‘Good Karma’ For Microsoft in Digital Divide?

Call it enlightened self interest.

Microsoft has unveiled a pay-as-you-go model of personal computer ownership,
spearheading a drive to narrow the digital divide between industrialized and
developing nations.

The initiative allows consumers to purchase full-featured PCs by paying only a third of the cost up-front. They can then pay off the remainder by purchasing pre-paid cards or through a monthly subscription.

The initiative is intended to bring PCs and network connectivity “within the
reach of hundreds of millions of families and small businesses in emerging
markets so they too can enjoy the many benefits PCs bring in education,
entertainment, communication and productivity,” said Will Poole, senior vice
president of the market expansion group at Microsoft.

But the initiative is also a way for Microsoft to develop stronger
relationships with the governments of emerging nations, where open source
and other alternatives to Windows could threaten the company’s long-term
growth prospects.

For instance, a recent study conducted by IBM and the Economist’s
Intelligence Unit showed that developing nations “are receptive to open
source for its ability to generate savings and serve as a cost-effective
gateway into next-generation IT platforms.”

The software vendor recently completed a year-long trial run in Brazil, in
cooperation with several technology, telecommunications, and retail
partners. It will now roll it out generally throughout Brazil, as well as
India, Mexico, Russia and China.

Microsoft is in effect patterning
this approach after the cell phone market, the growth of which has rocketed
in developing markets thanks to pre-paid phone cards.

Poole noted that “there are already more than 1 billion pre-paid mobile
phones used around the world.”

The initiative, said the company, “supports Microsoft’s global commitment to
help people realize their potential through the benefits of personal

But a Microsoft spokesperson also told internetnews.com that the
approach is less about reaching low-income consumers as consumers without
access to traditional means of financing a purchase.

“It’s not so much about people who have low incomes, as people who have
unpredictable incomes, or no access to credit,” said the spokesperson.

Microsoft has certainly increased its efforts on behalf of those without
access to the benefits of information technology since President Clinton
raised the issue of the digital divide with an audience at Comdex 2000.

Author and University of Michigan Stephen M. Ross School of Business
professor C.K. Prahalad noted that “Microsoft’s trials in Brazil are a small
and significant step in democratizing technology.”

But he also said that Microsoft’s approach would yield more than just good

“By making computing affordable,” he said, Microsoft can “convert the
‘digital divide’ into a ‘digital dividend.'”

Craig Smith, a former lecturer at the Kennedy School of Government in
Washington, D.C., and founder of digitaldivide.org, said that Microsoft is
less interested in reaching out to consumers in emerging markets as it is in
currying favor with the governments of those emerging nations, in order to
protect its Windows platform and to generate greater support for its
anti-piracy efforts.

“In emerging markets, the government is the main customer,” said Smith.

“This is about defending the Windows platform at the low end of the
market — because it’s at the low end that the open source solution is most
viable,” he said.

But Smith praised Microsoft’s approach, saying that sound business
fundamentals would be more effective than pure philanthropy in bridging the
digital divide.

He likened it to the 1980s when U.S. banks, under pressure from the
government, set aside trillions of dollars for low-income communities and
discovered how to make money from those investments.

“That wasn’t philanthropy. That was the amount of investment they made in
figuring out how to profitably serve the low end of the market in the U.S.”
he said.

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