How the Bottom of the Pyramid Is Ripe for the Mobile Revolution
By: Adi Sudewa
Tags: Venture Capital, Business Models, Mobile, Bottom Of The Pyramid, Impact Investing

Mobile money in rural Ghana. Picture credit: Alix Murphy / WorldRemit

“Millions of Families. One Bank”.

The sentence came from a branding campaign that was launched by an Indonesian retail bank that I worked for around a decade ago. The video advertisement showed an upper-class Indonesian family having fun on the beach, cycling, and then taking a flight (must be an international flight in this case) to go skiing.

Screenshot from the video of the bank’s campaign. Source: YouTube

One of my colleagues, who was not involved in developing the campaign, quipped:

“Skiing? This is not ‘millions of families one bank’, but ‘one family with millions of banks!’. All the banks are targeting this kind of premium customer.”

Fast forward to 2020. Tech startups rule the urban life in Jakarta. We are bombarded with messages from the tech unicorns trying to get us, the middle-class urban people, to buy a cup of heavily-subsidized coffee or get our food delivered using their apps. For every single “problem” experienced by the middle-class segment, there are at least 3–4 startups jostling to solve it. And these problems are mostly matters of convenience: how to get our purchases come faster or how to get a taxi in 2 minutes instead of waiting for 10 minutes.

We are now members of the over-served segment, just like the family depicted in the bank campaign ten years ago.

Tech Bubble at the Top and the Middle of the Pyramid

It is not that tech startups do not add value to the economy. It is just that too much of venture capital money are being used to finance redundant infrastructure with too many startups doing similar things, and even worse, to bribe customers into using them.

An advisory firm Toptal stated that the year of 2018 saw a total of USD 254 billion invested globally into ~18,000 startups via venture capital financing — a 46% leap from 2017’s figures — with 52% ( USD 131 billion) landing in the US alone. What would be the value of this USD 254 billion after ten years? Any predictions made today would be wrong, but I strongly suspect that recent high-profile debacles with Uber, WeWork, and Peloton are just the beginning of what is probably going to be the end of the global economic bubble.

Is there a better way to deploy a good part of the USD 254 billion? If the urban middle-class have been over-served by tech startups, is it possible and profitable to go to the ones under-served, e.g., the bottom of the pyramid?

The Bottom of the Pyramid Is Readier than Most of Us Think They Are

It is easy to underestimate the potential of this segment: lack of disposable income to purchase a phone and pay for services, lack of internet connectivity, and lack of education/sophistication to use smartphones. These challenges could mostly be valid, but they also represent huge opportunities: large potential market, limited competition, and that these segments are mostly not served by offline players at all, hence ready to embrace the mobile revolution.

Connectivity is surprisingly not an issue, with GSMA reported that currently 3.3 billion people live in areas covered by mobile broadband networks but do not use the mobile internet — this ‘usage gap’ is more than FOUR TIMES greater than the coverage gap. The gap is partially cause by the lack of tech startup coming up with innovations to serve them.

Business Models Have Started to Emerge

There are limited numbers of tech startups and even more limited number of tech VCs who are ready to tackle this challenge. The segment requires a radically different approach compared to the urban middle-class segment. Below, I list down some examples of mobile technologies and business models that could work, based on my field trip experiences and observations as well some interactions¹ with few exciting tech startups serving the segment.

Entertainment: It is important to mention entertainment first. We all long to be entertained, that’s why social media and streaming services form a large part of the unicorn universe. The challenge is in delivering entertainment, often coming with large bandwidth requirements, to the rural poor. One of the most interesting startups doing this is Migo, trying to use online-to-offline platform delivers gigabytes to mass market consumers “500 times cheaper than fiber”.

It is important to mention entertainment first. We all long to be entertained, that’s why social media and streaming services form a large part of the unicorn universe. The challenge is in delivering entertainment, often coming with large bandwidth requirements, to the rural poor. One of the most interesting startups doing this is Migo, trying to use online-to-offline platform delivers gigabytes to mass market consumers “500 times cheaper than fiber”. Internet of Things (IoT): eFishery is trying to disrupt the aquaculture industry by providing AI-based feeder devices, connected to mobile phones that in turn feed data to a central software. Lumeter Network is a platform for “Pay As You Go” that includes hardware that was integrated by solar system manufacturers and a back-end SaaS service to manage customers and integrations with mobile money services.

eFishery is trying to disrupt the aquaculture industry by providing AI-based feeder devices, connected to mobile phones that in turn feed data to a central software. Lumeter Network is a platform for “Pay As You Go” that includes hardware that was integrated by solar system manufacturers and a back-end SaaS service to manage customers and integrations with mobile money services. e-Commerce: Agrostar sells agriculture inputs through call centers. Mapan² provides catalogs for rural customers to purchase curated goods with reasonable price and after-sales support.

Agrostar sells agriculture inputs through call centers. Mapan² provides catalogs for rural customers to purchase curated goods with reasonable price and after-sales support. Payment: M-PESA is of course the poster boy of success of mobile payment in Africa, with some platforms like DuitHape (Indonesia) and GCash (Philippines) are trying to implement solutions for farmers supplying produces to large companies.

M-PESA is of course the poster boy of success of mobile payment in Africa, with some platforms like DuitHape (Indonesia) and GCash (Philippines) are trying to implement solutions for farmers supplying produces to large companies. Sharing Economy: With agriculture equipment being expensive and having low utilizations, it is natural for startups like HelloTractor or GoldFarm to emerge as the “Uber” for agriculture tools.

Those examples are mentioned here because they are interestingly providing illustrations of what innovations exist out there, with some chances to scale up and provide good returns. Just like the existing tech unicorns, these solutions would be unprofitable for few years as they grow, and require support from a “full stack” of venture capitals from seed/angel investors to late-stage VCs.

All Three Forces Will Come Together

It is a chicken-and-egg issue: Good entrepreneurs would not tackle the problems without potential VC backups, and good VCs would not come without track records of successful exits. With the recent boom of impact investing movement, aggressive infrastructure building by tech giants like Google’s Project Loon and Facebook’s drone approaches³, perhaps the tipping point will be reached very soon.

VCs and tech entrepreneurs must also ditch the conventional mindsets that work with mobile technologies for the urban segment, e.g., building smartphone apps or assuming always-on connectivity with large bandwidth, and try extreme (or even retro) technologies like cache-server, callback, SMS, or even USSD and human agents. The future tech unicorns serving the rural segment will look very different than the tech unicorns of today.

Mobile revolutions for the BoP have just started. And tech businesses that will come out from constrained environments will transform rural communities, and urban communities too, in an unprecedented way. VCs should provide the poor and the creative entrepreneurs with infrastructure and capital, and trust them to invent what are needed for them that ultimately will deliver the returns to the VCs.

[1] I double-checked to ensure that all information is also available in public domain, i.e., I don’t disclose confidential information here.

[2] I use Mapan as an example multiple times in my previous articles, so I will be brief here

[3] Facebook has abandoned its projects multiple time, but it has always come back with new ideas, so let’s see