AMD BottomofthePyramid Hector Ruiz

8/10/2019 AMD BottomofthePyramid Hector Ruiz

1/15

Tapping the Bottom of the

Pyramid

Innovating Business Strategies to Servethe Next Billion Digital Consumers

February 10, 2006Rice University


2/15

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


3/15

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)


4/15

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: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)


5/15

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%


6/15

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


7/15

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


8/15

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


9/15

Subscription Computing Model

Income,

accesstoelectricity,phone


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)


10/15

Prepaid Computing Model

Income,



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)


11/15

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


12/15

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


13/15

Subsidized Computing Model: Providing theGreatest Affordability?

Income,



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?


14/15

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


15/15

Thank You

AMD BottomofthePyramid Hector Ruiz

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