Information and Communication Technologies (ICTs) for social and economic development in emerging economies have long been a focus of governments, the private sector, and most certainly donors and international development agencies. Yes, despite all the attention garnered on this field, we are seeing a checkered history of ICTs as a tool for development, with both successes and significant failures littering the landscape.
With the phenomenal growth of mobile technology in the last ten years, the attention of donors, governments, and multi-lateral and international agencies has now turned to the telecommunications sector and mobile technologies as channels to deliver services and products to citizens at the bottom of the economic pyramid.
Likewise, large corporate players understand that the more than 2.6 billion people making less than $2 a day constitute a significant potential market for m-products and services. This population has access to communications technologies in unprecedented numbers. It is estimated, for example, that in Southeast Asia 55% of the overall population overall now has access to a mobile phone. In sub-Saharan Africa, the numbers are growing fast as well; according to latest numbers an average of 48% of the population has mobile phone access.
In Latin America the numbers are even more impressive. The vast majority of individuals there now have access to mobile phones with penetration rates of 86% on average across the region. The Middle East is equally highly penetrated with an average 80% market pentration across the region. [source: Wireless Intelligence]
Of course, this kind of penetration of a powerful technology, presents opportunities for healthcare, educational services, and economic development delivered over and spurred by mobile technology to populations that were previously extremely hard to reach. Getting the poorest millions connected to the information society will unlock new markets and drive the world economy to a different level. The estimated purchasing power of this market is debated but if one takes China, India, Brazil, Mexico, Russia, Indonesia, Turkey, South Africa, and Thailand as a sample market, these countries collectively house 3 billion people with a GDP (adjusted to purchasing power parity) of $12.5 trillion. [source: Prahalad 2009]
While this market is undoubtedly large and attractive, it is also informal and highly fragmented. Tapping this market is not without significant difficulties for companies in many regions of the world.
This paper, originially commissioned for the World Economic Forum, discusses the opportunities and critical success factors for scaling m-services – services and products for development delivered over the mobile platform. It discusses some of the barriers for scaling m-services and it addresses how industry, donors, and civil society organizations can move from some of the many promising pilot projects in m-health, m-agriculture, and m-payments to economically viable m-services that increase the quality of life and drive economic growth for the poorest of people.
What Kind of Mobile Services Are We Talking About?
There are a number of m-services particularly suited for scale that have been growing rapidly in many emerging econmies. Some of these include:
- Financial Services conducted via mobile networks and devices: These include mobile payment and banking services, wage and social benefit payments, financial literacy and education.
- Health services supported by mobile technologies: Includes medical records management, health education and behavior change communications, clinical care, treatment support and medication compliance, disease surveillance, medical supply chain management, and health worker training and support.
- Mobile-based learning and education: These include testing, job support, just-in-time learning, mobile educational games, classroom support, teacher training, etc.
- Market information services / agricultural and rural development services via mobile: Farmer information services and help-lines, land and natural resource management, market pricing information, transportation coordination.
The Case for Scale: Scaling-Up is Imperative. (Or: No mass, no cash, no impact.)
Mobile technology has changed the way the poorest people are connected. There are two key dimensions that allow us today to talk about the potential for scale: Access and affordability.
Access: While of course not all markets are saturated yet, as penetration numbers show, experts agree that that mobile access challenge has largely been met around the world. Most individuals at the bottom of the economic pyramid can now easily make or receive a call with the biggest increase of connectivity happening in the last three years. Even rural BOP connectivity is growing apace, slowing down only recently during the economic downturn. [DeSilva 2008]
Affordability: The total cost of ownership of mobile communications has been steadily dropping. On average for 77 emerging economies the TCO was USD 13.15; four South Asian countries were below USD 5 TCO in 2007, Since then, there are 12 others counties with TCO below USD 5. (Guinea and Madagascar in Africa). Particularly in Southeast Asia operators have developed new “budget-telecom-network” business models with process innovations that enable exploitation of long-tail markets. [Teleuse On A Shoestring 2009]
As a result of these factors, scaling m-services is within reach. There exists a strong demand for information and knowledge that mobile communications can effectively address. There are strong economics in place when services are overlaid using existing infrastructure and delivery mechanisms. There are products such as information services delivered via mobile and mobile payments, for example, that are inherently scalable and potentially replicable across geographies; and the cost of deployments are rapidly dropping. There is a market able to pay and there are relevant intermediaries and increasingly ecosystems of players in place.
