Open Innovation Africa Summit focuses on ways to expand the mobile internet market
Last week saw a number of large private and public players sponsor the first Open Innovation Africa Summit in Kenya’s Rift Valley tourist destination of Naivasha. The moment was timely and the initiative deserves to succeed as the Africa’s mobile internet market (on which the event focused) is currently busy being born. Russell Southwood looks at what happened and some of the challenges that lie ahead.
The moment could not be more auspicious for those wanting to argue for a wider mobile Internet market, particularly one aimed at lower income customers. For a number of now familiar reasons, mobile operators’ voice ARPUs are falling rapidly and as these get cheaper, they are also beginning to drag down SMS revenues: if it’s cheaper to call, why SMS? Data lurks at the edge, offering the potential to swing revenues back up in countries with better literacy rates.
However, despite operators clearly understanding this, there is still a mismatch in priorities. One operator attending told us that Internet was their number three priority after voice and SMS. But it needs to be number one because it is complicated and the operators do not have all the pieces.
Mobile operators have to decide whether they are “content guys” or not. In the medium term, it matters less what the decision is and more that they simply have clarity. In our view, mobile operators are not “content guys”: if they were, they would know something about how to develop content and not deal with it tactically through SMS aggregators as deals. There is currently no intelligent “content publishing” function in most operators’ structures. So the key issue for the success of data revenues is: how can you create a compelling, financially rewarding ecosystem to generate apps, content and services that users want more of?
One leading social networking company attending the conference made a point about Kenya that applied to most African markets: the development of the market is being held back by the limitations of SMS. This is both in terms of what people will pay to use it as an advertising medium and the limitations of 140 characters of cold, black text. There is a need to reach a point where over half of the handset market is made up of feature-rich phones and smartphones. There is a literacy issue but this market development will work in many of Africa’s fast lane countries but obviously not in the case of countries like Chad (26% literacy).
The need for this development is also crystallised in the case of the major private sector sponsor of the event, Nokia. It has lost out in the smartphone wars in developed countries to Apple, Google’s Android and RIM. It is currently at a weak point where it needs to find a way of getting back into the ring and seizing the initiative.
However, in Africa it is in a potentially strong position as it is the handset vendor that is the major player in most of the continent. But its launch of the Ovi Store, designed as a rival to the Apple and Android stores, has hardly set the world on fire and has not gained much traction in Africa. Arguably, Nokia has the opportunity to gain strategic leadership if it can figure out how to get its phones seen as the ones to develop services and apps for in developing markets like those in Africa. But as a big company, it has, like the mobile operators, a case of mismatched priorities. As a successful handset vendor, it has understandably focused on the needs of the mobile operators. All the work it has put into soft developments like apps and services has been less of a priority.
But at this point it needs to prioritise getting an OS and apps that will sell in great numbers in developing country markets and give Nokia back much needed strategic leadership globally. It knows that it can’t do this alone and this event and many other things it’s doing are a “work in progress” in trying to reach this objective. Its alliance for the Summit was with the World Bank and both share a common interest in seeing whether it’s possible to create “base of the pyramid” (low-income) applications that are as successful as M-Pesa.
The participants at the Summit were a rich mix of some of the best minds from: the development community working on mobile Internet delivery; private companies leading the development in the market including Google, MXit, Clickatell, Praekelt and Vodacom; incubator organisations focused on ICT; government officials; and a sprinkling of entrepreneurs in the space.
The conference was opened by Kenya’s Permanent Secretary, the Ministry of Information and Communications, Bitange Ndemo. His first microphone didn’t work so he quipped:”Just like Government officials.” He argued that in Kenya 70-80% of the infrastructure was now in place. The Government would still like bandwidth prices to go down a bit but that would come. He emphasised the importance of research. He said a Tier 4 data centre was being built in partnership with the private sector and an ICT Park was being built for light electronic manufacturing. He said Kenya wanted to emulate the Asian country experience.
The Adviser to the Finnish Government on ICT argued that open innovation platforms (as opposed to proprietary systems) contributed to new innovation, particularly in the developing world. Government’s role was to see innovation as a systemic activity. It needs to be co-ordinated in Government, especially to overcome barriers in Government departments.
