At the Future of Mobile-Empowered Development Technology Salon, an audience of development practitioners and technologists had the unique opportunity to host Terry Kramer, Board Member of the Vodafone Americas Foundation, as well as Vodafone’s Group Strategy and Business Improvement Director, and hear about Vodafone’s vision, strategy, and engagement in emerging markets and the base of the pyramid (BoP).
(Want to attend the next Technology Salon? Then subscribe to our meeting announcements.)
We focused on the desire by mobile network operators (MNO) to increase revenues and market share by expanding into rural areas, where it becomes more difficult and costly to provide service. We also recognized that the development community wants to capitalize on the success and reach of the mobile network to assist the poor, but these two actors are still wrestling with how to make that happen.
So how would the development community partner with an MNO like Vodafone? The Salon identified two issues that are key to developing partnership opportunities:
- MNOs have specific business objectives and drivers. The development community needs to understand these requirements to design projects that will engage MNOs.
- MNOs want to partner with the development community. They are looking for key applications that solve a common need for many in developing countries. MNOs want to satisfy those needs for better business results.
In essence, both parties need to understand each other’s business better. Let’s begin with briefly outlining Vodafone’s strategy and then what they are looking for and how development initiatives can partner with them. We’ll conclude with a mDevelopment challenge from Terry.
Who is the next mobile owner?
Vodafone’s Emerging Market Activity
Vodafone has been successful in the higher end of the developing world market – urban areas, more affluent populations – and are now reaching into the mass market at the base of the pyramid because this is where an MNO can achieve scale. India will be a major market for Vodafone – they’re forecasting it will account for one-quarter of all their revenue growth in the next four years.
The challenges Vodafone and others face in serving the BoP are that return on investment is low. On average the monthly revenue per user in emerging markets is only $4-5, so it is not usually economical for an MNO to go into remote areas. In most markets today there are four competitors and in general there are low-priced players, igniting price wars.
Business Drivers for Mobile Applications
Vodafone applies the “80/20” rule – they want to find the key applications most commonly needed by many (“80%”), the programs with the greatest impact. Vodafone is interested in mobile applications that:
- Generate a high volume of transactions and therefore more revenue
- Protect market share or retain subscribers
- Increases market penetration and adds new customers
- Has mass market appeal, works on a large scale
Key Applications Needed by Many
Vodafone is particularly interested in developing projects from corporate social responsibility (CSR) activities that can then be scaled to commercial activities. M-PESA was originally a joint project with DfID that is now a commercial success and Vodafone believes some m-health applications will eventually become mass market commercial products. They are now looking to the development community for the next key application.
In the Salon, thought centered around agriculture apps that scale and satisfy business drivers, as there was consensus in need but not services – NGOs are saying “wouldn’t it be nice if” but don’t see solutions that can help with:
- Agriculture market price information systems that scale and are sustainable
- Supply chain finance between farmers, suppliers, buyers, and banks, possibly leveraging M-PESA type systems
- Farmer education on crop rotation, fertilizers, or weather information
- Farmer market linkages between associations & co-ops and commercial actors
- Food traceability for food security & export quality requirements
Yet agriculture is a hard nut to crack because at first glance, one does not see a high volume of transactions being generated out of this system, nor an inherent path to achieving scale and sustainability, which creates difficulties in getting the interest of the MNOs.
On a larger scale, there are many silo systems (m-banking, health, agriculture, etc) that could be an opportunity for the development of common platforms which could scale across industries and countries. The Ministry of Health in Senegal is asking their software development industry to create a single m-services platform.
Looking for the next M-Pesa
Ways to Engage with Vodafone Foundations
Vodafone has the Vodafone Group Foundation headquartered in the UK that focuses on global programs, and foundations in 23 markets, each with their own programs. The Vodafone Americas Foundation can also fund US organizations that do international work.
Social investing is the Foundations biggest focus. The Wireless Innovation Project is a great example. Its a new initiative that identifies and funds unique innovations grounded in local needs and yet can scale to solve critical social issues around the world.
Generally Vodafone keeps foundation and commercial work separate, but there is commercial value in CSR projects. Vodafone is able to do more when they can present themselves to a new market as a firm that helps build the economy. It allows them easier access to licenses and facilitates a more effective rollout.
A Concluding Call for Engagement
Mobile network operators (MNO) want increase revenues and market share by expanding into rural areas, and see partnerships with the development community as a key market entry strategy. Specifically, Vodafone is looking to the development community for key applications that solve a common need for many and can be scaled into commercial activities.
Terry Kramer emphasized that he wants to hear of new ideas and new approaches directly from us, and spur a vibrant dialogue on possible solutions and their ability to scale and meet Vodafone objectives. Vodafone is willing to put great effort into application with great social benefit, as doing well while doing good has direct benefit for Vodafone.
