:: The Park Paradigm ::

Markets for the Digital Generation

Introducing the Digital Generation 2.0:

Welcome all to the Grade 4 weblog. This blog is created by all of us in Grade 4. We are currently studying Mass Media and as a part of our inquiry we are going to participate in making a weblog. Our central idea is that Mass media can affect our perception and the choices we make. We have been inquiring into the different kinds of mass media, how mass media can influence our choices and the devises used to manipulate our perceptions. On Wednesday November 15th we visited the BBC.

They grow up quickly. Too quickly. It’s always been that way.

But this generation is different. They might live to be 200 years old:

They might build the Singularity:

In any event they will see the world through a different lens. I think the world is ready for them. I think the world needs them. And if you want to build a business with a future beyond the next few quarters, you need to build it with them in mind…

Share This

From the BBC - EU outlines new carbon permits

Obviously it is easy to dismiss this as flawed/a day late and a dollar short/etc. etc. but I don’t think there is much point in being too cynical. The EU is one of the only significant global political players showing leadership in this area. At first glance it seems to me that they are trying to strike a balance between streching political and public support as far as possible without having it break. Public support for reducing greenhouse gas emissions is growing quickly but is still fragile. Perhaps I’m being naive but I don’t see this as the end game for 2008-2012 but rather a starting point. The pendulum is swinging, however slowly, in the right direction.

Meanwhile, although it’s not elegant, the US post mid-terms might finally be moving in the right direction:

WHEN the subject is global warming, America is usually cast as the villain. Although it produces a quarter of the greenhouse gases that are heating the planet, it refuses to regulate them. When many other countries agreed on an international treaty to do so—the Kyoto Protocol—America failed to ratify it. But not all American officialdom is happy with the federal government’s stance. A dozen states disagree so fiercely they are suing to force it to impose rules on emissions of carbon dioxide, the most common greenhouse gas. The Supreme Court was due to hear arguments in the case on Wednesday November 29th. The outcome will not be known for several months, but the political wind seems to be shifting in favour of firmer action to counter climate change.

…Even if these attempts at regulation fail, they are a good indication of many state governments’ determination to tackle climate change. California, as usual, is in the vanguard. Its legislature has passed another law that will first cap and then gradually reduce industrial emissions of greenhouse gases. Seven eastern states have formed something called the Regional Greenhouse Gas Initiative, which will treat emissions from power plants in the same way. Almost 400 mayors around the country have signed a non-binding agreement to reduce their cities’ emissions in keeping with the Kyoto Protocol. Many members of the incoming Congress, and several of the leading presidential contenders for 2008, are much keener on emissions caps than Mr Bush. Change, so to speak, is in the air.

And we need to support ideas like this:

The International Institute for Environment and Development, a British think-tank, has estimated that logging, and the subsequent use of the land cleared each year, in eight forested countries, would bring in $5 billion over a 30-year period. That translates into a benefit of $3.50 for every tonne of carbon dioxide released. So far rich countries have paid an average of $7 per tonne to reduce emissions in the developing world, under the Kyoto protocol. At that rate they could pay deforesters twice as much to leave trees alone as the latter get now for cutting them down.

Share This

A pretty provocative cover and leader from the Economist this week:

It is good that the world’s leading market faces competition; bad that it has done so little to confront it

NOT since the 1980s, when the nation was in a spin about the coming of the Japanese, has there been such anxiety in America over foreign competition. The familiar concern that China is going to steal the country’s remaining manufacturing jobs has been compounded by a newer fear: that Wall Street is losing its grip on the world’s money. Bankers and politicians worry that business will drain away from America’s capital markets to financial centres overseas, particularly London and Hong Kong. Several committees are sweating away on reports, the most important of which is to be published next week, on how to stop the rot. America’s treasury secretary, Hank Paulson, made it clear in a speech on November 20th that he shares their concerns.

