Sub-10K PCs Utopia or Mirage?



It was ‘breaking news’ when HCL unveiled its PC for Rs
9,990 at a gala launch in Chennai recently. Ajai Chowdhry, chairman and CEO, HCL
Infosystems, spoke passionately about his company breaking the price barrier
with this launch, offering a fully functional desktop. Other companies to join
the sub-10K PC bandwagon were Kolkata’s Xenitis Group-with its Rs 9,750,
Intel-based desktops, and companies like Kobian and Sahara.

While the sub-10K PC market is heating up, it’s obvious
that the magic figure of Rs 9,990 is an illusion. As you do your calculations it
becomes evident that tax included, the end user price works out to be around Rs
11,500. So, if the vendor is including taxes in his pricing, the PCs are truly
sub-10K, which he’s clearly not doing.

Reality Check
The key question is: "How viable are these PCs from a margins point of
view?" As per industry estimates the vendors will gain a maximum margin of
2% or less for the sub-10K PCs. Clearly it’s a low value high volumes game
here. In order to arrive at decent margins, vendors’ need to sell, on an
average, an estimated 1,500 to 2,000 units per month.

Meanwhile, while none of the companies divulge much
information on the expected volumes for these PCs, they say that the response,
so far, has been good. One of the leading players in the sub-10K PC game is the
Kolkata-based Xenitis Group. This is what he company’s chairman Santanu Ghosh
has to say: "Our expectations for this sector are conservative, we see it
more as a developmental platform. At present, sub-10K PCs contribute only around
10% to our total product sales."

The
consumer is unlikely to pick a machine only because it’s cheap. So
vendors need to do a lot of convincing to make the user accept that
these machines are worth buying. There is clearly the question of
‘value’ and ‘expectation’

Right now, the sub-10K PC business is clearly a gamble. The
only USP here is the price, and one is not getting into the performance debate.
For the price, the configuration most of the vendors offer is rather neat–128
MB RAM, 40GB HDD, 52 X CD ROM Drive, 15 inch monitor, mouse, and Linux OS. On
the processor side, Kobian and HCL offer a VIA 1GHz processor, and Xenitis comes
with the Celeron and Cirix models. Sahara offers an AMD processor.

With this configuration, a user would be able to run basic
applications like word processing, email, and Internet. But the absence of a
modem de-sells the entire configuration–a PC just for word processing does not
make sense to a user. While Linux-based applications are available on these
sub-10K machines, Linux adoption in the desktop space being still in its infancy
negates that advantage. User awareness on applications available on Linux is
also very low. Assuming that a user migrates to a Windows platform, how much of
the implementations would really be legal? Some sections of the industry are
vehemently arguing that these low-end machines will drive piracy, though
vendors, obviously, refute it stoutly. Says Ghosh, "First of all I doubt
whether this perception actually exists. There are lots of situations and
loopholes that instigate piracy, which have to be dealt with in a totally
different way. The introduction of the sub-10K PC is a social need in the
country, I don’t think it has any connection to the ever increasing
piracy."

HCL’s Chowdhry is bullish about the road ahead for the
sub-10Ks. At the time of launch, Chowdhry said: "Our idea of launching a
fully functional PC at this price is to drive home the point that low cost does
not mean low in quality. All our PCs follow very stringent quality tests before
they reach the consumer. We are adopting a multi-pronged strategy for increasing
the reach of our sub-10K offerings–by informing people how a PC can aid in
shaping an individual’s aspirations." That would be the key challenge, as
vendors would be addressing the buying segment at the bottom of the pyramid.

Who’s the Buyer?
According to Ghosh, the target audience is not the existing high-end PC
user. Companies are trying a combination of marketing approaches for pushing
more of these low-end offerings. Ghosh says his sales team works directly with
customers and helps in decision-making.

If one looks at the enterprise side of things, these PCs
might have a spillover effect. Take a typical Indian SMB. Not all employees are
given a PC, like, for instance, junior office assistants, who use a common PC
for their work. Now with the sub-10K PCs, these lower rung employees can be
given their very own PC. On a large enterprise front, government and education
verticals will be the main focus for vendors. These verticals can better manage
their IT budgets by accommodating more number of PCs, thereby enhancing the
installed base in their own organizations.

On a large corporate environment, current specifications
prohibit any large-scale deployments. But, as cost cutting and optimizing on IT
spend is at the top of the CIO’s agenda, he might be tempted to look at these
machines more closely. Large enterprises, today, involve themselves with various
social causes. They could be the buyers for these PCs. Right now they are more
polarized at the home, education, and government verticals.

As this quarter moves on, one will see the actual market
response to these PCs on a wider scale. If the existing sub-10K PC vendors are
able to gain traction, more players will jump in and, ultimately, the
configuration will also become more value-based. (Right now the absence of a
modem and use of low-end 1GHz processors puts the mass adoption of sub-10K PCs
in question.)

The target consumer–the middle class–is unlikely to pick a
machine only because it’s cheap. If the friendly neighborhood assembler sells
him a P4 with all connectivity options at 16K, he would gladly shell out the few
extra thousands for a PC that’s industry standard. So vendors need to do a lot
of convincing to make the user accept that these machines are worth buying.
There is clearly the question of ‘value’ and ‘expectation’. So a user
demanding value is the most unlikely target. On the other hand, a user whose
expectations are not too high–one who just needs a basic PC to start on, is the
key consumer. He can be lured into buying a PC only when the mindset–that the
PC is a commodity–takes root. HCL’s Chowdhry firmly believes that by
increasing the purchasing power of the lower income group segment, one can
increase penetration. He says that his company’s ‘PCs on EMI’ was a great
success.

Like Xenetis’ Ghosh says, "The question is not who can
afford, the aim rather is to invite people who never thought they’ll ever own
a PC. With even junior school education demanding an exposure to computers, and
more and more government and NGO initiatives coming up, low cost PCs are a
market need."

Summing up, seeing how things have gone in the last two
months, the sub-10K PC is a significant milestone for the Indian PC industry,
despite its shortcomings. If one analyses questions like: Will it increase PC
penetration? Does it offer value for money? There are still no valid answers. No
concrete pointers indicating any major trend in the low cost desktop industry in
India. Vendors are just scratching the surface, but they might just be on the
verge of creating a whole new market that will alter equations for the Indian PC
industry!

Shrikanth G
in Chennai

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