The Semacraft Blog

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?

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The challenge to address the issues faced by the significant proportion of the world’s population who live on less than £ 1 a day has been taken up eagerly by many in the global design industry. The INDEX awards regularly nominate some of the best in the world, and others are frequently seen in the news. Recently the Cooper-Hewitt Museum of Design in the USA held an exhibition of products developed particularly for the developing world on themes such as health, potable water and renewable and affordable energy sources.

The designers are primarily from leading universities, well known design consultancies or non profit organizations based in the developed world. Few have spent significant time in the environment or conditions under which their designs will be used or actually collaborated on the products with the people for whom they are meant. How do these solutions fare when held up against the design criteria that they be affordable, durable and sustainable? Are they easy to repair and maintain? Does the investment being made make sense in context of the customer’s daily life?

The Mightylite is a longlife solar powered LED light developed for the bottom of the pyramid and first launched in India for the equivalent of £ 25 – that is almost a month’s wages for a populace that earns a meager sum daily and must first spend it on necessities such as salt, rice and cooking oil. It is currently being redesigned to be more affordable. The same goes for the Lifestraw, an ingenious device that provides instant potable water in even the most unhygienic of conditions. It too is considered beyond the reach of the majority for whom it is meant. And the $100 Laptop is currently hovering at $200, however well designed, innovative and advanced it may be.

Price is not the only factor, albeit the most significant one, when looking at the many ways these well-meant solutions have fallen short of the mark. In a recent critique of the Cooper Hewitt’s “Design for the other 90%” exhibition, David Stairs highlighted three common errors he felt that designers made when working on such solutions – first, they were working from remote experience rather than in the field, second, they tended to believe that technology would always have an answer, and finally, they fell prey to gargantuan thinking i.e. instead of addressing the water problems for a village or region or even a country, the current thinking tended towards “erasing worldwide poverty”, “housing 3 billion people” etc.

We believe that the simplest and most effective way to create real solutions that can make a real difference to everyday people’s lives would be to promote local designers and innovators, enabling them to design and build local solutions that fit their local needs. Take Africa, for example, where there is a dearth of design schools across the continent and few formally trained designers, even a cursory observation of the streets of any large city or a village would show numerous makeshift solutions cobbled together with recycled materials or junk. Innovation and ingenuity exists – it is simply not as polished or sophisticated as our aesthetically trained eyes are accustomed to and hence overlooked or considered primitive.

But these solutions – the jugaad of India’s villages where diesel generators built to pump water form the basis of handcrafted vehicles that take vegetables to market or the sheer persistence of the now famous Nigerian who built a working helicopter from scrap – work. And they work within the constraints and conditions of the environment in which they must operate. Furthermore, they are cheap to build and maintain. When there are no formally designed and mass manufactured artifacts to fill the gap between necessity and requirement, one can be conceived of and created by hand in order to meet the need. There’s a farmer in India who welded his handheld pesticide sprayer to a pole fixed to his motorcycle for fields that are too small for a tractor but too large to walk through carrying the heavy load. Or the young man in Africa who designed and built his own windmill, to be feted at the TED conference, without any engineering or design education.

So why do we still believe that the solutions designed in airconditioned offices in New York or London will better serve the needs of the bottom of the pyramid? And why are they developed in isolation? And why not share your expertise when on that field trip to understand the needs of the local populace? The challenge is to design the programs that can transfer the appropriate skills required to improve the efficiency or effectiveness of the end products developed but also suit the learning ability, literacy levels and existing capabilities of the student.

An example that has been successful has been Bunker Roy’s Barefoot College in the northwestern Indian desert state of Rajasthan. There, illiterate village women are proud graduates of the ‘barefoot solar engineering’ program that teaches how to build, install and maintain solar powered cookers and panels in their villages. This scheme has the manifold benefits of providing a sustainable income source for these women, a sustainable solution that replaces the use of firewood stoves while minimizing exposure to smoke and soot, improving their overall health as well.

Workshops to transfer skills to locals – such as the inventors and innovators covered in Afrigadget’s website of ingenious contraptions that recycle, reuse and repurpose materials – are one way that designers can make a real difference in the lives of those they seek to serve. The other would be consider the users as cocreators, meaning that rather than bringing in an entirely new and manufactured solution which may not always be required, the design team observe in what ways the challenge or gap is being addressed at present and consider it a working prototype for a potential solution or product. The designers then look at what value they can bring to improve on it or to make it reproducible affordably and sustainably, working with the local designer or inventor to arrive at a final product that actually meets the need and can be used by many.

The biggest lack is information – without access to knowledge of what has been done, how many different villages attempt to solve the same problems of potable water or energy sources by continuously reinventing the wheel in so many different ways? What if we could share this information easily and in a manner accessible by all – if a cost effective rainwater harvesting solution has been designed using recycled materials and uses no power at all and is easy to build and maintain – can that not be shared so that the next homegrown innovator can build one for his own village instead of starting from scratch? This type of information share is the simplest thing that we take for granted in our broadband world where Google provides you with an answer at the touch of your fingertips.

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