DATELINE: January 4, 2008, Chicago
Last November, Nicholas Negroponte told the Wall Street Journal, "I am not good at selling laptops. I'm good at selling ideas." Steve Stecklow and James Bandler, A Little Laptop With Big Ambitions (Nov. 24, 2007). Negroponte is the well-know MIT professor (apparently on leave) who is behind the ambitious One Laptop Per Child project, designed to provide a laptop to 150 million of the world's poorest schoolchildren within four years, according to the Journal. Problems with the project were already apparent when Stecklow and Banler penned their article last November. Today, Strecklow has a second article, which reports that the problems...
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have come to a head. Intel Ends Its Collaboration with Nonprofit Laptop Project. As was apparent last November, the computer manufacturers and parts suppliers were becoming nervous about Negroponte's ambitions. He proved that a relatively inexpensive laptop could be produced, selling for $188 overseas. The plan was to distribute 150 million cheap laptops. As the plan moved toward fruition, Intel apparently began to see potential adverse consequences to its competitive position. Intel, itself, had developed its own low-cost computer (known as the Classmate). According to the earlier Journal article, Intel did this because Advanced Micro chips were the ones used in the One Laptop Per Child computers. Intel was concerned that its competitor's chips might therefore become the standard chips in the developing world. Not surprisingly in view of the low price, Intel doesn't make a large profit on its Classmate laptops, but it uses them to protect market share.
Negroponte asked Intel to stop marketing the Classmate in developing companies, apparently because it competed with the One Laptop Per Child computers.
A spokesperson for Intel told Strecklow that Intel could not accommodate that request. The reason: Intel has already sold tens of thousands of its Classmates oversees and discontinuing overseas sales would disrupt relations with overseas manufacturers and supplies. It is also notable that the One Laptop Per Child project tried to compensate for its own lackluster market penetration by selling the laptops in the United States. We suspect that those sales also posed problems for Intel.
One Laptop Per Child felt the competition in Libya. Its laptop is cheaper than Intel's ($188 compared to between $230 and $300, according to the November article), but Intel's runs Windows and One Laptop Per Child's runs Linux. That tipped the decision in favor of Intel's laptop, with Intel receiving an order from Libya for 150,000 units. Competition carried the day!
It's not just Intel being greedy. According to Stecklow and Bandler, manufacturers in Taiwan, India and Israel are also flooding the developing world with low-cost computers, viewing that market as a big opportunity. In other words, it is not Intel alone that is creating problems for Negroponte, but for-profit manufacturers in general. Negroponte's problems also stem from the fact that he has yet to deliver the $100 laptop that was originally promised.
As Intel shareholders, we are pleased that Intel finally had an epiphany. We did not give Intel our capital so that it could make charitable contributions with it. We know how to make charitable contributions and are perfectly happy do so if our return on our investments is high enough.
Therein lies the whole problem with the so-called new philanthropy, with its supposedly innovative partnerships between nonprofits and large businesses. The managers of businesses are employed to make money for stockholders. If management fails to make money, the stock price declines and managers lose their jobs. At the end of the day, managers are going to protect their jobs.
Although we certainly haven't looked at all the evidence, our working hypothesis is that many of these innovative partnerships are viewed by businesses as nothing but marketing campaigns to build goodwill with the public. We suspect that mangers evaluate the merits of these arrangements by comparing the cost of the partnership to, for instance, a new ad campaign involving a high-paid celebrity. In that light, managers can justify the charity because it really isn't charity—its goodwill marketing. But as we saw today, if the partnership begins to affect profits by competing with core businesses, the managers are always going to choose profits, abandoning charity.
Sometimes doing things the old-fashioned way is the better course of action. There is nothing wrong with nonprofits being innovative, but rather than partnering with corporate America, they might be better off following the traditional route of seeking grants from corporate foundations.
We don't mean to slam Negroponte. He is clearly well-intentioned and his belief appears to have caused everyone to work toward building a cheaper mousetrap. He has succeeded in getting cheap laptops to the third world. But at the end of the day, it was competition that turned his idea into reality. Like everyone else who sells a product, he must live and die by the dictates of the marketplace.
As an aside, we checked the Form 990 for One Laptop Per Child. Although its mission certainly sounds charitable, in point of fact, it is exempt as a trade association under Section 501(c)(6) rather than as a charity under Section 501(c)(3). We believe that for present purposes that is not a meaninful distinction and have ignorned it.
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