The Semacraft Blog

Taken in Raawal village, Rajasthan by Goverdhan Meena, Dec 31st 2008

NextBillion.net’s Rob Katz recently posted an Indian news snippet based on research that led the writer to argue that telco’s should focus on their most profitable customers, those at the top of the pyramid. The BoP (Bottom of the Pyramid), as the numbers demonstrate, are simply not worth it. Following some commentary, Rob added his thoughts on why telco’s should overlook these facts and in fact, find ways to emphasize their services for those at the bottom of the social and economic pyramid.

Now, its my turn to add my 5 rupees worth to this debate, luckily, at this point of time, I’m not on a project for any telco as used to be the case in 2008. First, lets put the visual of the data results here, then I’ll proceed with thoughts that have simmered and have been bitten back for quite some time now.* I’ve also had the pleasurable interlude of chatting about mobile phones with numerous people in rural and urban India, particularly those who would be considered BoP, returning just a couple of weeks ago.

What inspired this ramble were Rob’s closing lines,

Imho, the basic issue is not even a matter of analysis, simple or not, but instead, that of perspective.

The analysis itself is simple, follow the rules of the book, look at the colourful numbers above and simply apply the fundamental principle of Pareto – focus on the 9% that bring you 45% of your profits. No brainer, right?  Then why are we even having this argument? Forget serving the next billion, or 4 billion or even every human being on this planet who isn’t profitable, including your three year old.

But telcos everywhere still persevere. The roads to Ranthambhore are papered over with bright red Vodafone signage. Ironically there’s no coverage outside the district capital and only BSNL or Airtel seem to work depending on the village. So why are the telcos all looking at this market? And not just telcos, why are Google and Microsoft in addition to Vodafone and Nokia, all turning to look at the BoP, unprofitable though it maybe?

Its because somebody somewhere, in fact, a lot of somebodies in a lot of somewheres, all have that niggly little feeling in their gut that if only they could crack the code, there’s gold in them thar hills. Or at least, profits. Lets start with some challenges telcos face when addressing the problem of the “unprofitable” BoP subscriber:

Internal mindset – business school programming

The Institute of Design taught me one of the most powerful lessons in design – aka problem solving – if you can frame the problem correctly, then half the solution is right there. The uppermost problem on every telco employee’s agenda is that of dropping ARPU rates. As in, “OMG, we’re adding the population of Sweden every month to our mobile subscriber base but our Average Revenue Per User continues to drop.”  Duh, yeah.

Of course ARPU will drop. You’re expanding your subscriber base lower and lower down the income stream who will be, most logically, spending less and less on your services. Growth, in this case, is simply adding to the denominator in your own mathematical formula. Perhaps the metric of success when expanding into BoP markets cannot be the same as that held for your ‘richer’ markets?

The BoP are a funny thing. In one sense, they are a numbers game – there’s billions of them – but in another, they aren’t. They will NOT spend in the same way that your wealthier, professionally employed, high tech gadgeteering, mobile data surfing geeky segments are likely to do. Case in point, those 9% up there who are oh so profitable to their respective service providers.

However, the BoP will spend – but only, and this is crucial, only if they perceive the value of what they are spending for, more so when it starts to go beyond the essentials (in the case of the mobile, that’s basic maintenance of their SIM card validity and enough for an emergency call or two). Services and applications for the BoP need to demonstrate simply and clearly the answer to the question “Why should I spend good money on this?”

But before we go into what the BoP needs and why and how they make the decision to spend their hard earned cash, lets take a look at why the telcos haven’t been able to crack this problem with that holy grail, the “BoP killer app” ? (except mPesa, so perhaps that’s a lesson there in itself, eh?)

Big companies like telcos are staffed with MBAs and every decision to spend money on developing a new product (service, application, you name it) must be justified up chains of command and control with shiny numbers, excel spreadsheets, estimates of target audience, demographics and one of the biggest killers for the development of valid BoP services – the concept of “disposable” income. Those at the BoP will find the money for some expense or purchase if its deemed necessary to their wellbeing, survival or future but no penny they have is disposable.

And if you begin the design process by starting with the segment of the BoP who have the disposable income for your product rather than starting with a clear value proposition and an understanding of your target market’s mindset, what are the chances you are going to end up with a dud product that nobody wants to buy?

