The Third World Goes High-Tech The Dirt Road to the Information Superhighway

Corporations specializing in information technology have discovered a new market -- the world's poor. But high-tech is often already there, and Third World innovations may soon be available in the developed world.

By , Padma Rao and

The computer of the future is like a pet: always wanting to be fed -- not unlike an oversized Tamagotchi. Otherwise, it causes trouble. After 10 hours in front of the monitor, you have to run down to the nearest kiosk, buy a new prepaid card, scratch free the code and type it in. Those who don't are reminded by the computer to please pay their fee. Eventually the machine runs out of patience and it begins gradually suspending one function after another -- until hardly anything works anymore. At that point, the only thing to do is head for the kiosk.

The world's next bestselling computer could actually work like that -- at least according to the Microsoft Corporation. "Flexgo" is what the new payment system is called and it's intended to make Windows affordable for the non-rich in developing countries.

The Internet computer works just like a prepaid mobile phone. Subsidies help keep the price of the new machine low, so that it can be sold for only about $300 –- about half the normal price. Using the computer, however, costs money, which the user pays a little at a time, by means of prepaid cards. Eventually, the computer belongs to the customer –- provided the payments have been punctual. Those who don't pay are punished. The computer simply switches itself off.

For now, Flexgo computers can be purchased only in Brazil but Mexico, Russia, India and China are set to follow in the coming months. And it represents a surprising change of course for Microsoft. As recently as March, Microsoft was mocking the $100 laptop developed by the Massachusetts Institute of Technology (MIT) for children in the Third World. Microsoft argued that mobile phones provide the best means of granting the poor access to the digital world, not personal computers. The change of course likely results mainly from the small difference in the operating system between the two computers. Unlike MIT's $100 laptops, Flexgo computers don't use the Linux system, which is free of charge, but a version of Windows.

The future of high tech: Brazil, Russia, India and China

And it's not just Microsoft that has its eyes on the wallets of the poor. The Dell Corporation has already developed a cheap personal computer for Asia and IBM is wooing customers with Linux software in Brazil. Nokia and Motorola are undercutting each other's prices by developing non-contract mobile phones for developing countries -- for prices between €30 ($39) and €50 ($64).

That the high tech sector mustn't forget about the wretched of the earth is also the contention of Arun Sarin, the chief executive officer of Vodafone who gave the opening speech at this year's CeBit trade fair. The man who leads the world's largest mobile phone company loves to talk about "BRIC." While it sounds like a new example piece of high tech jargon, the acronym actually refers to four countries (and markets): Brazil, Russia, India and China.

Sarin calls for bridging the digital gap –- for business rather than philanthropic reasons. And business is going surprisingly well even in the world's poorest regions. In Africa, for example, people often share mobile phones, or they sell phone minutes to neighbors and passers-by.

In Bangladesh, so-called "Village Phones" yield an average monthly revenue of about $90. In some cases, the revenue is as high as $1,000 -- an amount even the worst cell phone addicts in developed countries have a hard time reaching.

The US economist C.K. Prahalad has long been a proponent of thinking of high technology as a form of development aid. In his book "The Fortune at the Bottom of the Pyramid," Prahalad speaks about the need to stop seeing the poor as victims or as a burden on society. To him, 4 billion poor are the key to the next stage of trade and prosperity.

Affordability is decisive

Prahalad has made a name for himself as a professor at the University of Michigan and is considered one of the most influential management gurus in the world. According to Prahalad, the markets with the most potential for growth aren't to be found in the Third World, but in developing countries. And his central hypothesis makes sense: The high tech industry cannot keep expanding if it continues to sell only to 2.5 million wealthy customers.

Most potential customers -- those 4 billion people who live off less than $2 per person and day –- fall below the radar. Prahalad explains that together China, India, Brazil, Mexico, Russia, Indonesia, Turkey, South Africa and Thailand have an enormous economic output. Decisive for successful sales in developing countries, though, is affordability, Prahalad argues. Flexible payment by rates and small-scale consumer credit allow even day-jobbers to use high tech products.

Prahalad's business model has at least one prominent follower. According to Bill Gates, the professor is offering "an intriguing blueprint for how to fight poverty with profitability." Microsoft's new Flexgo computers follow this blueprint closely.

Yet the economic expert warns against flooding developing countries with junk goods. While customers in developing countries often dispose only of a low and irregular income, their expectations concerning the quality and robustness of machinery are often high. And, surprisingly, it turns out that the poor are quite brand savvy, says Prahalad.

