The rumor (based on a broken embargo, it appears) that Skype Lite will be available on Android and Java-enabled phones gets us closer to the deal we all want: Skype on an unlocked mobile device. Like many people, I don't use a landline at work anymore. I use Skype and a mobile phone. So I am okay when in my office, my home, or a friend's office or home where I can open my laptop and use Skype.

But my mobile bills are way too high. I was intrigued by Validas' offer to reduce mobile bills by untangling their complexity. But I really want a more radical option, and Skype on an unlocked phone gives me that. I get free Skype-to-Skype and cheap Skype-Out calls wherever I have Wi-Fi. Wherever I don't, I use a pre-paid mobile calling card. No fixed costs. Big mobile bills... gone! Hint: don't buy shares in telephone companies.

Don't Worry Apple, There Will Always Be a Luxury Market

Aston Martins may not be selling so well today, but iPhones and Macs are flying off the shelves, and they are surely not cheap. Affordable luxury -- something that makes you feel good but does not really break the bank -- does well in a downturn.

But this is a small counterpoint to the massive main trend of cheaper products driven by both technology and the need to sell to the billions who are joining the global economy. Now, if we can only figure out how to enable billions to join the global consumer economy without doing worse damage to the environment, we will be in great shape. Come on Mr. Tata, what about an electric version of the Tata Nano?

Comment from Mr ReadwriteWeb on 2009-01-08

2009-01-08T23:50:58Z

I would disagree with the primary pretense of the "Google Price". Reasons ?

1) The comparison offered does not correlate feature sets offered to corporations. Google software is not by any means feature rich - yes it does offer the basics which will provide a lot of companies with a cost saving - but it is by no means suitable for "large scale business"

2) Data security - most companies will not want Google holding there data under licensing regimes which basically provide Google with "licenses to do what they want with your data." I think you are heavily disregarding data security and privacy.

3) Customer service. Are Google really efficient at this yet ? I am not convinced compared to other competitors.

Its just my opinion.

Comment from LEADSExplorer on 2009-01-09

2009-01-09T09:20:43Z

Cheaper is not always lesser.
More expensive can exist if prosperous times as people have the habit of buying certain brands or products due to the security feel of their decision (or non-decision).
Recession will push people and people in companies to revisit their buying habits.

Examples:
1) Businesses used to buy software and run it in-house. Probably Saas/Web services are the better alternative at a much lower cost.

2) Do all business people need high end portables (>$1200) or are the sub $400 mini netbooks good enough with the benefit of higher portability?

Comment from JulesLt on 2009-01-09

2009-01-09T10:22:19Z

Frankly, anyone being paid a salary above $50,000 should be using the most productive software or hardware available. If a $400 netbook is the answer to their productivity, then yes, that is what they should be using, but if you're doing it purely to save money, then that is false economics.

However, it is one that is very common in business, where quite often capital and staff costs are separate budgets. Basically, you have two mentalities, one that sees ongoing costs to be reduced, and another that sees investment in productivity. A well run business should always be doing both, all the time, but it seems more typical for it to go in cycles.

I was amused by the plea to OLPC to shift over to ARM. Not just because the power consumption gap between ARM and Intel is rapidly narrowing, but because the OLPC (and Sun) layoffs show the gap between the actual realities of businesses needing to pay their costs, and the world of the freeconomists where products are created because someone feels they should exist.

It turns out, of course, that the cheap machines are coming from Asus, Elonex, etc, because there is a market for them, rather than out of anyones good intentions.

Finally, as your illustration points out, we do need to consider the effects on our economies - the notion previously touted by gung ho economists has been that as heavy industry, then unskilled manufacturing, then skilled manufacturing moved to cheaper economies, Western economies would move into services and knowledge work, and indeed I've even seen a UK government report which suggested new sectors could not predict.

This strikes me as a point of faith (that the West is innately more able to generate new forms of wealth than the East) and not something I'd build policy on. Financial services were supposed to be one of our areas of growth and expertise, and look what's happened there.

Equally, China seems largely uninterested in trading goods for IP (rather, it's goods for raw materials, which has led to things policy makers never foresaw, like Western economies exporting steel to China, only a decade after we'd largely let our steel industry collapse, based very much on that policy that the future was post-industrial).

Comment from Dmitri Eroshenko on 2009-01-09

2009-01-09T21:45:15Z

Two reflections on the Google price...

1. Standalone email doesn't solve the agony of communication clutter, be it $1 or $1,000 per user per month. The days of standalone email are over. They are.

2. My grandfather Isaac Kaplan used to say, "I am not rich enough to buy cheap stuff." He probably meant two things:

* Product price is only a part of cost of ownership.
* The outcome puts price in perspective.

Comment from Steve Colantuoni on 2009-01-11

2009-01-12T03:40:52Z

Companies seeking to lower the costs of accomplishing their back office functions should look at the business model that Vangtel offers at www.vangtel.com