Pareto’s killer principle

Pareto’s principle applies globally as well and for those telcos whose footprints span the globe, its not just the top and bottom of the same pyramid, but the difference between what’s being spent by their wealthier subscribers in hard currency zones versus their returns from the developing world. Because of those numbers, in that chart, the ones that clearly demonstrate its not worth the effort to invest in developing relevant, affordable or appropriate services for the BoP on the mobile platform, you know, the stuff they’d actually want to shell out good money for, the BoP usually end up with crap that’s irrelevant and useless. For the logic goes, lets develop something for our subscribers in X, Y, or Z OECD nation and simply adapt it for our emerging markets, yeah?

So users in Berlin get scrutinized for ideas that will conceivably make pots of money in Calcutta and CapeTown. Forget Raawal village or Soweto or the outskirts of Kisumu. Naturally, one assumes, that since a phone is a phone is a phone, what Herr Schmidt likes to download and spend money on is the same as Goverdhan Meena. They just speak a different language and perhaps, Mr Meena earns a lot less. Sigh.

Otoh, if you were to actually look at the culture and context of your emerging markets, or in the case of India, the subject of the original post, the difference in needs and spending habits of the surfing urban 9% and the aspiring rural farmer’s son or migrant worker and then developed some services and solutions that made sense to him, do you think he might not want to buy it?

The irony is that this is not unknown or rare knowledge – that there’s a gulf between the urban and rural, the ToP and the BoP or the West and the East – but it seems to me that when it boils down to it, the telco chappies still seem to think that one size will not only fit all but there’s no cognitive dissonance in the exercise either. Top down concept design and development will only go so far – that is, to the limits of those who are part of mainstream consumer culture, who seek entertainment and iPhones (well described as a phone for those who wish to consume rather than produce). LirneAsia’s research on mobile usage at the BoP had led Dr Rohan Samarajiva to proclaim that for the BoP it would be models based on production – save them time or make them money – that would work, not models based on consumption – no matter how attractive the game, your average member of the BoP would think twice about downloading entertainment.

In fact, let me digress into a story here, when I was talking to Sanjay (a factory worker) about downloading stuff onto mobiles he said that he preferred “nokia dot com” (as he called it)- he said that when wanted to download something – a ringtone, a wallpaper, whatever – he preferred Nokia because before download they told you how much it would cost to do it and then you could take the decision to spend but Airtel and Hutch et al simply download and only later you found out you’d spent Rs 20 on something you didn’t think was worth it. Case in point, your customer feels screwed. Brand loyalty is rarely built by advertising alone and the BoP are far more cynical than your average mainstream consumer. He doesn’t have that spare Rs 20 for experimenting, every penny counts.

Finally, the bottomline

That’s the biggest problem innit? The bottomline aka profits? Although I must admit that because this entire rant was triggered by an Indian analysis, I would like to take this moment to point out that there’s still little or no comprehension in India of the need to do something for the BoP, that business can still be run on the metrics of profitability alone and the next billion will either somehow manage or its the government’s job to provide.Its an attitude problem, not an analytical one.

I came back from India thinking that innovative new services on the mobile platform would not emerge or bubble up indigenously, but ironically were far more likely to diffuse from sub Saharan Africa. There’s simply no focus on the needs of the BoP there, although data now begins to show that states that have significant mobile penetration are doing far better than states where mobiles have yet to reach the lower income strata. Not to mention all the studies done on the impact of mobile phones on the GDP of developing nations. No, your average Indian techie is too busy chasing the iPhone crowd to even imagine that his driver’s mother back home in the village might want a service on her mobile. Let them eat cake.

Global multinationals are certainly focusing on the BoP markets, as Rob has pointed out in his second post, but they too stumble along using outdated methods and assumptions when attempting to design something for this new and critically, unknown, market. If Nokia can launch English language lessons in China – just think of the market for that – why do the rest of the device manufacturers cling tightly to the idea that they’re just device manufacturers? Its ironic to think that the kind of brand power Nokia has among the BoP will allow them to someday overtake the telcos in “ARPU”.

And if mPesa can capture the attention of the world, then what’s stopping the Indians telcos? Will it take their ad agency to inspire them to do something or will continue to rely on outdated lessons of how to address a new market from business school teachings or big name management consultancies who have yet to catch up with today’s global economic reality?