Their analysis focused, like many commentators, on the suffocating and complex regulatory environment, culminating in the dubious benefits of the Sarbanes-Oxley legislation:

Regulators could also do with an overhaul. Here there are two problems, both serious. First, the Securities and Exchange Commission (SEC) is good at the tough stuff, bringing plenty of “enforcement actions”. But in its zeal to keep pace with crusading state attorneys, who exploit high-profile campaigns to win votes, it has lost sight of its other supposed goal—ensuring that markets run smoothly and efficiently. One way to address this imbalance would be to replace some of the SEC’s vast army of lawyers with economists. That would also lead to better cost-benefit analysis of new regulations—an area where the SEC trails behind Britain’s Financial Services Authority.

Second, the regulatory structure is too atomised. Too many agencies monitor the markets. There are four separate banking regulators. State and federal regulators tread on each other’s toes. The SEC’s duties overlap with those of the Federal Reserve, the Commodity Futures Trading Commission (CFTC) and others. Since it no longer makes sense for the increasingly entwined cash and derivatives markets to be policed by separate regulators, a sensible first step towards streamlining would be to merge the CFTC and the SEC.

I’ve been wondering now for several years when public awareness of the significant shortcomings of the US financial system would start to grow. To be perfectly frank, I’m somewhat surprised that - if the cover of the Economist is a fair bellweather - awareness is emerging now, as everything seems at first glance to be going so well (usually people only start to see all the spots the morning after the party ends…) Financial services firms are making record profits. Wall Street is employing record numbers of people and bonuses are set to be bumper. New hedge fund and private equity giants have emerged from the canyons of Manhattan and its suburbs. Interest rates are low. Stock markets are high. “…Hey. Wait a second,” you say. “If these are ’shortcomings’, give me more please. You obviously don’t have a clue…” Well perhaps I don’t, but I’ll come to that in a moment. My guess is that the disproportionate angst surronding IPO’s and stock exchanges is driving the emergence of this meme somewhat prematurely. (Not that IPO’s and stock markets aren’t important for a financial system, it’s just that they aren’t quite as important as the public imagination tends to think they are.)

So what if something is wrong with Wall Street? Why does it matter? Well probably for a many reasons, but two stand out in my view:
firstly and obviously, given America’s position as the world’s richest and most powerful economy, what happens there matters to us all; secondly and more indirectly, America historically has been seen and projects itself as the shining champion and example of free markets and their benefits - if this position is exposed as a hypocrisy, the resulting blow to the credibility of market systems generally could be very unwelcome (at least if, like me, you believe in the power of markets to improve the human condition.)

My analysis is slightly different than that of the Economist, albeit in the same general direction. In my view it is not only the thicket of regulations and the omnipresence of lawyers that is holding Wall Street back; more importantly (althought the two factors are necessarily intertwined) is the lack of competition, especially on the ’sell-side’. Yes Virginia, the great irony of Wall Street - that supposed bastion of free markets and unfettered Darwinian competition - is that it is in fact in many respects a shining example of a good ol’ oligopoly. Now I sincerely hope this won’t come as a shock to any (many?) of you, and if true I must point out this takes nothing away from the remarkable achievements, profits and progress in US wholesale financial markets over the past few decades and the fantastic contribution they have made to the wealth and prosperity of the US and world economy. But… But success breeds complacency and sometimes contempt, meanwhile the students have learned well and are starting to outdo the master…an angst provoking turn of events in any story to be sure.

Oligopolies are good at many things. And they are not always at all times a bad thing. But a cursory look at the fee and commission structure practised on Wall Street versus fees and commissions charged for identical services in Europe or Asia, would confirm that the price discovery mechanism is not working perhaps as smoothly as one might expect, especially from an industry that specialises in helping the economy set efficient, market clearing prices… And it is not just the level of prices (fees) that is interesting, it is their uncanny uniformity. The stock answer from the Street on this subject is basically ‘you get what you pay for (and if you want top quality, highly specialized services you need to pay for them…)’ - and I would completely endorse this concept. My observation is that some services (not being differentiated) are wildly overpriced, and for some truely unique and excellent products and services the customer is probably getting a bargain. Basically, the market is not being allowed to work.