But most importantly, there is a moral imperative to scale potentially life-changing solutions. Al Hammond of NextBillion.net might have put it best when he said: "Ever since we finished our report on The Next 4 Billion, the numbers haunt me. How do we meet the unmet needs of four billion people?"
As the report points, out, the starting point is not the poverty of individuals at the bottom of the economic pyramid. Instead, it is the fact that these population segments for the most part are not integrated into the global market economy and do not benefit from it. According to The Next 4 Billion, they also share other characteristics:
• Significant unmet needs. Most people in the BOP have no bank account and no access to modern financial services. Many live in informal settlements, with no formal title to their dwelling. And many lack access to water and sanitation services, electricity, and basic health care.
• Dependence on informal or subsistence livelihoods. Most in the BOP lack good access to markets to sell their labor, handicrafts, or crops and have no choice but to sell to local employers or to middlemen who exploit them. As subsistence and small-scale farmers and fishermen, they are uniquely vulnerable to destruction of the natural resources they depend on but are powerless to protect. In effect, informality and subsistence are poverty traps.
• Impacted by a BOP penalty. Many in the BOP, and perhaps most, pay higher prices for basic goods and services than do wealthier consumers—either in cash or in the effort they must expend to obtain them—and they often receive lower quality as well. This high cost of being poor is widely shared: it is not just the very poor who often pay more for the transportation to reach a distant hospital or clinic than for the treatment, or who face exorbitant fees for loans or for transfers of remittances from relatives abroad.
However, contrary to when 'The Next 4 Billion' was written, individuals at the bottom of the economic pyramid now have access to telecommunication technogy in precedented numbers and with that, the potential to access markets, information services, health care, and education, to name just a few - delivered through and with the help of mobile tech.
And yet, despite the access and opportunity mobile technology presents for m-services, andthe social and increasingly business imperatives, it's been noted that the theory, practice, and 'literature of scaling up is reminiscent of the Loch Ness Monster. It has been sighted enough to make the most sceptical give it a measure of respectability; and its description is as varied as the people who have written about it." (Peter Uvin and David Miller, Scaling Up: Thinking Through the Issues). And even though these words were written in 1994, they largely hold true today.
What is “Scale”?
Scaling m-services, for the purposes of this discussion, refers first and foremost to simple economics. In a scaled operation, the average unit price declines, and marginal costs of adding another customer are low, and the process is simple and extremely fast. The second dimension of scale is one of arithmetic. The magnitude of global poverty necessitates information services and products that reach billions of people with discrete products reaching at least millions of people. [Prahalad 2009] Paraphrasing noted author and academic Clay Shirky in regard to scale in social development: ‘First make it work, then make it cheap.”
The argument has been made that scale will take care of itself, that scaling in m-services will happen simply if we create the right products and tools that have value for the user. And indeed, in comparison to other ICTs in emerging markets, there may be something unique about mobile technology. After all, the hardware is selling itself with 4.1 billion people having access to it already. In other words, the delivery platform is already largely in place. Focusing then on m-services rather than on the infrastructure and hardware, the attention shifts to the more established question of how users adopt new services, especially at the bottom of the economic pyramid with its unique constraints. [source, Jonathan Donner, private conversation]
Barriers to Scaling m-Services
At the same time as there are significant opportunities for large-scale m-services, there remain barriers to scaling up today. Customers at the bottom of the economic pyramid have low ARPUs - the magic number that revers to the average revenue per user that telcoms measure as a key profitability indicator - and very high price sensitivity, making sustainable business models more complicated for operators and information service providers alike. There are strong language and literacy barriers with a scarcity of relevant and accurate content available today. Smart handsets and data services are still out of reach to the majority of the world due to costs and access, restricting m-services to BOP customers largely to the channels with the lowest common denominators: voice and SMS.