What will happen though if the telcos continue to think this way is that they’ll be simply overtaken by the hackers themselves. The bottom line is about enhancing people’s lives now not profitability alone.No excel spreadsheet will show you that nor Pareto’s principle apply, to be honest, we’re talking about too many billion people who cannot be ignored for emphasis to continue to the 20% who consume the most resources. Refresh your assumptions, open your eyes, look at the big picture. The future is staring right at you, its all about give and take. Help them and they’ll help you. The BoP are people too.

Update May 19th 2010: Has anything changed in the past 16 months? And if so, what and how?

Fact, Forces, Fog by The Doblin Group

This spread is the centerfold of an interesting little PDF called Fact, Forces, Fog:: Reckless guesses in a time of change by The Doblin Group of Chicago.  I was first introduced to it in the Fall (Autumn) semester of 2003 when I took Larry Keeley‘s class “Design Planning” (or whatever its being called now) at the Institute of Design-IIT. It captured my imagination, and to be honest, hasn’t let go since then.

I bring it up in order to introduce the basic concept of a “post-industrial platform”, from a post written some three years ago, here is my snippet:

What do we see when we look at the PDF centrefold?

Keeley shared that if we look at the way things were – the greyed out section on the left hand side titled Industries gave rise to material goods & services then look at how things are ‘now’ [approximately 2002/2003] Digital systems and connections amplify trends, using Doblin’s methods they were able to forecast the future direction of way things were going to be evolving.

The essence of the evolution if you look at the clusters closely is that business models are evolving away from the capital intensive industrial infrastructure requirements of an Industrial era towards post industrial platforms based on intangible concepts. On the far right hand side is the final section titled Hot fields foster powerful convergence. Doblin’s team identified 11 key areas:

Simplicity – Enlightenment – Talent leverage – Mastery – Travel – Entertainment – Personal Expression – Relationships – Financial health – Health & Environment – Political Freedom

Now, at first glance, comparing these words, with those I’d extracted in yesterday’s post, it seems as though Wisdom itself is a meta-platform, comprised of the following:

Value -  Understanding -  High Standards -  Curiosity -  Love -  Uncompromising vision -  Ennoble – Eternal.

But a closer look at the concepts themselves will show that they are not all capable of becoming platforms in their own right, by virtue of the definition given above.  These are the individual qualities of wisdom, and needs must be taken together in order to embody Wisdom itself.

On the other hand, Love, as a concept, can and does exist outside of wisdom (as any cheesy soap opera will inform us).  And Umair Haque’s articulation from his Wisdom Manifesto (see previous), has it as:

Strategy is the application of force. Wisdom is the application of love. Strategy suppresses, but Wisdom evokes. Its test is the ability to spark new ideas, concepts, and solutions. That is how to be valued by people, communities, and society

Wisdom is the application of love. That is, one discovers, that perhaps wisdom is not a platform per se, but its manifestation, which then can be articulated in the many ways already so discussed.  Therefore, one is left with the point to ponder further, is Love then a post-industrial platform in its own right? And if so, is it repeating any of the concepts that have already been covered by the existing 11 platforms articulated above? The closest seems to be Relationships, so I zoomed in on the clustering of tags shown around it from the PDF.

Interesting. As a platform for business models, the intangible concept of Relationships resembles all the services available online for social networking, matchmaking, dating, sharing media and common interests as well as those which have tried to embody ‘trust’ into their interactions. But there’s no mention of the emotions behind these qualities, the engine or driver of empathy or that indefinable, inexplicable sense of our common humanity.

Perhaps there is, indeed, room for one more post-industrial platform then. But  how would we extrapolate its manifestation, since so much of what we know as “love”  has been commodified into meaninglessness by every pop song or preacher around the world? Although it must be acknowledged that everything we talk about when we look at “doing well by doing good”, or “social impact” or even, the triple bottomline over pure profits, seem to implicitly imply a form of love, perhaps for nothing else but simply that for our own emerging future.

This conversation will undoubtedly continue…

Your thoughts?