Let the comment section below be that feedback forum – submit your ideas today!
Agriculture is a challenge, but I think systems like Tradenet show that there can be sustainable solutions if you’re willing to have a good public/private investment in what is designed from the start as a profit-driven program.
At the same time, I think farmer education will (and should) be a government supported effort, with private industry taking certain roles, say weather alerts, that build off and pay for government investments in the basic infrastructure, like a national weather service.
One application needed is a common “form” application to send out encoded questions and receive back answers via SMS.
The core would be an agreed-upon encoding/compression format for sending form questions and receiving the answers via SMS.
This standard could be coded to using existing outreach tools like EpiSurveyor, FrontlineSMS, RapidSMS, and the like. It would have a “server-side” component where you could set up a form, specify the answer types (y/n (or t/f), multiple choice, very-short-answer?) and compose the SMS messages to send.
The key (and the hard part) is having this app as common as a calculator tool on deployed phones. The app would capture the coded SMS form, present it as a user-friendly form, and take the answers and reply (again via SMS) using as few outbound messages as possible.
Anyone with an SMS-sending tool could code questions and use their tool to distribute them; and any phone with this (pre-installed) app could “decrypt” the compacted form and present it to the user.
This would make data collection much smoother, eliminate distribution of questionnaires and codesheets prior to each new questionnaire, and improve data quality.
I see immediate applications in election obersvation, human rights monitoring, and health field-worker reporting, not to mention census, and even for-profit ventures for immediate customer satisfaction surveys, more complex SMS-voting (imagine what BravoTV would do with this were it widely deployed!)
There is much evidence that Vodafone is leading in mobile payments, re-payments and remittances. There’s merit in pursuing fee-based health and ag data services, but more research is needed to prove the business case and in prioritizing the various markets in the developing world. Will a rural patient pay for m-health info? Will a rural farmer pay for agro-business services? If so how and, more importatly how much? Inquiring minds want to know.
Steve,
I think a m-payment system for healthcare has a huge potential to improve health services, especially where there is little ability for governments to invest in rural health.
At this point, I don’t see why there should be a separate m-payment system for it though – clinics should be able to use the existing M-Pesa type infrastructure to charge patients, or NGO’s could use it to sell desired health info.
The trick is finding health services or information that clients are willing & able to pay for.
I really enjoyed participating in the technology salon. There is a lot of good will among donors, aid organizations, service providers and technologists.
The presentation from Vodafone was interesting, and it was great to see that they are aggressively building markets in developing countries. There were a few things from the presentation and discussion that I found strange, and suggested to me that service providers like Vodafone have a lot to gain from listening to international development and technology geeks. Indeed, the m-pesa idea (cellphone banking in Africa), one of Vodafone’s big success stories, came from organizations working in finance in Africa.
The vast majority of projects that were discussed around the table leveraged SMS, which is not surprising since virtally all of the world’s five billion cellphones can send SMS (and not MMS or email or internet). These five billion phones is an opportunity for service providers like Vodafone to grab tremendous amounts of market share. Many of the five billion phones owners have very little disposable income, but would quickly spend it on communication activities. Unfortunately, it sounds like the Vodafone strategy is to try and increase the amount of money spent by the average customer per month (currently about $5), which will translate into immediate profit, as opposed to reduce prices for SMS services which would lead to more demand, more customers, more communication and eventually more profit. Given that developing countries have by far the fastest economic growth rates, I would be establishing long term customer loyalty, so that five years from my phone company is best positioned to take advantage of a more developed economy. Cheap SMS can do that.
Examining the cost of SMS pricing a little closer shows that it is probably the most expensive form of communication in the world, despite the cost to the service provider being almost nothing. SMS messages are attached to existing voice packets (this is where the 160 character limit comes from) and hence consume no additional bandwidth. In other words the bandwidth cost to the provider for sending SMS is zero (minus some capital costs). Why then does it cost 10 cents to send 160 characters? Sending $1 worth of data via your broadband internet connection would cost $61 million dollars to send over SMS.
Contrasting this SMS situation is Vodafone’s problem with data services. They are struggling to figure out how to handle people that use their phones to download movies. Vodafone offers a fixed price for unlimited data, but a few users are spoiling the party by downloading gigabytes of data on their phones every month and squeezing the network capacity for the rest of the users.
Okay, so let’s check the score. College kids are paying $50 a month for a firehose of wireless multimedia bandwidth which they use so much it is actually crippling the network. Poor farmers in Africa who need to know the price of tomatoes in the market are paying 10% of their daily earnings to send a 160 character message that costs the service provider nothing.
This is all very broken. But this is also a big opportunity for both Vodafone and people in developing countries.
The Vodafone Foundation’s strategy for developed countries focuses on sports and music, while their strategy for developing countries is all about health. Setting aside the sports and music focus, I suggest that Vodafone should enable ultra low cost communication via SMS in developing countries. Maybe 1/2 a cent per SMS?