Let’s leave Wall Street for a moment to look at another giant (sector) of the economy.

For many years, AT&T had been permitted to retain its monopoly status under the assumption that it was a natural monopoly. The first erosion to this monopoly occurred in 1956 where the Hush-a-Phone v. FCC ruling allowed a third-party device to be attached to rented telephones owned by AT&T. This was followed by the 1968 Carterphone decision that allowed third-party equipment to be connected the AT&T telephone network. The rise of cheap microwave communications equipment in the 1960s and 1970s opened a window of opportunity for competitors—no longer was the acquisition of expensive rights-of-way necessary for the construction of a long-distance telephone network. In light of this, the FCC permitted MCI (Microwave Communications, Inc) to sell communication services to large businesses. This technical-economic argument against the necessity of AT&T’s monopoly position would hold for a mere fifteen years until the beginning of the fiber-optics revolution sounded the end of microwave-based long distance. (source: Wikipedia)

At the time of it’s break-up, AT&T’s defence (of it’s monopoly) could be summarized broadly by a sign that apparently was hung in their offices:

There are two giant entities at work in our country, and they both have an amazing influence on our daily lives . . . one has given us radar, sonar, stereo, teletype, the transistor, hearing aids, artificial larynxes, talking movies, and the telephone. The other has given us the Civil War, the Spanish-American War, the First World War, the Second World War, the Korean War, the Vietnam War, double-digit inflation, double-digit unemployment, the Great Depression, the gasoline crisis, and the Watergate fiasco. Guess which one is now trying to tell the other one how to run its business?

Hmmm, obviously deregulation must have been a mistake… we should have listened to all those smart Bell folks…

For me the parallels between the two industries are significant. Given this is a blog post and not an essay or book, rather than defend this thesis robustly, please indulge me and allow me this summary. AT&T c. 1975 to Skype c. 2006. (btw if you are interested in following some of the key elements in the current evolution of the industry and regulatory structure of the communications sector today, you could do worse than starting with Gordon Cook.)

One key element that has driven and continues to drive the transformation of the competitive structure of the telecommunications sector is the economics of abundance. This is clearly also playing out in financial services, nowhere more so than in the arena of securities (in the broadest sense, ie including derivatives and foreign exchange) trading. As technology and concommittant transparency has driven costs down, volumes have increased even more quickly. And without the regulatory barriers to entry, these costs imo would drop even further, even faster. Please don’t misunderstand me - I wholeheartedly endorse the principles behind regulation of financial markets. What I take issue with is the complexity of form and implementation of these regulatory principles. I don’t have all the answers. I would just observe that for instance, the FSA’s approach is much more conducive to innovation and new entrants than the kafka-esque multi-jurisdictional regulatory gauntlet needed to be navigated in the United States. And - importantly - no less effective (I would even say perhaps more effective) in achieving broadly the same regulatory goals and outcomes.

In the course of my career I have met many extremely bright, ambitious, entrepreneurial and innovative people working in the giant firms that sit astride the US wholesale financial system. This has clearly been and continues to be a great strength of and of great benefit to the US economy. But at the same time, quite possibly due to its great success (ie if it ain’t broke, don’t fix it), there is a profound conservatism and attachment to maintaining the status quo, mixed in with a reasonably strong dash of parochialism (especially in middle management) that will not serve the industry well as the paradigm shifts from managing (arbitraging) scarcity to managing abundance. To fix ‘what is wrong with Wall Street’ ultimately means tackling head-on an entire ecosystem that evolved - extremely successfully I might add - to deal with a different economic and technological environment. Moore’s Law or Kurzweil’s Law of Accelerating Returns might well govern technological progress, unfortunately I’ve yet to see such smooth trendlines in the laws governing political, cultural and legislative outcomes… It means adopting a “destroy-your-own-business-model” mentality (to poach a phrase from Jack Welch), something that I’ll freely admit is extremely difficult to do when basking in the light of tremendous success and power.

