In my last post I mentioned how Nokia and Motorola are working to come up with cheapaer phones for the emerging markets. In a previous post I also wrote about the Emerging Market Handset programme by Motorola. The USA Today article mentioned in the post about Nokia also presents “the remarkable story of one of Motorola’s emerging hit products in Asia: the pared-down, retro-yet-futuristic Motofone, designed from scratch as perhaps the first cellphone aimed at the rural poor.” As reported widely, Motofone was introduced in Pakistan a few weeks ago.

 This attention to emerging cellphone customers comes with a downside. On Jan 19 Motorola reported earnings and plans to cut 3500 jobs. Motorola blamed the lower quarterly profit on discounts on the Razr, and price declines on its most expensive phones with high-speed wireless connections and on cheaper phones sold in emerging markets, where competition was brutal.

Below are more excerpts from USA Today article.

The most radical thing about the Motofone is the screen. It’s the first cellphone to make use of technology from E Ink, a maker of electronic ink. E Ink is literally like ink embedded in the screen, and each molecule switches between dark and light depending on how it is zapped with electrical charges. Once the ink is electrified into a pattern — say, the time — it stays that way without using any more power, behaving like ink on paper.

The result serves two important purposes for the Indian market. First, the screen uses exceedingly less power than a typical illuminated cellphone screen. The Motofone has about 400 hours of standby battery time. Second, the screen is clearly visible in direct sunlight, again like ink on paper. This is a nifty feature when marketing to farmers and fishermen.

Anticipating that the Motofone would be used by millions of people who can’t read, its menus rely on icons and spoken language commands — in Tamil, Telugu, Kannada, Malayalam, Bengali, Punjabi and Hindi. Thinking it would be used outdoors, Motorola made the phone dustproof. Knowing it had to be cheap, the Motofone has no camera or MP3 music player, so it costs only $40.

One other thing: The Motofone still had to be cool. “When someone is buying a phone in an emerging market, it is a status symbol,” Warrior says. It’s not uncommon for two villagers who meet for business to first put their cellphones on the table as a way to show off, the equivalent of pulling up to a meeting at a Silicon Valley restaurant in a Porsche.

The Motofone was has been getting a ton of attention. A review in PC World India said: “The Motofone will appeal not only to users in rural areas seeking a low-cost handset, but also first-time users in the urban market, too. Considering the price and form factor, this is a definite buy.”

Zander seems particularly proud of another, albeit far more low-tech, invention. It is a bike, outfitted with a generator attached to the back wheel. The generator is connected by wire to a cellphone holder on the handlebar. Millions of people who don’t have electricity could use this to charge their cellphones while riding their bikes.

However contrary to what Zander thinks Wall Street had alredy been critical of low-cost, low-margin products such as the Motofone and the bike generator. Earlier this month WSJ pointed out some key issues facing Motorola:

  • RAZR-thin margins: Motorola appears to have failed to turn the blockbuster RAZR handset into high profit margins. One key reason, some investors and analysts say, is that company used the phone’s popularity to take market share by allowing the handset’s price to drop quickly.
  • Broader offering: Much future growth is seen coming from more cost-conscious customers in developing nations, meaning a need to sell products in a variety of styles and price points, a strategy archrival Nokia has embraced. Motorola has had some success, doubling its share of the Indian market last year to 7%

I hope that Motofone will be successful in its contribution to reducing digital divide. Not all devices have a high short-term profit margin and investors should respect that. With some luck Motofone will pave the way to even better and cheaper phones with simple but real economic value adding features.

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