OLPC Hits Financial Setbacks

The dream of a laptop computer cheap enough to distribute to millions of poor children is finally coming true — but not quite in the way its backers imagined.

The nonprofit One Laptop Per Child Foundation of Cambridge, founded by Massachusetts Institute of Technology professor Nicholas Negroponte ’66, is struggling to lower the actual cost and increase the sales of its highly-touted “$100 laptop.” But two major electronics companies — Intel Corp. and Asus Computer International of Taiwan — have complicated the foundation’s job by introducing rival laptops that seek to deliver cheap computing to low-income youngsters, and make money, too.

Asus has begun to ring up sizable sales for its new mini-laptop, the Eee PC. The machine is being sold for $399 in the United States, but also will be sold for as little as $199 to school systems here and abroad. “Our idea is to provide computing access to children,” said Donald Leung, Asus product manager, “and to sustain our own company’s need, which is profit.”

Meanwhile, Libya and Nigeria have purchased nearly 170,000 of Intel’s Classmate PC mini-laptops, priced at $200 to $300. This year, Negroponte denounced Intel, saying it is distributing the Classmate below cost in a bid to undercut the One Laptop Per Child device. But Intel has stated it will make money in the long run as the machines create new markets in developing countries. “We’re not coming at this only as a philanthropic approach,” said Jeff Galinovsky, senior product line manager for the Classmate. “We’re in it for business reasons.”

Negroponte launched his program in 2005. Millions of his laptops were to be purchased by governments of developing countries, which in turn would give the machines to schoolchildren. The laptops cost almost $200 to make, but Negroponte said that with millions on order, manufacturing costs would plummet, driving the cost to $100 or even less.

But, so far, only Uruguay has signed onto the plan, and for just 100,000 laptops — a mere fraction of the 3 million machines the foundation had hoped foreign governments would order.

Walter Bender, the foundation’s president for software and content, said the slow pace of orders won’t keep it from achieving its goals. “We already have enough sales to bring the cost down,” Bender said. “The more sales we get, the more the costs will come down. There’s plenty of business out there for everybody.”

But last month, the foundation began appealing to individuals and charities, as well as governments, to begin buying machines. For $400, people can buy a laptop for themselves and have the foundation donate another unit to a poor child. Foundations and charities are being urged to buy hundreds or thousands of the machines for giveaways in developing countries.

“Having to require governments to buy in great bulk to achieve these economies of scale just hasn’t worked out,” said J.P. Gownder, an analyst at Forrester Research in Cambridge.

The foundation has rejected the idea of selling its laptops as a retail product in affluent nations. But Asus executives believed there was a sizable market in rich countries for cheap, basic laptops.

“They’re selling like hotcakes,” Leung said. “We don’t have enough in stock to fulfill everybody’s demand at the moment.” Leung said that Asus is already making a small profit from sales of the Eee PC, and soon will release a $500 model with a larger screen, as well as two cheaper versions, selling for $349 and $299.

Early U.S. adopters say they’re pleased with the machines. “I love how light and compact it is - plus it’s just cute,” said Katherine Shaw, a 38-year-old freelance writer in Pittsburgh. Roy Kron, 45, communications director for the Louisiana Sea Grant College Program in Baton Rouge, complained about the Eee’s cramped keyboard and deficiencies in its built-in word-processing software. But he’s still glad he bought one. “It’s small and compact,” Kron said. “That’s something that always has been an attraction for me.”

Asus is in talks with governments about selling the machines in bulk for free distribution to schoolchildren. A company executive said last month that a deal already had been reached with one government, but Leung provided no details. Last week, the city of Fresno, Calif., said it would buy 1,000 of the laptops for use in its schools.

Intel doesn’t plan a retail version of the Classmate. Like One Laptop Per Child, it’s counting on governments and charitable organizations to purchase the machines. But Intel’s Classmate is just part of the company’s “World Ahead” program, a strategy to increase the use of computer technology in developing countries.

For example, Intel’s Rural Connectivity Platform project is working on ways to extend the range of WiFi wireless networking from a few hundred feet to a dozen or more miles. Such a WiFi system could deliver cheap Internet access to remote villages, and make it easy to put the Classmate laptops online. It would also give everyone in the village an incentive to buy more computers, most of them loaded with Intel chips.

Bender said he welcomes any effort to provide computers to poor children. “The fact that industry is starting to take interest in this space and make inroads in this space is exactly aligned with this mission. The more people in this space, the better.”