My prognosis? In the short term it’s not going to happen. The forces aligned against change are too strong and the benefits (to those who would change) are few if any, and (to those who would profit) too diffuse. Turkeys just don’t vote for Christmas. So the locus of progress and innovation and market leadership will shift to London, perhaps to Asia in time. The fact that the big US firms are global leaders and leaders in these markets and geographies will in itself be a significant hedge for them, and paradoxically probably reduce further the pressure from within the industry to press for change at home. However for American politicians, institutional, corporate and individual consumers of capital market products who must deal uniquely through a domestic regulatory and industry prism, the results will be increasingly less satisfactory. In the long term however I believe that ultimately there will be a catalyst that allows profound change and - when the levee breaks - I suspect that all the positive elements of the American business psyche will come to the fore, propelling financial services in America to the forefront of innovation and competitiveness once again.

Share This

It may not be politically correct to say so, but was Nairobi really a good choice of venue for the recent UN Conference on Climate Change? From the Economist’s point of view (and I’ll admit I haven’t searched further for confirmation or contradiction) it was a depressing waste of time, with many important players missing and no appetite to talk about what is needed in terms of action from the political and regulatory sphere:

Given the scientists’ pessimism, the lack of constructive political thinking in Nairobi was doubly depressing. Nobody wanted to talk about the ways in which taxation might best be used to encourage individuals to limit their carbon footprints. Or how to reconcile the needs of industry, which would like to see predictable cuts in carbon dioxide emissions and other greenhouse gases over a long period, with demands from scientists for deeper cuts over a shorter period.

Clearly it is not the only reason the conference had so little impact, but I can’t help thinking that its relative remoteness to the source or root of the problem - namely the large Northern Hemisphere economies (and emitters of greenhouse gases) - contributed to the lack of urgency and material progress at the conference. Los Angeles or Washington or London or Berlin or Shanghai would all have been more effective venues in my opinion. Why? Much easier for key world political leaders to attend (or harder to justify not attending), much easier for key private investors / leaders (a la Clinton Global Initiative in NYC) to attend (and harder to justify not attending) and the likelyhood of a much more active and vocal and visible local community and news profile (rallies, ancilliary activities and conferences, etc.) This all may not be ‘fair’, and may well be regrettable in the context of striving for global inclusiveness, especially in this case as many of the most damaging consequences of global warming will likely be felt in Africa. But I think, giving the importance of the agenda and the potential shortness of time, that the UN should have focused primarily on creating the highest impact when organising this conference. Regular readers will know that I am fascinated by the challenges and opportunities faced by the African continent in the years and decades to come, and clearly the world community needs to do a better job at connecting Africa, but there are better opportunities than this one to do so.

Share This

My brother pointed this out to me today:

Calgary’s John Kucera captured his first career World Cup event after winning the super-G Sunday in Lake Louise, Alta.

The 22-year-old Canadian skier won the season-opening event with a time of one minute, 29.70 seconds, according to provisional results.

I’m annoyed I missed it, but didn’t think to check the listings on Eurosport, I mean it’s still November! This was the first time a Canadian has ever won a Men’s World Cup race at Lake Louise. And he’s from Calgary. Fantastic.

(Only thing is, this news made me feel a little bit older: I just realized that the last time I skidded down the downhill course at Lake Louise, little John was just a year old and Super-G had just been invented…)

Share This

Much has been written recently about the economics of abundance, especially how this is driving the new digital economy. At the risk of over-simplifying people like Chris Anderson and George Gilder point out that the marginal cost of storage and computing cycles is tending to zero, thus allowing - even driving - companies to (not worry about) waste these ‘abundant’ resources and to focus on helping their customers manage ’scarce’ resources (such as time or patience.)

While it may be true that the marginal or incremental variable cost of these resources is tending towards zero, Nick Carr in an excellent counterpoint highlights the fact that the fixed cost of making available this abundance is very far from zero; indeed it is significant, both in terms of fixed capital costs (plant) and variable operating costs (power.) And the cost of power generally does not (yet) take into account the environmental costs of its production and distribution. I strongly concur with his point that as both energy demand for computing and environmental awareness in society grows quickly over the coming months and years, producers and consumers of computing power will need to be ever more sensitive and focused on their energy consumption and efficiency. “Green computing” (has anyone used this phrase in this context before?) is something I think we’ll be hearing more and more about.