Back door at the Design Factory

I went back to look at Umair Haque’s Wisdom Manifesto I’d linked to last week, as I’d been mulling over things such as values, meaning and understanding after my post yesterday. In context of the values we espouse here at the Design Factory, it struck me that there may be seeds of an entire foundation for solution development, a platform in fact, if you will. But since those thoughts are still fuzzy and as yet unformed, I thought I’d begin by pulling apart Haque’s masterpiece and applying the creative license to re-interpret it with respect to the challenge of addressing the “unknown” or the “emerging future”, or even, “innovation”. (Or rather, banana…)

Haque begins his manifesto with the following introduction,  partially expressed here:

There’s a simpler way to express institutional capital. It’s about wisdom. It is because we’ve beggared ourselves of wisdom that we’re bereft of cash, jobs, and meaning.

The scarcest, rarest, and most valuable resource in the world today is wisdom. The countries, companies, and people that possess it will prosper. In many ways, wisdom is the opposite of strategy — and today, it is strategy, bought by the dozen from legions of besuited, back-slapping consultants, that is cheap, abundant, and worth little.

How large is the economic gap between wisdom and strategy? It begins in the billions. JPMorgan wasn’t wise, and now it has to set aside $3 billion in “model-uncertainty reserves.” Toyota wasn’t wise — and the price of that lack of wisdom is already $10 billion and rising.

Think wisdom’s warm-and-fuzzy? Think again. It’s as hard-as-nails, and as sharp as a razor.

And while his writing continues on to elaborate 9 key points, it is from these that I will now extract sentences to re-frame and reinterpret as I attempt to crystallize my thoughts on my key takeaways from his writing:

Value

Wisdom isn’t about what you “value” — it’s about how everyone values you. To get wise, articulate your essence

Understanding

Wisdom happens by understanding the who, why, what, and how of suffering. That’s the only source of the most explosive kind of horsepower — not just physical or intellectual energy, but emotional and ethical energy.

High Standards

Wisdom is measured against a higher standard than mere strategy: the one set by what people, communities, and society lack.

Curiosity (thank you Wycliffe for the perfect word found in the kitchen)

Wisdom requires space for experimentation and play — for people to find new ways to change the world.

Love

Strategy is the application of force. Wisdom is the application of love. Strategy suppresses, but Wisdom evokes. Its test is the ability to spark new ideas, concepts, and solutions. That is how to be valued by people, communities, and society

Uncompromising vision

Wisdom’s battle is the real one: never to compromise your essence, the way you want to change the world.

Ennoble (to elevate in degree, excellence, or respect; dignify; exalt)

Wisdom is about what’s higher. Can you hold yourself up to a higher standard than the bare minimum rule-makers ask for (profit, here and now) — and by doing so, create more value?

Eternal

Wisdom is eternal. And that means that it’s a ceaseless quest for learning.

Now I can see here the seeds of a path towards wisdom, embodied and embedded in new ways of thinking and making and doing. We now have  the following 8 conceptual keywords:

Value -  Understanding -  High Standards -  Curiosity -  Love -  Uncompromising vision -  Ennoble and Eternal.

Yesterday, via Twitter, I came across this interview on Engadget where Nokia’s new head of Design talked to journalists about the mobile company’s future plans. Regular readers know I have not only tracked Nokia since 2006 but held it in high esteem as a company that has, until now, done well in emerging markets. This was the company that exemplified the core values of the emerging market customer – that demanding one at the ‘base of the pyramid’ – simple, easy, endurance, survival and commitment.  You could drop one of their phones in the swimming pool and it continued to work (as a flooring specialist from a township in South Africa once told us as he held his Nokia close, joy lighting up his face) or run a truck over it (as Indian TV commercials inspired many to do as a test of “proof of performance”).  This was a company that believed implicitly in sustainable solutions and upheld the eco-design principles so espoused in Northern Europe.

When did you wander off your path and fall into the abyss? Wither your core values that made you who you are and touched the hearts and changed the lives of billions of people?

Here’s the snippet that wrung my heart, as I mourned the demise of a formerly inspirational giant:

We had to also poke and prod on a couple of pet peeves of our own, starting with the integrated battery in the N8. If you’re going to take cues from the iPhone, that’s really not the one we’d advocate following, but Marko was categorical that the overall design concept took precedence in that case. He seemed to imply that the N8 just wouldn’t have been as good, structurally and aesthetically, if it had to have a door for battery access.

Cliches spring immediately to mind – “style over substance” was never a glorified part of the engineering culture… so, it makes me wonder, why not simply put the gun in your mouth as you pull the trigger? It will hurt less that way.