ICT4D: pricing the future

In Learning Technologies on May 21, 2009 at 2:09 pm

Continuing on my theme of funding ICT in education, I want to turn to the developing world. Educational technology companies often cite why educational systems should adopt a particular technology. Typically it is linked to educational or economic objectives, which in themselves are linked. When I meet government officials, lecturers and teachers in developing countries, many are excited, enthused and, at the same time, despondent about these presentations. They ask: “How can we afford these things?”

What, of course, they mean is that they do not have the financial means to bear the cost of whatever ICT product they have seen. This is a problem for both the potential customer and the vendor. From a vendor’s perspective, it is a terrible scenario – prospects who want to buy the product but don’t have the money. Some companies will discount their products, often in a random fashion. Others may feel generous and give it away – many finding later that such “donations” are not appreciated or valued in the same way as those purchased. Many just walk away – after all, someone has to pay the bills. For those who don’t walk away, it would seem that a solution is needed to (a) provide some rationale for transparent and consistent pricing, and (b) that some consideration is transferred to ensure the value of the product is appreciated.

If educational ICT companies truly their products can have a positive impact on educational outcomes (and by association economic outcomes), why not link pricing to meeting these objectives. For example, the Human Development Index combines normalized measures of life expectancy, literacy, educational attainment and GDP per capita for countries worldwide to measure “human development”. As of December 2008, Iceland had the highest ranking of 0.968 (although given recent economic woes, this has probably changed) and Sierre Leone had the lowest ranking (No. 179) with 0.329. Applying the HDI to pricing, my US$300 subscription to Froguts Dissection Software will cost a school in Sierre Leone US$103.89. As Sierre Leone’s economy develops, hopefully the price will also increase rewarding the early mover vendor.

Some might argue US$104 is still a lot for a country like Sierre Leone. It is. But the HDI is not the only index. Some have suggested looking at the extent of deprivation in a country i.e. the Human Poverty Index. The HPI is a composite index measuring deprivations in the three basic dimensions captured in the human development index — a long and healthy life, knowledge and a decent standard of living. Here Sweden is the highest ranked country with a ranking of 15.4 (Iceland is not included) and Sierre Leone is last with a ranking 51.7. Under the HPI, our Froguts license would cost US$89.36.

Of course the reality is that for countries such as Sierre Leone, the infrastructure for educational ICT just doesn’t exist and really isn’t a priority over basic health and education needs. But for mid-tier countries who have basic ICT infrastructure in place and are ready for technology, this could provide the basis for a long term pricing solution for buyers and vendors.

So why not link pricing to the HDI or HPI? Well, for hardware manufacturers one reason is that companies have a responsibilty to their shareholders which typically means making a profit. Selling below recommended retail price impacts profit maximisation. For software manufacturers (including digital content publishers), software piracy is a real fear. Are these unsurmountable? Not really. Firstly, the profit maximisation argument largely depends on the time horizon being examined. If the products truly impact educational and economic objectives then one could argue  that the investment in discounted prices creates a future market worth a lot more particularly if the early mover advantage is significant. Secondly, maybe the challenge will spur the company to innovate and create a product to sell profitably at this reduced level. Thirdly, no market is safe from the dedicated and motivated software pirate however digital rights management is increasingly more effective and less expensive.

This pricing approach is worthy of reflection, particularly for those companies in the digital content and software industry interested in expanding internationally. Mid-tier developing countries are often not core markets, if considered markets at all. However, they are substantial, particularly at a macro level, and as such, represent a significant market opportunity for those with the right products and commitment for the long term. Committing to a transparent and consistent approach to pricing may be the right first step.

  1. Theo here are some suggestings for gaming this week.

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