Pay As You Grow
Microsoft® FlexGo™ technology enables pricing models that make computers affordable in emerging markets.

By Garvin Dennis

When consumers in the developed world want to purchase a new computer, most simply log on to a PC manufacturer’s Web site or trek down to the mall and get one. It’s easy to forget that there are still parts of the world in which owning a PC is an unattainable luxury.

Some companies know better. With an eye toward closing this digital divide and tapping into potential new markets, Microsoft and AMD are combining forces on Microsoft® FlexGo™ technology and pay-as-you-go payment models, designed to remove the traditional barriers to computer ownership. Pay as-you-go PCs with Microsoft FlexGo complement the 50x15 initiative, a global initiative founded by AMD which aims to enable affordable, accessible Internet connectivity and computing capabilities for 50 percent of the world’s population by 2015.

The strategy behind Microsoft FlexGo technology is simple enough. In recent years, prepaid mobile phone ownership has skyrocketed in markets such as Mexico, Poland and Russia. The reason for this growth hasn’t been cellular phone technology itself, but rather the pay-as-you-go business model. In this model, consumers purchase the phones for a discounted price and then buy cards with an allotted number of minutes.

Recognizing the popularity of the pay-as-you-go model, Microsoft began working to build PCs that can operate as pay-as-you-go machines and that are resistant to tampering, which would undermine the FlexGo plan. The result? A well-received market trial is now well underway in Brazil, and similar trials are on tap for India, Russia, Mexico, China and other countries later this year.

Up First: Brazil

With a population of more than 170 million and a large and growing middle-income population, Brazil was a natural fit for the first pay-as-you-go FlexGo trial, which Microsoft launched in April 2005 with 1,000 PCs. “We focused on emerging market economies, because that’s where the most underserved people are and where the most room for market expansion exists,” says David Edelstein, group product manager at Microsoft.

So far, pay-as-you-go PCs are primarily being used as personal information tools for individual families. “The PC is for the entire family, especially for my daughter, who’s in high school and has to do a lot of research,” says trial participant Edileusa Bandeira, through an interpreter. “I used to have to run out and look for a library. For me, the computer was the best way to improve her performance in school.”

With pay-as-you-go computing, consumers pay an entry fee of approximately one-third to one-half of the total PC cost, and a third-party financial institution pays the remainder to the retailer. The consumer agrees to buy a fixed number of hours of usage time on the PC (for example, 800 hours) at a predetermined hourly rate, which, when fully paid off, covers the loan from the bank (including interest). Customers purchase usage time from a variety of sources, including convenience stores, ATMs or over the Internet. Once they reach the required number of hours, the PC continues working with no additional charges.

For anyone who assumes that FlexGo participants are using outdated machines, think again. “These are not low-end, stripped-down computers; they can be the same as the PC on your desk at home in the United States or Europe,” Edelstein says. He adds, “Our research has shown that people want a good quality PC, but there’s a gap between what they desire and what they can afford.”

Barry Crume, director of the Microsoft alliance at AMD, says this is one of the most positive surprises about the program, noting that: “People predominantly want higher-end products, which shows that, if you’re going to pay for it over time, you want it to be worth something when you’re done.”

The Message of the Medium

One of the keys to making pay-as-you-go computing work is getting the financial component in place, which can be tricky from country to country. “We don’t change any of the technology in different markets, but the messaging has to be different,” says David Foster, general manager of the FlexGo core development group at Microsoft. “For example, in Brazil, customers are used to consumer credit, but, in China, consumer credit is not well thought of, so we have to get them thinking of it as a pay-for-use plan rather than a credit scheme.”

Although consumers in the prospective FlexGo markets generally have greeted the program with enthusiasm, one of the biggest hurdles its advocates face is tailoring their promotional efforts just right. “With a new model like this, you have to explain it in a way that’s easy to understand, and a message that works in one emerging market might not work in another,” says Veronica Olocco, a group product manager at Microsoft.

But the naysayers that Foster’s referring to are primarily American observers, who are less familiar with the pay-as-you-go model, which, thanks to the popularity of prepaid mobile phones, is much more established abroad. “In our target countries, the model is intuitively clear,” Edelstein says. “It’s far more difficult to explain to someone in the U.S. than to people in almost any other country in the world.”

For those who get the concept, pay-as-you-go computing with Microsoft FlexGo is proving to be beneficial in a number of ways. Some consumers use the PCs primarily at home as a personal communications tool. It can also be used with rural kiosks where people can get information on things such as weather and medicine.

Staying Flexible

To figure out how best to tweak pay-as-you-go computing for each geographic region, Microsoft is conducting extensive market research before and after it enters a test market. This has helped it discover, for example, that consumers really like things such as the payment flexibility but aren’t so pleased with the relative difficulty of finding the pay-as-you-go cards. “They’re not wild about the extra burden of getting the cards, because you have to physically go and buy them, but we’re developing ways for them to be sold electronically at stores or online,” Edelstein says.

As another example of the occasional cultural disconnects that the program has experienced, the Microsoft folks were surprised to realize that some of the foreign original equipment manufacturers building the PCs weren’t tagging them with the individual IDs required to make the tracking systems work. “That’s something we would’ve thought would be intuitive, but it doesn’t always work that way in other countries,” Foster says.

Daryl Sartain, director of future technologies at AMD, says that the model’s traction may be “difficult to quantify for a long time. The knowledge will be limited by the ongoing trials and seeing how different countries respond to different models.” But the Brazilian trial has been successful enough to convince supporters that they might be onto something big.

“We surveyed the trial participants and found that 31 percent of them wouldn’t have been able to buy a PC at all during the next 12 months without the pay-as-you-go model. This is a significant market expansion opportunity,” Edelstein says. Crume agrees. “We’ve been able to sell mid-to-high-end computers in markets where we were literally selling nothing before, and our retail outlets there are now looking at selling even more high-end products,” he says.

Overall, one of the more inauspicious byproducts of the information technology boom has been the creation of the digital divide, which has the potential to leave hundreds of millions of already struggling people even further behind. But, with programs such as pay-as-you-go computing with Microsoft FlexGo and the 50x15 initiative, Microsoft and AMD are giving these people a real shot at enjoying the benefits of the Information Age.