Last week, Amazon announced a slew of additions to its Kindle Fire and Kindle product families.
The one product I find irresistible is the Kindle Fire HD 8.9″. At just 0.8″ smaller than the iPad’s screen size, this device promises to give a large screen experience with anti-glare technology, Dolby audio and dual band Wi-Fi. With a 1.5 GHz processor, SkypeHD Calls, Amazon Cloud Storage and a huge apps eco-system, the Kindle Fire HD 8.9″ seems to do most of the tasks better than the Dell Vostro laptop I just had two years back. With 11 hours battery life and a 10 point multi-touch, there are a few things this device does way better than my old laptop. As these thoughts crossed my mind I was struck by a couple of points:
- The rate at which prices are falling down when features and performance is increasing & the enablers of this change
- Amazing parallels with our own business here at Maarga
When the iPad was launched in April 2010, we were introduced to a whole new possibility. The brilliance of Steve Jobs and his team at Apple in packaging a set of available technologies, a great user experience, a very profitable business model and leveraging the global economy in delivering it at a winning price point amazes me every time I think about it. Steve Jobs had just delivered a product we never knew we could not live without. And he delivered it at $499 (as the starting point) which turned this launch into a phenomenon, which a niche play/small scale strategy like Archos, Sony eReader or the UMPC (remember those) vendors could never have achieved. And today there is a whole eco-system around tablets which is fast evolving. That singular act demonstrated market potential and today tablet prices are falling down. We have stock Android tablets manufactured in China to nVidia’s reference specifications available at as low as $120 in the market. These are open, well built and are hot in price sensitive markets.
What we are seeing here is that free markets are delivering innovative devices at low price points, in a fashion very different from how the folks at the One Laptop Per Child initiative (OLPC )and other digital divide bridgers were thinking. While the founders of OLPC project are well grounded in market economics, the market still throws results that surprise that people don’t quite anticipate. I’m very appreciative of the efforts taken by OLPC, and there is still relevance in what they do, but the rise of tablets and the fall of prices stand as another testimony to the power of market forces. Show a sufficiently big and profitable market, and smart folks materialize in Sunnyvale, Shenzen, Chennai (OK, Bangalore also) and Seattle to collaborate and produce products at price points that sell. That is the genius of the market.
How do these brands deliver products at such a low rate, while improving on the features? We can better understand this by looking at the tear-downs given by iSuppli. Their tear down of the Google Nexus 7 show that the entire Bill Of Materials (or BOM as it is commonly known) comes to $152. The price of the camera is a trivial $2.50. The touchscreen is only $24. These crazy prices are enabled by a few key factors:
- Scale: Apple, Kindle and Google are changing the game by making this a scale business. The speed at which tablet and smart phone adoption is growing is much faster than ever seen before. When more people buy these devices, there is bigger business for the multiple component suppliers which drives down the cost of design and manufacturing per unit produced. From the beginning of industrial revolution, this has been one key factor in reducing the cost of any item in the world.
- Open Source and Standards: Open Source has contributed to a lot of the underlying technologies beneath these devices. There is contributions at the Hardware, OS, application layers that have all cumulated and absorbed into these devices and into the application eco-system
- Innovative Pricing: Of course Apple and Amazon make price on each device they sell, but it is their interest in the recurring stream of revenues from app purchases and media consumption that is driving these mass marketing pricing decisions.
- Global Supply Chain: The $499 iPad 1 and $299 Kindle Fire HD 8.9″ is not possible without factories in Shenzen, design studios in Silicon Valley, engineering centers in Chennai and the 30 – 50 other places where key work gets done before these devices roll out. And while it is possible to conceive of a $1599 tablet in a less globalized world, it won’t exactly set the world on fire the way a low cost device that is well designed taking into account user needs is doing. A global chain not only brings in lower wages, it also brings in substantially added investment each of these highly specialized vendors in the supply chain has put into their respective business.
So what does all this have to do with Maarga?
Well, we also are part of a global services chain here at Maarga. Our business is part of the flat world phenomenon. Nearly 90% of our business is from US & Europe, while our workforce is spread between US and India. We have partners in US, Europe, the Persian Gulf and Africa and we actively look for more partnerships. We seek to bring down the blended cost of large XPages migration efforts either for our direct customers or the customers of our partners through scale, specialization, our pre-built framework (called XFactory), leveraging open source and leveraging a Global Delivery Model. So, while we don’t quite see the kind of functionality growth and pricing cuts that happens in the consumer gadgets space, we are part of that enormous machinery that delivers quality XPages migrations at price points that enable companies to think about wholesale migrations. The connected world of business is a dynamic place and moves at a rapid speed. So, be it the lower price points of tablets fueled by Kindle’s latest set of devices or the lower price points for XPages migrations, we are seeing manifestation of similar underlying forces.