So who’s going to be the first search engine to offer me a carbon-neutral search experience? Who’s going to be the first telecom provider to offer me a carbon-neutral triple-play? (oh gee great, another dimension for their insane pricing matrices… )

Share This

The Guardian reports that Mr. Brown wants to tax 4×4s and air travel as a response to the Stern report on climate change. In principle I think this is a good idea, at least in the next few years until we can get a real market in the cost of GHG emissions which would allow a market-driven pricing of the externalities of burning fossil fuels. However I am suspicious that the real reason Mr. Brown is advocating these new taxes is not to drive cleaner, more environmentally friendly behavior, but to get his hands on yet more of the country’s money (because of course he knows better than the rest of us what is good for us)… It would make me feel much better if these new taxes were to be hypothecated - with the proceeds ring-fenced for the development of alternative transport and energy infrastructure.

Share This

Are you a mobile phone service provider in the UK?

Is your business focused on providing useful, easy-to-use, easy-to-understand products and services to its customers?

Are you able to handle all the arrangements for transferring my account from an existing provider?

Is your pricing competitive, intuitive and fair (not the cheapest, I’m happy to pay a fair price for good service)?

Even better if you can provide me with both UK and French numbers on the same account, with no ridiculous ‘international’ roaming charges… If so please contact me via this blog. My family currently spends approximately £150 per month on mobile phones, so we are a reasonably good potential customer.

Why am I writing this? Well recently I had to transfer my UK mobile phone accounts from a corporate plan to a personal plan. Given that we had been lumbered with T-Mobile at my old firm (when I first joined it was Orange which had much better coverage, but hey I figured the procurement people must have cut a good deal…), not being particularly interested in spending alot (any) time or energy educating myself and going through the bother of changing providers I just decided to stick with T-Mobile. Inertia. I mean a mobile phone providers are all much of a muchness anyways, right? Bad bad decision.

Since then it has just been one continuous pain in the ass, phones cut off 3 times in 3 weeks - due to insufficient credit limits - and byzantine and ridiculous corporate policies that leave their poor (and in the only bright spot, courteous and trying to help) call centre front line staff in completely exposed and untenable positions with the impossibility of keeping the customer satisfied. In the month since I switched, my wife and I must have spent at least 3 or 4 hours in total on hold or speaking to customer service representatives without resolving anything…what an enormous waste of everyone’s time.

So pushed unwillingly by this desperately poor service, I rolled up my sleeves, headed to Google and started digging into how perhaps I could go about moving to some other service provider. 45 minutes later, I wasn’t any closer to being able to do that - at least easily - and I put my search on hold, quietly facing a unpalatable choice of continuing to pay money to a company that I thought was appalling, or spend at least one of my 30-odd thousand days on this planet, figuring out and implementing (probably at some not insignificant cost and inconvenience) a change in providers…what to do?

The serendipity smiled. Stewing in my miserable dilemma over coffee a couple days ago I get an email from my friend JP who, not content with his full time job , points me towards his new gig guest blogging at the Telegraph: “On the economics of the customer.”

When customers wanted scarce things, their choices were constrained, their freedoms curtailed. As a result they were patient and tolerant and accepted shoddy goods and services, often bought from monopolies or oligopolies.

Today the things that customers want are in abundance, and businesses have to face new challenges. How to make money out of abundance. More precisely, how to make money because of abundance. This is what Doc Searls referred to as The Because Effect in Making A New World, and what Stewart Brand was building upon many years earlier.

This new customer, looking for things that are in abundance, wants simplicity and convenience. Today’s customer is far less tolerant of failure. Of unmet expectations. Of poor experiences. So what do we do?

As technologists, we have two choices:

One is to provide the customer a better experience, the freedom to select what he wants, a differentiation based on service quality against a backdrop of abundance.

