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$25 Tablets, $2 Mobile Data Plans, and Zero Margins: How the Internet Is About to Gain Three Billion New Users

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Three billion people have everything they need to connect to the Internet -- except a suitable device.

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Six billion cell phone subscriptions are spread across five billion of the earth's seven billion people, says Suneet Tuli, CEO of Datawind, maker of the world's cheapest tablet computer. Yet only two billion people are connected to the Internet, which means three billion people have everything they need to connect to the Internet-except a suitable device.

"Are they lacking electricity?" asks Tuli. "Of course not-if you've got a cell phone, you've got some way of charging it. Are they lacking networks? No. If you've got a cell phone, you've got some way of being connected to it. So what is really left? What is left is affordability. A computer costs three or four hundred bucks, and a cell phone costs thirty or forty bucks. But what happens if a basic computing device that's reasonably usable gets down to that price point?"

That's the experiment that Tuli's company, Datawind, is conducting in India and, hopefully, across the globe.

When I last spoke to him a few weeks ago, Tuli was in Mumbai for the launch of the 7-inch Aakash 2 tablet, a functional but basic device able to accomplish all the things you'd normally expect of an Android tablet. The Indian government has already ordered 100,000 of them, of which 20,000 have been delivered, while an additional 280,000 have been manufactured and are at some stage in the process of being shipped to private citizens who have ordered them online. Now Tuli is in New York for a second unveiling of the tablet, this time at the UN, where ambassadors from all 193 member countries will receive tablets as part of India's effort to show off its "frugal innovations" for the developing world.

What's changed since Tuli and I last spoke is that he has firmed up his estimates for when his tablet will be available at a price that renders it nearly disposable: $25 within 12 months. More importantly, he'll hardly be the only one offering 7″ tablets at that price.

"As long as I've got constrained supply, [companies like Samsung (PINK:SSNLF)] can sell tablets at a premium," says Tuli, whose company is currently struggling to meet the four million orders from India that have already come in. "The moment I don't have constrained supply, they can't sell at a premium."

What will unconstrain the supply of disposable tablets, says Tuli, is the fact that dozens of other manufacturers in China are currently trying to do what Datawind has already accomplished, which is build their own factories, called fabs, for making LCD touch panels. The screens on tablets are up to 50% of the cost of the devices, and Datawind has successfully reduced its cost per screen from $8 to $2.50 by building them on its own. Once those devices are shipped overseas, their price will go up on account of transportation costs and taxes, but that still means they'll be very cheap.

"There's 50 guys in China right now setting up fabs to make [LCD touch panels like Datawind's]," says Tuli. "In the next six to nine months they're going to come online. And the moment they start coming online, pricing is going to tank. What's going to happen is that those disruptive business models are going to change things for everybody. A sub-$50 retail price point in the next six months in the US is very practical for a product that, if you think of horsepower, has as much or more than the original iPad."

In rich countries, cheap tablets could be replacements for schoolbooks and point of sale terminals, or they could enable new models for distribution of digital media. But in poor countries, these devices could represent the first contact with the Internet for millions of people.

"To get that customer you've got to break the price," says Tuli. "You've got to kill hardware margins, and that's our big push."




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