In Bangladesh, for example, some users of the "Village Phone" spend an overwhelming 7 percent of their income on communication. "When a customer spends a month's earnings to buy a telephone, then of course he's going to pay close attention to the quality of the product," says Motorola's David Taylor. And the established leaders of the global high tech industry often encounter surprisingly strong competition on the local level –- under the straw roof of Padmavathi's hut, for example.

Four cows and a computer

A lively woman who lives in the Indian region of Tamil Nadu -- where people often don't have surnames -- Padmavathi's hut in the afternoons is often crowded with villagers who want to participate in the digital revolution. Schoolchildren click their way through online textbooks; young mothers download birth certificates; farmers sell their peanut harvest by mouse click or consult with agricultural experts in video conferences.

A few years ago, Padmavathi took out a bank loan in order to add a computer to the four cows and a vegetable garden which made up most of her worldly possessions. She uses the computer to access the World Wide Web and makes it available to others for a fee -- the revenue going to pay off her loan.

This business model has only become possible thanks to a new local Internet connection known as Cordect. By European standards, this "Indianet" is only a patchy and relatively slow provisional solution, a kind of digital dirt road leading to the information super-highway. The basic technology is the same as that used in wireless phones –- the only difference is that the base station isn't next door, but several kilometers away. And since electricity shortages are common in the countryside, there is a battery to supply the Internet cafés for up to four hours in case of outages.

Cordect was developed by the Indian Institute of Technology and is developing into a veritable sales hit in the country's backwaters. Telecommunication corporations from other countries such as South Africa, Tunisia, Yemen and Kazakhstan are already betting on the new Internet technology -- even Microsoft has become interested. In February, the giant corporation announced that it would invest roughly $1.7 billion in order to cover the subcontinent with a network of 50,000 Internet Cafés during the next four years –- a network that will not just connect the prosperous towns, but will deliberately designed to extend into the poor rural areas. This means that there will probably be fierce competition between Microsoft and the local competitor Cordect, which has already provided 10,000 Indian villages with Internet access.

The example shows that the majority of the world's population may not be well off, but it expects quality service. Microsoft spent two years conducting intensive market research that involved setting up 300 trial Internet Cafés, in order to get used to the specific features of the local market.

Money transfer per mobile phone

Sometimes new business ideas even come from the poor themselves. In countries such as Tanzania and Kenya, the mobile phone is set to revolutionize the bank sector. In Africa, mobile phones are already being used as an electronic wallet, as replacements for bank accounts –- a model that has failed in Western countries like Germany despite repeated attempts to implement it.

The African solution is simple. All sorts of sums -- in the form of phone credits -- are sent back and forth by text message. If someone wants to buy potatoes, for example, they make the corresponding amount of their phone credit available to the dealer on the corner by sending him the access code, which functions like an electronic shadow currency.

Even poor land workers who don't even own a bank account can transfer money this way. Sending money to their family in a distant village, for example, is no problem anymore.

Reaching poor customers requires an exact knowledge of the local conditions. In the best case, this kind of know-how allows some developing countries to make the transition from mere consumers to centers of innovation that can in some cases even overtake the wealthy North.

Brazil provides an impressive example. While old mechanical voting machines turned the 2000 US elections into a debacle, all 110 million Brazilian voters participating in the communal elections that took place the same year were able to submit their vote electronically.

"UE2000" is the name of the technological miracle from the developing country –- a white box that looks like a small computer and is sufficiently robust to keep working even in the Amazon, where air humidity can be as high as 90 percent. Hardly any other country in the world has contributed as much as Brazil to the digitization of elections. Some 400,000 electronic ballot boxes are currently in use in the country and they've been used in other countries as well, from Argentina to Mexico.

From the Third World to the West

Endless queues in front of polling stations have largely become a thing of the past, according to Paulo Camarao, the head of the information technology department in Brazil's Supreme Electoral Court (TSE). "Every voter needs about 25 seconds to vote," Camarao points out proudly. "The number of voter abstentions and the number of non-valid votes have both declined dramatically," he says.

This rapid development involves new challenges for Western corporations with their costly machines. Experts speak about a blowback effect that the cheap new products may have on developed countries. An article published by the consulting firm McKinsey points out that this blowback effect may soon spread across the entire world.

Many products originally developed for the poor later become attractive to customers in wealthy nations, causing prices on high-tech products to fall even faster.

For example, the world's largest manufacturer of personal computers, Dell, has developed a low-price personal computer for developing countries, the so-called "Smart PC." A similar device is now available to US customers looking to save money.

People in the business are already speculating that after it has made the rounds of Brazil, India and Mexico and triumphed there, Microsoft's cheap Flexgo computer may end up in German computer stores –- as a reduced-price computer for children whose parents already own conventional computers.


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