The second is to create artificial scarcities around the things that are abundant, create new inconveniences for the customer, new lock-ins, new irritants. Irritants like Region Coding on DVDs. Lock-ins like we see in digital music.

For the last thirty years, too many of us in IT have focussed on creating these artificial scarcities, often without even knowing it. First we paid to bury the data in vendor stacks, then we paid to try and dig it out. We’ve been doing this for years. And we’re in danger of doing it again.

Time for a change.

Time to focus on ways of delivering service where the customer wants, when the customer wants, how the customer wants. Time to focus on open platforms, open protocols, open software, open ways of doing business.

That’s what the economics of abundance is really about. Making money because of what you do, and not with what you do. Having customers who stay with you because they want to, not because they have to. (my emphasis)

(Given that JP now works for a phone company, well I just had to smile… So JP, is BT up to the challenge? )

Well as far as I can tell, neither T-mobile, nor for that matter any of their major competitors (at least from what I can see from their websites) have embraced this approach to their business and their customers. Anyhow JP’s Telegraph guest post inspired me (and reminded me of others he and Doc Searls amongst others) to test out the intention economy and possibly solve my problem by reverse advertising. This is what I want to buy. Who can sell it to me?

And (under the heading “you-can-take-the-boy-out-of-the-trading-room-but-not -the-trader-out-of-the-boy”) if someone sweeps me off my feet with what I really want, I would seriously consider putting on a spread trade - buying their shares and selling short shares in Deutsche Telecom. (These have recently traded up on the back of the elevation of Rene Obermann - the “Bulldozer” (uh…yeah, whatever man…) - as the new CEO due to his ’success’ at running T-mobile. Oh the irony…) I however am sceptical that any of the continental incumbents will be able to reinvent themselves and emerge from under the weight of statist history and culture to become organizations that put their customers first and embrace an open and intellegent relationship with the marketplace where success is based not on protecting historical monopoly rents but by giving people something they happily and without coercion want to buy. The Economist seems to think that competition and consolidation between these ‘dinosaurs’ will make things better for consumers. I beg to differ, we don’t need even bigger, more complex, more bureaucratic telecom providers. We need more Skypes. Smart, agile, close-to-the-customer companies. Hey if nobody shows up to solve my problem, maybe I’ll start a company to solve it myself when the snow melts next spring. I don’t know much (now) about how to do it, but I know it would be a winning proposition. Interested venture capitalists and communication services entrepreneurs you know where to find me…

Share This

Given my new freelance, unregulated, status I thought it was time to try to update the look of the site a little. I’m very grateful to Ranjit Gahir for conceiving and coding the new look.

One of the items on my ‘to do’ list is to learn a bit more on how to create and adapt and run a website. Not that I’m going to become a expert (or even a solid amateur) but I think it is worth knowing a bit more about how it all works. Sort of like knowing how a car works without necessarily having to be a mechanic.

Anyhow, I know JP has been engaged in a revamp of Confused in Calcutta, so in the spirit of ‘keeping up with the Rangaswami’s’ I’ll be trying to improve and tweak the look and usability of the site over the coming weeks. Any views or ideas welcome (but only if you are ok with the idea that they could well be ignored, either by design or lack of competence on my part…)

Share This

Why do I keep coming back to these subjects?

Banking over mobile phones in Africa. Very nice. We get it already.

Clearly this is a fascinating a very important development for what it is. But my interest goes beyond the obvious or first degree impact or consequences. My interest is stoked by the belief that this trinity may be the nexus of a new way of experiencing financial services. For anyone. Everyone. Call it pervasive finance. Ubiquitous finance.

Why Africa? Well it’s not New York, NY…but if you make it here…can you make it anywhere??? What can one learn from doing business in Africa and other markets where most people are poor and physical and legal infrastructure is often lacking? If you can provide a service or a product in such a difficult environment, certainly one should be able to offer it anywhere? If you can provide a service or a product profitably at a price point that works for a sub-saharan farmer, certainly one should be able to be a price leader anywhere?

