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Behind the Intel/OLPC Breakup

Posted on: Wednesday, 9 January 2008, 12:00 CST

In mid-December, in the hip, Frank Gehry-designed IAC (IACI) building in New York, Intel (INTC) held a small gathering for a dozen or so journalists to preview the corporation's planned showcase at this week's 2008 Consumer Electronics Show [CES] in Las Vegas. Curiously missing: any mention of a much-anticipated, low-cost laptop, called the XO, for children in developing countries, featuring an Intel microprocessor, with hardware designed by the Santa Clara [Calif.]-based nonprofit, One Laptop Per Child [OLPC]. The company had been planning to launch it at CES.

In hindsight, the omission seems prophetic. [Intel spokesperson Chuck Mulloy tells BusinessWeek that the company was still working on the prototype for the Intel-OLPC laptop and wasn't ready to show it to the press in advance.] But leading up to CES, a furious public spat between OLPC's founder, Nicholas Negroponte, a professor on leave from MIT and co-founder of the famed MIT Media Lab, and the chipmaker erupted when Intel first notified Negroponte via e-mail on Jan. 3 that Intel was bowing out of the project. The feud highlights the tumultuous history of OLPC, just as the nonprofit issued the official results of its recent "Give One, Get One" sales promotion, and as Negroponte prepares to give a high-profile speech at CES on Jan. 9 as the closing talk of CES's program, "Technology and Emerging Countries: Advancing Development Through Technology Investments."

OLPC Holiday Promotion On Jan. 7, OLPC released figures from its biggest sales push to date. The idea behind the recent Give One, Get One campaign, which ran in the U.S. for two weeks starting Nov. 12, was to tap into holiday gadget lust and attract American customers to purchase two XOs for $399 -- one for themselves and one to be shipped to a child in Afghanistan, Cambodia, Ethiopia, Mongolia, or Rwanda. Since Sept. 24, OLPC has also run a "give many" initiative, asking for $200 donations.

When asked about sales during the Give One, Get One promotion, Negroponte says that OLPC saw $35 million in sales and that 162,000 computers were shipped. The Jan. 7 press release simply reports "over 100,000." The 162,000 figure, clarifies a spokesman for the outside PR firm working with OLPC, breaks down to 81,000 purchased for use, and 81,000 given to kids in developing nations.

However the figures don't quite add up. The amount raised should be $32.3 million -- nearly $3 million less than the total amount cited in the press release. The difference, says another outside spokeswoman for OLPC, can be attributed mainly to contributions given to OLPC during the promotion that did not result in direct sales of computers. She did not provide an exact breakdown of the $3 million. Negroponte says that all of the money raised will be spent on making and distributing the XO laptop to kids in the five nations initially earmarked to receive them, among other countries.

Although $35 million -- or $32 million -- might seem like a large sum to any nonprofit seeking to raise eight figures in only a couple of weeks, the number of XOs sold is much smaller than initial projections. In 2005, when the OLPC initiative was first announced, Negroponte said he hoped to produce five to ten million units by the end of 2006 or the beginning of 2007, with, ideally, sales orders to match. The total units that have been sold, Negroponte says, is around 500,000 -- "lower than I'd hoped," he admits.

XO Project Hit Snags The project repeatedly hit snags. Unforeseen production costs nearly doubled the projected price of $100 per machine, hindering poor nations from purchasing it. A Nigerian-owned, Massachusetts-based firm, Lagos Analysis, is suing the foundation for copyright infringement of its laptop keyboard design.

And although OLPC made headlines for its elegant design, and Negroponte had many meetings with heads of state in various nations around the globe, many did not commit to purchasing the machines. The Indian Ministry of Education decided not to purchase OLPCs in 2006, citing a greater need to support classrooms and teachers as opposed to the XO; and the Chinese government hasn't bought any to date. The Give One, Get One promotion signalled that the machines weren't selling as fast as they might have, even after they went into mass production in November, 2007.

To put sales of the XO -- so hyped for its sleek silhouette it has been featured in museum and art shows and in countless articles in design publications -- in perspective: Apple shipped 2,164,000 Macintosh computers in the fourth quarter of 2007 alone. While that comparison might be a bit unfair, it's clear that the XO isn't catching on quite as Negroponte had foreseen. Yet when asked about expected sales for 2008, he remains the optimist.

Internet Support Planned "I hope that another 1.5 to 2.5 million will be sold during 2008," he says. But no longer having Intel's investment -- which Negroponte says included a further $12 million toward support of the project, including sales and marketing resources from Intel, beyond engineering contributions -- will certainly affect how well the XO sells this year.

Still, the $35 million [or so] raised from the Give One, Get One campaign will help OLPC continue manufacturing and shipping the XO without Intel's help.

Critics and skeptics have pointed out that merely getting the XO to poor nations isn't enough. When asked about this, Negroponte says that OLPC is providing Internet access everywhere the XO is shipped and is working on developing partnerships with local telecommunications systems to make use of unused bandwidth. The nonprofit is soliciting volunteer software programmers and developers around the world to create open-source educational material for the computers.

Intel Cites "Classmate" Conflict So why the bitter split so close to what was intended to be the high-profile debut of a new, low-cost PC for underprivileged children? Via spokesman Mulloy, Intel states that it could not accommodate Negroponte's alleged demands that the company cease to market its own inexpensive PC, the Classmate, to children in poor regions where OLPC was already marketing its own device.

Negroponte denies that he made any such demands -- and adds that he was shocked by the company's decision to jump ship. He says that only 24 hours before he was notified, he was working on a joint statement with Intel on the success of the collaboration, which he would refer to in his speech at CES. And he says that Intel Chief Executive Officer Paul Otellini was also set to mention it in his keynote. [Otellini's presentation focused on devices for the mobile Internet powered by new Intel chips and featured a line-up of celebrity guests includingTom Hanks and members of the band Smash Mouth.]

Negroponte says that the board of OLPC considered dropping Intel from the partnership at a meeting on Dec. 18, which Intel reps did not attend. Why? Negroponte alleges that Intel repeatedly failed to live up to various obligations. Mulloy reacts by saying "Intel, as a rule, doesn't discuss contractual agreements. But we didn't break any."

Although Intel has dropped out of the project, other powerful tech companies are continuing to offer support to OLPC, including Google (GOOG), AMD (AMD), eBay (EBAY), and News Corp. (NWS).

Intel claims that it remains "aligned with OLPC," in terms of wanting to support education in developing world nations, says Mulloy. But he adds that Intel's position in regard to supporting education in impoverished communities has always had more to do with providing laptops, whether they be the Classmate or the XO. The company announced last fall that it is targeting 1.5 million teachers internationally via an online teacher-training program on how to use computers and software in the classroom.

"We're disappointed," Mulloy says. "We're truly sorry this [partnership with OLPC] didn't work out."

Source: Business Week

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