Many attempts at scaling up services to date have failed with only very few (and often described) services like m-payments in Kenya and the Philippines deemed successes. Many of the failed efforts share similar characteristics however, that when carefully studied, indicate what indeed might work. So, for example, M-Pesa’s initial attempts at developing an m-payment system in Kenya were not successful. (This is in marked contrast, of course, to try #2, M-Pesa's current iteration which has grown rapidly and is being expanded regionally across East Africa by the operator). And yet, the first failure was illustrative.
The initial offering was built for an institutional market, rather than the general public; the service offering was complex as opposed to exceedingly simple; the target market was a subset of the overall market as opposed to a mass market; and the products required new behaviours as opposed making existing behaviours that customers were familiar with more simple and easy. [source: GSMA Development Fund presentation]
Other current barriers to scaling m-services include the existing points of friction in the mobile industry today. For example, there is intense competition among operators which do not have a strong history of negotiation or shared approaches (other than interconnections) and who will need to consider, for example, new models and approaches in shared services and infrastructure. For example, there may be promise in shared agent networks as information intermediaries that can act as ‘on-the-ground’ sales and help personnel to scale services and train and employ a sizeable workforce. (This approach is also referred to as “paraskilling’ as a promising but not uncomplicated business model for m-payments, for example).
Similarly, shared network infrastructure specifically in sub-Saharan Africa as is already the prevalent business model of operators in India, may become en economic necessity as downward price pressure and redundant network infrastructure increases. Likewise, mobile network operators need to consider new technology products that are conducive to m-services such as such as data-rich MMS, increasing the length of SMS to more than 160 characters, and USSD services.
What m-Services Are Ready for Scale?
In these still-early days of mobile services, experts agree that mobile services most likely to scale share these characteristics:
- Products and services that are basic and rely on existing technology such as SMS and USSD and rely on the current level of infrastructure (medical diagnostics, for example, because of the complexity involved are likely not ready to scale at this moment in time)
- Products and services that are pervasive but currently not reaching poor people
- Products and services that have a very simple and clear value proposition and that meet those needs in an actionable way.
- Products that have been designed with scale in mind and have a clear understanding of the business model and whether it is sustainable. This includes considering investment opportunities and clear-eyed business planning.
- Products and services that leverage strategic relationships and existing mobile network operator capacity such as access to customers, relatively efficient business models and cost structures, a distribution network, and political clout.
- Products that cultivate an ecosystem of partners with clear incentives for all players.
- Products and services that ensure discoverability and usability. Market research has shown that many BOP customers, in fact, are unaware of or not trusting of the majority of m-services to data.
Critical Success Factors for m-Services at Scale
In a review of the literature and more than a dozen conversations with key stakeholders, there are a number of strong themes that emerged as critical success factors for providing m-services at significant scale.
1. Utility and User Needs:
One of the key themes mentioned over and over again can be summarized as ‘meeting a customers pain’, that is solving real-life problems for people at the bottom of the pyramid. In other words, any offering has to be of clear and direct value to the user or customer today. This is often referred to as ‘utility’ – the ability of a good or service to fulfill a human want. Projects that failed, for the most part, tended to put their institutional needs first as opposed to those of the end user. While this may sound simple and obvious, in the field of social and economic development, it is a remarkably-often ignored proposition. Keeping the end user in mind and how it benefits their lives are paramount in considering what products might be able to be scaled.
Putting user needs and their desire for specific services first and foremost will require local partners, user-centric innovation processes including ethnographic and market research, needs assessments, rapid prototyping, and frequent feedback and sounds feedback loops to ensure that services and products indeed address user needs.