I have a suspicion that most businesses in developed countries continuously underestimate their customers, and indeed when their customers don’t respond to a product or service the default attitude is all too often that it must be due to some shortfall in the customer - their understanding, their purchasing power (or more pointedly lack thereof) rather than a problem in the product or the way it is presented or packaged. At the risk of over-generalizing, I think most people in most places are smarter than businesses give them credit for. They may not be able to clearly articulate what they need or want all the time, but they know what outcome they want most of the time. Give them the means to acheive these outcomes and they will respond. And they don’t need to know, and often really don’t care to know how you do it - it is the result that matters. Financial services (albeit in no way unique) are particularly prone to this somewhat patronizing approach to their customers. To successfully do business in Africa implicitly one has to have faith in the potential customers.

(from The Economist) Companies are being started and successfully built in many African countries, especially in banking, retailing and mobile telephones. The region’s economy is growing steadily (see chart 1) and could expand by 5.8% this year. In part this is because of a commodities boom and debt forgiveness. But more peace, political stability and better economic management have done their bit, too.

…When Celtel, a mobile-phone operator, set up in Zambia eight years ago, it concentrated on the densely populated corridor between Victoria Falls (on the border with Zimbabwe), Lusaka and the industrial copper belt. This was thought to be the only area in which to do business. Yet in 2003, the company decided to invest in rural services, too, and was astonished at the result.

Although most rural customers had never used a telephone, they were keen to have one. This encouraged more people in the cities to obtain mobile phones to talk to relatives in the countryside. The introduction of Me2U, a service that allows callers to use text-messaging to send airtime credit to other mobiles, provided a further boost. Most people do not have bank accounts and the service has become a convenient and cheap way to transfer money. In villages it has also emerged as a substitute for cash, with people using airtime to pay for their shopping. Shopkeepers cash in their accumulated phone credits with people who make money by offering callers use of their mobile phones as a sort of public phone. Within the past two years, Celtel’s Zambian customers have grown from 70,000 to over 1m.

Celtel found that it succeeded if it adapted products and services to local tastes, needs and small budgets…

Although many Africans are poor, they are willing to pay for what they need. (my emphasis)

Adapting to local conditions and habits is critical to success - the humility not to assume what works elsewhere will work everywhere. This kind of open-mindedness can breed success even in the face of scepticism as to your customers’ ability to understand your product:

In Ghana Barclays, a British bank, started working with “Susu collectors”, who gather savings daily from informal traders without access to banking, to keep their money safe. There are an estimated 5,000 Susu collectors in the country, each working with an average of 400 clients. This is a $140m market that exists below the traditional banking radar. Barclays now offers special bank accounts, training and lending to the Susu collectors, who can provide credit to their clients. The bank was taken aback by the amount of money, sophistication and willingness to save in the informal economy.

The keys to success in Africa are not fundamentally different than the keys to success in the developed world; the difference is that if you get any of them wrong in Africa, you don’t survive. In developed countries however you can often get away with getting many things wrong and still muddle through given a much more forgiving and less challenging business environment. What’s the point? That perhaps there is a lot to learn from businesses operating successfully in Africa.

Another interesting angle when looking at doing business in Africa or other developing regions, is to consider the effects of technological “leapfrogging”. Again the Economist does a good job summarizing:

The lesson to be drawn from all of this is that it is wrong to assume that developing countries will follow the same technological course as developed nations. Having skipped fixed-line telephones, some parts of the world may well skip desktop computers in favour of portable devices, for example. Entire economies may even leapfrog from agriculture straight to high-tech industries. That is what happened in Israel, which went from citrus farming to microchips; India, similarly, is doing its best to jump straight to a high-tech service economy. Rwanda even hopes to turn itself into an African tech hub.

Those who anticipate and facilitate leapfrogging can prosper as a result. Those who fail to see it coming risk being jumped over. Kodak, for example, hit by the sudden rise of digital cameras in the developed world, wrongly assumed that it would still be able to sell old-fashioned film and film cameras in China instead. But the emerging Chinese middle classes leapfrogged straight to digital cameras—and even those are now outnumbered by camera-phones.