Tim Kelly of infoDev (a part of the World Bank) said it had developed 310 business incubators in 88 countries. The African part of this network had 44 incubators in 14 countries hosting 1230 SMEs. It was going to support two new mobile applications labs, one in Kenya (iHub) and the other in South Africa (Meraka Institute). He said their definition of success would be helping to encourage more innovators and help them get to scale.
Jussi Hinkkanen of Nokia said most of the ICT4D had mostly died and they suffered from being largely push, rather than pull. What was needed were thought leaders and change agents to focus on building “base of the pyramid” markets. Purnima Kochika, also from Nokia said that Indian entrepreneurs were doing very well out of adopting developed world models for the Indian. She nade the point that the applications and services have to be “fun.” (This was perhaps the first and last mention of fun in the Summit: perhaps development people don’t do fun in their thinking.) She gave examples of fun businesses including Kuclip which has 85 million unique visitors. It thought its service would take off in the USA and Europe but most of these views were coming from India, Malaysia and Indonesia. It charges 50-70 cents a clip.
A study by a company called Monitor for various donors on successful “base of the pyramid” businesses was presented. Key features included: low margins, high volume; informal channel distribution; narrow specialisation; franchise production; and small scale. One of their opportunities to watch relevant for operators was micro energy grids.
The presenter made the point that there was a need to reach up the income pyramid to be sustainable and not to confuse need and demand. The latter might yet need to be embroidered on the sleeves of nearly all those in development. The presenter also made the point that “giveaway” competition (free services from NGOs and Government) destroyed the market:”How can we expect entrepreneurs to develop without profit?”
In the breakout stream presentations, Steve Vosloo, Shuttlworth Foundation talked about Yoza, a short story project to encourage reading in South Africa. It had 62,000 readers who completed reading the stories and 50% of those who finished left comments. One story - Confessions of a Virgin Lover - got 110,000 page views and another - Sisterz One – LaToya’s Secret – got 80,000 page views.
John Waiyosu (www.virtualcity.co.ke) talked about developing a handheld with software for sausage sales people. It logged the order with central system and generated receipt and in doing so saved 3 days in the cash cycle by collecting payment using M-Pesa.
Aleem Walji of the World Bank argued for different ways of financing innovation in developing countries. He made the point that large parts of provision in the developing world were actually delivered by the private sector: his example was healthcare, 50% of which is not provided by the state. He explained that it cost the World Bank US$200,000 to give US$200,000 (perhaps a case for a bit of organisational re-engineering back at base?) so its money would be given through intermediaries. The capital needed to be long-term, over 10-20 years.
What type of projects? He said there were three types of possible projects. 1) Getting ideas through the system (to investment) that will become profitable; 2) Things that deliver better than the public sector (but suggested might be taken back by it if they succeeded); and 3) the very high risk, ideally profitable.
(Whilst liking the idea of changing the ground rules of public funding and private investment, it seems to me there is some significant blurring going on in this space. The rhetoric is on a scale that goes from profit -> social investment (no/low return) -> social impact investors (wanting social impact, not return) -> tuning up the public sector -> Corporate Social Responsibility. It all uses the
rhetoric of venture capital, whilst pointing in subtly different directions. Unless there is greater clarity, it may all end in tears.)
Emeka Okofor (best-known for TEDAfrica, Timbuktu Chronicles and Maker Faire Africa )argued that Africa needed to originate the machines as much as the software. Makerspaces – involve more people in the culture of production (vernacular production) could help this flourish. It set off an interesting debate with a Nokia representative arguing the now standard European line that it’s all services and production and manufacturing goes to China or wherever.
In our view, the missing piece is design and the IP captured in design. Why aren’t the successful computer assemblers in Nigeria like Omatek investing a little in creating the African computer? There needs to be a design that reflects the culture of the continent and might even be bought outside the continent for the very reason that it was different to the beige and black low cost laptops made and sold elsewhere.
Day one of the event was overloaded with speeches intended to be heartening in that faintly “parables and visions” way that development folk are accustomed to: an uplifting tale winning out over realistically describing what actually happens and the barriers to more happening. One working group described what it thought needed to happen, observed that most of it was happening and then asked the killer question: why therefore was it happening so slowly?