Not only would this build gigantic market share for the first cellphone provider to do it, but it would enable all sorts of value added services and projects to rise out of the villages that are in most need of new livelihoods that will lift them out of poverty and into the 21st century (and make them bigger consumers of cellphone services).
There are already a bunch of mediocre SMS based projects created and subsidized by people in places like Washington DC that are poised to do some good. What happens when we give people in developing countries the tools (and appropriate pricing) they need to solve their own problems? You get solutions. Solutions that are relevant, sustainable, innovative and worldchanging.
TradeNet (now Esoko) is doing well, but I don’t believe it is fully self-sufficient yet. We have to find replicable models and see if there is a faster path to sustainability (meaning commercially viable on its own, like M-PESA) because there aren’t too many people in the world like Mark Davies with deep resources and the patience of a saint.
TradeNet is one part of the agriculture market value chain. It’s more of an eBay type of concept. Take a look at what DrumNet is trying to do to create a platform for financial, marketing, and information services to improve the efficiency of the agriculture sector. There’s a good intro/conceptual overview of the problem on its home page. They’re having their struggles too, and again it seems that it’s a visionary leader who has been key to sustaining it so far.
And here to prove my point about weather services via mobiles: Weather insurance via SMS:
“According to Eric Seuret of 3S Mobile, SMS technology has sufficiently brought down the cost of providing insurance for farmers in Kenya against droughts to make it a viable business model.”
Hi Mike. Thanks for your excellent, thoughtful post. It would be interesting to hear what the MNOs’ response would be about reducing the cost of an SMS.
I think there is a misunderstanding though in your comment related to the average revenue per user is $4-5/month in developing countries. On the one hand, yes, every company wants more “share of wallet” of their customers, so Vodafone isn’t unusual in this respect. On the other, one way to gain more share is to do as you suggest and reduce the cost/transaction which should stimulate more transactions, either from existing or new users. I actually think Terry’s comment was more of an acknowledgment that $4-5/mo is as good as it’s going to get in developing countries and Vodafone has to work within this reality.
We as development practitioners also need to better understand how the private sector, in this case Vodafone, operates, figure out how to use the for-profit motivation, and be realistic about how far they’d be willing to go. I just came off an assignment where from start to finish I kept encountering this disconnect. Starting with the scope of work (asking for data formats – no MNO is going to hand over their database model to me, someone they just met), to hearing from M-PESA that everyone asks for copies of their data, not realizing that the MNO sees this as proprietary information about their customers (and it turns out the Kenyan telecom regulator prohibits the sharing of data with external parties except under certain circumstances).
M-PESA says that the cost of an M-PESA transaction is a problem for MFIs, because it would be too high a percentage of the loan payment, which is small compared to a typical M-PESA transaction (CGAP notes this also. You can find a cost analysis at http://technology.cgap.org/2008/05/28/can-m-pesa-work-for-microfinance-clients/). Since M-PESA is an SMS-based service, if Safaricom reduced the cost of SMS, would M-PESA pass on the savings by reducing the cost of an M-PESA transaction, thereby making it affordable to more users as well as partners like MFIs? They’d make it up in volume since loan payments are as frequent as once a week whereas M-PESA money transfers are less frequent, once a month or so.
Looks like M-PESA has just done this, based on recent news from a colleague in Kenya: M-Pesa and SMEP (the MFI) had an official launch Monday, May 4, 2009. The CEO of Safaricom was pleased to have returned to a microfinance focus after M-PESA’s original pilot with another MFI, Faulu. They’ve worked out a deal to have the transaction charge set at KES20 (normally KES30) for repayments up to KES10,000. This may lead to more MFIs signing up. M-PESA now has 60 PayBill merchants. Last week they also signed up the power utility who have 1.6 million accounts, so users can now pay their power bills through M-PESA. In 3-4 weeks Safaricom expects to announce comprehensive partnerships with some banks.
Got this from one of the mailing lists I’m on:
Thursday May 14, 2009
Can you make a cell phone change the world?
See how teams of MIT, Harvard and Fletcher students, together with their partner organizations across the developing world, are launching mobile technology ventures to address some of the most pressing problems of international development.
Schedule of Events for NextLab:
11:30am-1:00pm: Live demos and poster session #1 (box lunch, refreshments, dessert)
1:00pm-3:00pm: Mobile ventures team presentations
3:00pm-4:00pm: Live demos and poster session #2 (snacks, refreshments)
The event will take place at the Bartos Theater and the lower atrium of the MIT Media Lab: http://whereis.mit.edu/map-jpg?mapterms=e15&mapsearch=go
There will be live demos, poster sessions, team presentations – and free lunch! Like on previous occasions, it’s going to be a great event: http://nextlab.mit.edu/spring2009/event/