It seems clear that mobile phones (as opposed to personal computers) will be the most important device for access and connectivity in the developing world, and probably everywhere eventually. But access to the internet and computing will become more and more common everywhere, with many different initiatives - both technological and financial - focused on bringing down the cost and expanding the market for computing in the developing world.

As has been written many many times before, mobile phones are changing everything. From politics to business to culture. The digital generation is but a subset of the connected generation, a worldwide phenomenon. Again, this is probably being felt more strongly in developing countries - not so much because the effect is greater or different - but because the contrast with what came before is that much more marked. This extension of connectedness enabled by mobile telephony taps into something that is inate in humans; it extends our ability to form communities unbounded by geographical or even political constraints.

(from The Economist) In short, the use of mobiles in protest and politics and even banking (see article) is evolving faster than governments’ efforts to control it. Academics also find the phenomenon baffling, though they are studying it hard. Four eggheads with links to California’s Annenberg School of Communication will publish next month a book based on a two-year study of mobile phones and society. Their punchy conclusion? “When the dominant institutions of society no longer have the monopoly of mass-communication networks, the dialectics between power and counter-power is, for better or worse, altered for ever.” True enough, though the average teenage texter might put it better: “whn u cn fon u r in chrge 4vr”.

Or to quote Stowe Boyd:

Once power migrates to the edge, the edglings are unlikely to give it back.

I will finish by highlighting the growth of mobile phone banking in South Africa. Once again making reference to a great article in the Economist, (I guess I should really have a link on this site to send them potential subscribers ) South Africa is a particularly interesting laboratory for considering and observing the nexus of finance and mobile telephony, with aspects of both developed and develping worlds existing in the business environment.

About half a million South Africans now use their mobile phones as a bank. Besides sending money to relatives and paying for goods, they can check balances, buy mobile airtime and settle utility bills. Traditional banks offer mobile banking as an added service to existing customers, most of whom are quite well off. But Wizzit, and to some extent First National Bank (FNB) and MTN Banking (a joint venture between Standard Bank and a mobile-phone network), are chasing another market: the 16m South Africans, over half of the adult population, with no bank account. Significantly, 30% of these people do have mobile phones. Wizzit hired and trained over 2,000 unemployed people, known as Wizzkids, to drum up business. It worked: eight out of ten Wizzit customers previously had no bank account and had never used an ATM.

…In most of Africa, meanwhile, only a fraction of people have bank accounts—but there is huge demand for cheap and convenient ways to send money and buy prepaid services such as airtime. Many Africans, having skipped landlines and jumped to mobiles, already use prepaid airtime as a way of transferring money.

They could now leap from a world of cash to cellular banking. In Kenya, a pilot scheme called M-Pesa is being used to disburse and pay micro-loans by phone. Meanwhile Celpay, which FNB bought last year from Celtel, a mobile-phone company, is offering platforms for banks and phone companies in Zambia and Congo.

This is all pretty interesting and exciting in its own right, but I get most intrigued and excited about the ability to extend this mobile financial platform to a converged set of financial products beyond payments and basic credit (loans and deposits.) With a foundation payments infrastructure built, the ability to offer trading, insurance and other risk management products to anyone, anywhere in the world doesn’t seem too daunting. Indeed developing markets may also see financial ‘leap-frogging’ as the lack of incumbents, inertia and regulatory capture leads to the adoption of truly modern and converged financial services.

Clearly I am not alone in my fascination for microfinance and financial services generally in the developing world. It’s importance was probably for too long underestimated, but with Muhammad Yunus winning the Nobel peace prize for his role in promoting financial services for the poor, clearly this is no longer the case. But Grameen Bank (and phone) are just the beginning and I don’t think we’ll have to wait more than a few years before business models defined and refined to prosper in the harsh light of emerging markets are exported to the developing world. We are used to giving the lessons. Will we be better students than teachers?

This is why I’m so excited about going to TED Global in Tanzania next June. The theme is Africa: The Next Chapter. I’ll be taking notes.

Share This