IDC: US Tech Firms Underestimate Emerging Market Opportunity

Outdated perceptions about emerging markets blind North American technology companies to the substantial IT investments being made there, according to a top International Data Corp. researcher.

Sandra NgLatin America, Central & Eastern Europe, Middle East, Africa (CEMA) and Asia Pacific economies are will spend nearly as much on IT as the US in 2012, said Sandra Ng, Group Vice President of the Information & Communications Technology Market Group at IDC in an address to the research company’s Directions 2012 conference this morning. By 2018, those countries will outstrip the US on IT spending by nearly $100 billion.

These “green field” markets are building IT infrastructures around mobile technologies, adopting social media for content distribution and investing in “smart cities” at a faster rate than mature markets, Ng said. However, most North American tech companies do less than one-third of their business in these growing economies, believing them to be less lucrative than their home markets.

Download Sandra Ng’s slides here

Many US vendors assume that success in emerging markets is a matter of selling their North American products at a lower price, but this ignores the different ways in which IT is evolving in these growing economies, Ng said. She listed five common misperceptions and realities.

Misperception: Emerging markets are extremely cost-sensitive.

Reality: A wide range of customer needs exist. For example, China’s wealthy class has made Louis Vuitton’s outlets in that country the most profitable in the world. There is a growing appreciation of value and the importance of high-quality service in Asia/Pacific in particular, Ng said.

Misperception: The principal appeal of emerging markets is growth.

Reality: Businesses should plan for “smart growth,” with some segments growing much more quickly than in North America and others lagging. Manging the business as a portfolio is important.

Misperception: Emerging markets have large and low-cost labor forces.

Reality: “We have a lot of people but we don’t have a lot of talent,” Ng said. There is demand for the expertise that western companies can bring.

Misperception: Customers want itemized prices and mix and match the cheapest offerings.

Reality: Increasingly sophisticated customers understand that packaged pricing is often a better deal.

Misperception: You need strong relationships to do business in emerging markets.

Reality: “There’s increasing appreciation for transactional as well as engagement models.”

With 20 of the world’s largest 27 cities and a growing population of young people, emerging markets present attractive growth possibilities, Ng said, but their technology needs aren’t the same as those of western economies.

Mobile services market

IDC Forecast

For example, mobile platforms are the dominant platform for consumer services. Chinese consumers, for example, will spend $160 million on online books this year, but they expect delivery in a format that fits on a mobile phone. Many people don’t have bank accounts and so expect to pay for services in advance. Cloud-based applications are more appealing than on-premise software for businesses that lack large IT infrastructures.

Governments in many of these countries are keen on pursuing the concept of “smart cities” and many have designated “innovation scouts” to look for cloud apps in that area. “There’s lots of opportunity in IPv6 and machine-to-machine communications,” Ng said.

North American vendors who tune their offerings to those characteristics can tap into a huge amount of pent-up investment, she said.

This is one in a series of posts sponsored by IBM Midsize Business that explore people and technologies that enable midsize companies to innovate. In some cases, the topics are requested by IBM; however, the words and opinions are entirely my own.

IDC Sees Massive Disruption From Industry’s Platform Shift

The global IT industry is in the middle of an epic platform shift and the rules for survival in a market built on mobility, big data analytics, social business and cloud computing will be very different than those that applied to the previous client/server generation.

Download Frank Gens’ slides here

That was the message from IDC Senior Vice President & Chief Analyst Frank Gens as he kicked off the research firm’s Directions 2012 conference in Boston this morning. Gens, who has tracked the computer industry since the days when mainframes ruled the earth, outlined a dramatically new economic structure that will emerge as economies of scale take hold.

Frank Gens, IDG
Frank Gens (photo by Jeff Ballard via Twitter @jballard)

“Volume is going way, way up and price is going way, way down,” he said of the new software market. “If [technology companies are] going to drive large-enough volumes to support the revenue levels they’re used to, they’re going to have to drive the number of customers way up. You’ll need millions of customers in order to compete.”

Gens outlined some striking changes in the platforms and architectures that underlie what he called the “third platform” of computing after mainframe and client/server. Among them:

  • Spending on mobile data services will surpass spending on fixed data services this year for the first time. “That’s a crossover that will never cross back,” he said.
  • The 700 million mobile devices shipped in 2012 will roughly double the number of fixed devices shipped during the same period. Spending on mobility will exceed spending on PCs and servers for the first time.
  • The volume of unstructured data in corporate data centers will exceed the volume of structured data for the first time.
  • China will surpass Japan to become the world’s second largest IT market at about $170 billion.

But the most startling changes Gens outlined concerned the software applications market, where downloadable free and low-cost apps are redefining the economics of the business. IDC forecasts a five-fold increase in annual apps downloads to 137 billion by 2016. Only about 18% of those apps will be paid for, and average prices will fall from $1.59 today to 82 cents. “That’s spooky stuff when you consider that PC apps average about $25” and that that market isn’t growing, Gens said.

Technology companies will need to overhaul their business models to accommodate these shifts. In order to attract the thousands of new customers they’dd need to recruit each day, vendors will have to become experts at cultivating communities and working with partners and even competitors. In other words, word of mouth marketing is the only viable promotional model.

Will Microsoft be a player in mobile platforms? It may be, but Redmond has a lot of work today, Gens said. A recent IDC survey asked developers which platforms they were “very interested” in targeting. Apple IOS for the iPhone came in first at 90%, followed closely by Google’s Android for smart phones. HTML 5 was a strong third. Microsoft’s Windows Phone 7 was a weak fourth at under 40%. Can Microsoft compete? “We should know in the next 12 to 18 months,” Gens said.

Tech firms will also need to serve a wider variety of vertical markets because price deflation won’t permit the luxury of focusing. Fortunately, IDC has identified more than 40 new specialty industries made possible by platform shift, including medical assistant online, social mobile commerce and smart buildings.

And if these pressures weren’t intense enough, don’t forget overseas competition. Gens said the business models that support high-volume, small-transaction markets are being honed right now by Indian, Chinese and Russian companies that have worked in that environment for years. US firms, with their high costs and margins, are going to struggle to adapt to a leaner and more competitive way of doing business.

This is one in a series of posts sponsored by IBM Midsize Business that explore people and technologies that enable midsize companies to innovate. In some cases, the topics are requested by IBM; however, the words and opinions are entirely my own.