2. An Ecosystem of Partners:
Another theme that emerged is the importance of ecosystems of networks of companies, organizations and individuals that need to be in place for the entire value chain for m-services to take root, grow, and go to scale. As has been pointed out in the realm of mobile money, the key rule of growth there is partnerships. [Jenkins 2008] These players in an ecosystem of m-services include mobile network operators, retailers and local sales agents, regulators, banks, government ministries, local businesses, international donors, and civil society organizations, for example. These players have varying incentive and assets as well as limitations that need to be clearly understood in order to grow a successful ecosystem for scaled services. [Jenkins 2008]
Related to this network of partners is the potential role that so-called infomediaries play. In the field of m-payments, it has become obvious that the network of agents is critical with all the concomitant difficulties of having a wide-reach network of trained and trusted agents in place that act as touch points with BOP customers. This infomediary role, of agents, so important in mobile financial services, may very well play a critical role in other m-services as well.
3. Domain Experts:
A third key theme is the importance of domain expertise in the specific m-services. It was noted in our interviews that, in fact, m-services are mainly not about mobile technology per se but about mobile communications and networks as delivery channels for information that require expertise in health systems, banking and payments, developing business models, and operationalizing large-scale deployments, extending existing services to a mobile channel.
4. New Business Models:
To significantly scale m-services to the bottom of the pyramid customers may require rethinking existing business models, including non-commercial or soft funding at the start-up phases of m-services. Donors and multilateral institutions may well have a role to play in providing capital investments until revenue from m-services starts to materialize. Additionally, international financial instiutions and development donors may play a role in building out the capacity of the some of the smaller players in a m-services ecosystem, such as agents, retailers, and domain content providers in health and education, for example.
Business models for m-services for the bottom of the economic pyramid also need to take into consideration the extreme price sensitivity of these customers and their very limited purchasing power that is small, irregular, and expensive to tap. Irregular cash flow is one of the key barriers in developing sustainable business models at the BOP and needs to be addressed. Affordability, cost to serve, and customer cash flow are the critical issues that necessitate a relentless drive in m-services to lower costs and that need to be a key ingredient of a successful business model. [Frandano 2009]
5. Technical Considerations
A number of technical issues also will need to be addressed rather soon to increase the scale of m-services. Several that have been noted in my conversations with stakeholders:
- Number portability and numbers as identifiers that are unique to a user would open up new avenues to identity management, currently a barrier in many mobile service offerings.
- Opening up larger-scale USSD services would diversify delivery channels that are accessible even on the simplest phones. USSD is an effective channel to access information that is currently left to the digression of the mobile network operators (MNOs). MNOs need to better understand the USSD channel as a delivery mechanism for m-services, consistently open it up for monetization and make it available in all markets as opposed to currently only very few.
- Treating the mobile channel as a secure channel would open up significant opportunities The capacity to authenticate parties that wish to communicate, and then if needed, establish a secure communication channel between them, is currently limited with operators in possession keys and/or cryptographic algorithms required by each authentication and confidentiality process.
- Multi-lateral hub models that would, similar to that of the Internet, select the least costly routing method for mobile transactions.
An Enabling Environment and the Role of Government
While ‘regulation’ has a negative connotation in many circles, it is nonetheless an essential component of an enabling environment for mobile services. However, the role of regulation should be concerned with two key components: Ensuring trust in mobile services, and inclusion into information services delivered via mobile for the most vulnerable populations.
There is a consensus emerging that in order to achieve these objectives, regulation needs to be both incremental and proportional. What is meant by these terms?
Incrementality in regulation refers to the concept that in order for this still immature field to scale, regulators need to let channels emerge and then add regulation as risks manifest, rather than trying to predict what these risks might be in advance.
Similarly, regulators need to weigh potential gains of regulation against the potential damage and take a proportional, pragmatic and risk-based approach. This is especially true for financial m-services where ‘know your customer’ proof-of-residence requirements in many countries have stifled scale and penetration.