The answers might have been embarrassing but would have contained more “get real” energy than development parables. Bob Day of Non Zero Sum Network hammered the failings of the African education system with great accuracy but the solutions to everything were what may be the new jargon of “multi-helix, holistic and multi-faceted: Yes, all true, but what does it mean in practice? There was a need to connect lofty statements to practical actions. In this respect, the presentations back to the plenary from the innovation ecosystem were the worst, full of the usual warming policy phrases that never quite grip the problems to be tackled.
That said, days 2 and 3 provided many lively discussions and you could visibly feel a group of people from very different backgrounds putting together a consensus on how to create a new market in Africa. My resentment at being subjected to wall-to-wall presentations in the first day was directed in my mind at the Cap Gemini team who facilitated. But the weaknesses in day one I suspect flowed from the sponsors’ desires to all get a chance to speak. By days 2 and 3, real work had been done and the facilitation team went up considerably in my estimation, particularly when it was revealed they were all doing it in holiday time.
There are a number of points that those involved will need to think about if there is to be a new mobile Internet market in Africa that also touches “base of pyramid” markets:
* The “base of the pyramid” as a definition of target markets is not sufficiently detailed. Market researchers variously use social category definitions ABCDE or LSMs (Living Standard Measurements). The latter has been developed in Africa and offer scope for defining different groupings more accurately: admitted cash income is not everything in informal, crop or animal-based localities. There was some confusion at the Summit as to the precise definition of “base of the pyramid” but most seemed to say US$2 per day. It either has to be 1) two or three lowest income levels (more like US$5 a day) or 2) something that everyone will need to use and the large mass of more well-off users make it possible to offer it to those at the “base of the pyramid”.
* The move to mobile Internet: The mobile industry is currently very fragmented for developers, with over 2,000 handset configurations. The transition to say up to 10 mobile operating systems on the Internet will greatly simplify things. In African markets, this will require a two-pronged attack in terms of handsets. Firstly, smartphones need to come down to US$50, which is the price point closer to where most handsets are bought at. Secondly, feature rich phones that look like smartphones but use cloud services with a thin client will deliver at a price point below that. (thanks to Neil Ahlsten from Google for this one). Israeli company Snaptu pitches its software as being able to “Make your feature phone an iPhone”. On the basis of these two things, imagine an African country market where 40-50% have access to mobile Internet.
* Ubiquitous mobile payment systems: There will come a point where M-Money systems become Africa’s version of the credit/debit card. You’re down the market ordering half a kilo of yams and you simply send the equivalent of an e-mail authorisation of the payment that the market trader then confirms quickly on his or her phone. For ubiquity, all M-Money systems need to interconnect: proprietary, one operator systems hold back the growth of the market. Whoever heard of a world in which you only need to pay Safaricom or MTN customers?
* Services that have character and identity: Developed world services (Facebook, Twitter, You Tube) that have taken off (both globally and in Africa) all have character, attitude and identity. You know what they’re about and you like to think you’re part of those attitudes. With certain exceptions in South Africa, Africa’s current market does not have any local equivalents (which have developed elsewhere in emerging markets) and its SMS services have a largely characterless and anonymous presence.
* Create an open, Internet-based ecosystem: Apps stores may well be created by operators who create and control the billing systems: Safaricom is about to launch precisely this model. Mobile operators use a closed system, controlling value, payment systems and terms The closed mobile operator model means endless negotiation with intermediaries who take value out of the chain. In Africa, there needs to be a way of creating independent Stores that can transfer value to developers without needing to involve the operators.
* Don’t forget how culture works: There were endless examples of how culture cuts across the desire to create wealth through innovation with technology. Take the example of the person who is criticised by relatives as “showing off” by putting various types of fairly standard information on his Facebook page. Then look at the difficulties of taking the young developer culture and mixing it with Governments where respect goes with status, age and pecking order. Even amongst the developers themselves, there are cultural problems. Africa has many hungry hustlers whose idea of innovation is to copy something else that seems successful. In this context, developers find it hard to work together because they don’t trust each other and they don’t trust the operators they might take things to. In one of the discussions, there was talk of paying people with ideas that could then be executed by others. This seems to misunderstand the notion that good ideas are 10% inspiration and 90% hard work. But cultural differences are the essential DNA that help different things happen but this will only come from a struggle between what is and what might be.
So by next year, let’s wish for a mobile internet market that is two to three times the current size and then things will get really interesting.