Reverse Innovation – Lessons From Emerging Markets

by Steve King on October 14, 2009

One Laptop Per Child’s (OLPC) mission is to produce low cost laptops designed for children to use for educational purposes in the developing world. Their first product, the XO, was released in 2007.

Because the XO was designed for the developing world, the price had to be very low. To keep costs down, OLPC built a small notebook with a 9″ screen, limited storage and components a generation behind the market.

For a mix of reasons, the XO has had limited market success. But it has created a new category of computers – the Netbook. As you can see from the picture, except for the WiFi rabbit ears the XO – designed in 2005 – is similar in look and capabilities as the current generation of Netbooks.

This is an example of reverse innovation. The XO was designed for use in developing countries where buyers require inexpensive products. These buyers are looking for “good enough” functionality at a low price.

But it turns out that in many cases “good enough” is also good enough for consumers in advanced economies. Despite their limitations, Netbooks are “good enough” at mobile computing applications to make them popular in the developed world.

There are many examples of successful “good enough” products. Southwest Airlines started as a low cost, no frills airline. Charles Schwab positioned itself as a low cost broker that didn’t offer research and other costly support services. And Costco continues to thrive by providing low prices and a good enough shopping experience.

While these examples are from the U.S., we are beginning to see “good enough” products designed and built in the developing world becoming popular in the U.S. and Europe. Kia Motors, for example, has increased U.S. sales despite massive problems in the auto sector.

“Good enough” product and service opportunities will continue to grow globally in the coming years. Businesses of all sizes need to be aware of reverse innovation opportunities – and the competitive threats reverse innovation creates.

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