Both incrementality and proportionality in regulation require knowledge and tools for regulators that may lack the capacity. Increasingly, these tools are available in the form of CGAP and other World Bank-initiated diagnostic tools and peer learning events and resources for regulators and government officials. M-service providers and business development teams also need to proactively engage regulators to build confidence, engage them in the development of m-services, and make them an integral part of the m-services ecosystem of partners noted earlier. [Jenkins 2008]
The Role of Government
Governments do not only have a role as regulatory agencies, however, but can become key customers in the effort to scale m-services. In the area of m-payments and financial transactions, it may be necessary, for example, that ministries of paying out wages and salaries as well as social benefit payments take on m-payments as a some of the largest payors in a given country. Similarly, governments play a critical role in using mobile channels in healthcare delivery and educational services. In fact, it may well be that in those countries where governments are taking a proactive role in leveraging the mobile channel deliver government services, scale along a variety of other services becomes possible faster and more simply with enabling regulation in the interest of government itself.
Another, often-made point by industry is that taxation is a key barrier to scaling mobile services. Indeed, several extensive studies found that taxing mobile services and communications through excise taxes, service taxes, and handset and customs taxes, may increase revenue for governments in the short term but have a proportionally greater impact on poor customers, restricting the affordability of mobile services. Interestingly, these studies have also found that in the longer-term, increased taxation hurts revenue. Conversely, reducing excise and other taxes tends to be revenue positive within the span of six to ten years through greater employment, an increased subscriber base and usage that corresponds to increased revenue from VAT and excise taxes, and other indirect revenue such as corporate taxes. [Global Mobile Tax Review 2007] [Giray 2009] [GSM Association 2005]
Summary
Mobile services at scale represent an enormous area of potential growth, and social and financial inclusion of the most vulnerable populations. Currently, the field of m-services is littered with small-scale pilots, many of which are NGO and donor-initiated, that have little chance to scale to have longer-term impact and sustainability. To ensure this potential for increasing inclusion of more people in the information society to better their lives and well-being, all players in the mobile ecosystem need to rethink some of their existing strategies and consider what constitutes critical success factors in their given national and regional environments.
MNOs need to develop new alliances and consider new business models and increase their channels, governments need to become large-scale customers using mobile services for their citizens while ensuring through careful and limited regulation that there is an enabling environment for realizing the potential
Civil society organizations will play a key role as content providers and domain experts in a given field such as health care and education for example, and through value-added market research. Donors and multi-lateral agencies will be instrumental in offering innovative financing for start-up mobile services before they can become profitable.
M-services have the potential to change the way developing economies deliver essential social and economic services and attain sustainable growth. It will take a combined and concerted effort to realize this potential.
Bibliography:
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Thank you
I like to thank the many people who made themselves available for interviews and conversations to explore what it will take to scale m-services to reach the next four billion with needed products and services. Thank you(!) to:
Jawahar Kanjilal, Global Head, Emerging Market Services, Nokia (Nokia Life Tools)
Chris Gabriel, CEO, Zain Africa
Mr. Raghunatha Gururaja, Emerging Markets Services
Christopher Fabian and Erika Kochi, UNICEF Innovation
Jesse Moore, formerly with the GSMA Development Fund
Laurent Elder, IDRC
Jonathan Donner, Microsoft Research, India
David Edelstein, Grameen Foundation, AppLab/Technology
Brooke Partridge, CEO, Vital Wave
Patricia Mecheal, Senior Advisor, Millennium Villages, mHealth
Claire Thwaites, UN Foundation/Vodafone Group Foundation Partnership
Roisin de Burca, Senior Social Development Specialist, World Bank
Sara Rotman, Microfinance Analyst, CGAP
Aparjita Goyal, Economist, Development Research, World Bank
Gustav Praekelt, Praekelt Consulting and Praekelt Foundation
Hajo Bejima, Text4Change
Photo Credit: Abaporu's photo on flickr entitled: Wofa's doorbell is cell phone. Wofa's cell phone is a door bell
