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Where Africa and Technology Collide!

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The Case for Connectivity (part 2)

(Part 1 here)

I’ve argued before, alongside others, that the main inhibitor of ubiquitous and perpetual internet connectivity at a global level isn’t a technology problem, it’s a business model problem. Mostly the tech exists to put the signal everywhere. What we overlook when we say this is, that while that is true, it’s unsavory to point out that many of “those users” are not valuable – that the population covered won’t make a good return on business investment. So, even if you covered the initial cost of the equipment outlay in those areas with a subsidized government funds, without a proper business model to support the ongoing operations of running the network, then the ROI would be weak and maybe even negative.

A low cost tower set up in rural Africa

The unspoken technology issue

Many of the incumbent ISPs and mobile operators have sunk too many resources into legacy technology, and then subsequently, outsourced their technical capacity and platform knowledge to foreign firms. This leaves them in an unfavorable position when it comes to new technology that would decrease the cost of rollout by up to 90%, or of taking advantage of how software is changing the way networks work. Due to heavy GSM investment, the industry thinks it best to switch those from 2G/EGDE to 3G. This misses the mark though, it’s iterative change driven by sunk costs, ignoring the fact that we’re moving to a data-only network world. GSM is a dead man walking. IP networks are the future.

It’s not just me saying this, two years ago Deloitte was saying,

“African MNOs should create business models around smartphone users and brace for the rise of the data exclusives and data centric phone users.”

This then provides the opportunity. This is the time to bring new networks without legacy business or technology paradigms, and the ability to apply web-scale economics to the network itself, backstopped by new open software stacks and business models that don’t rely solely on end-user payment.

Fortunately at BRCK we’ve been able to find great investors and strategic partners who see this bigger picture and understand the investments needed to make change happen in this connectivity industry of ours. BRCK, alongside some other firms, are on the forefront of changes happening across all types of data pipes, at the infrastructure level all the way through to the retail side – for both people and things. And as we start running the numbers it becomes increasingly clear just how big of an opportunity this actually represents. It only helps that many incumbents are stuck in aged technology stacks and legacy business models, so the window for positive change is here and profits are substantial.

East Africa Railways train

A new railroad

I tend to think of what we do in the connectivity space as similar to our forebears building railroads, making it easier, faster and more efficient to move data and connect far-flung parts of the world. The 1990’s brought us the rebels in the form of scrappy upstart mobile operators and ISPs, they were real cowboys and renegades then! Inspiring leaders, courageously trying everything from pre-paid credit models in Africa, to thinking of mobile credit as cash, to digging the first fibre cables into the hard parts of the continent. Regrettably, these cowboys have handed the reins over to our modern day robber barons, sitting fat and happy on their oligopolies (or monopolies), and making damn sure that no one else has a chance to build something better if they can help it.

I like to think that at BRCK we are building the new connectivity railroads. The tip of the spear for us is unlicensed spectrum, where we take advantage of the ability to roll out public WiFi hotspots without much in the way of regulatory or political hurdles. We layer this with a free consumer business model, so that anyone who can get that signal can connect and take advantage of the whole internet. The underlying economics of the Moja platform are built around the idea of a digital economy. Businesses create engagement tasks that users can complete to earn value within the system. Users then spend their value on faster connectivity, premium content, or additional services. The flow of value into and out of the Moja platform creates the monetary value necessary to profitably run the network.

This is just the BRCK model though, and as I sit on some global boards and in meetings I hear of the others trying their new models as well. New technology stacks, driven primarily by open source software (and some key open source hardware plays), are a big part of the significant decrease in the cost profile (both CapEx and OpEx). But again, the business models… this is where we see the real changes coming and I’m excited to have a front row seat.

As these new railroads are built, by us and others, there lies such great opportunity for economic growth, social development, and business profit.

The Case for Connectivity (part 1)

As with most CEOs of younger companies, I find myself on the investment raising treadmill. Doing so for a company focused on internet connectivity in frontier markets provides an extra layer of complexity, since it’s not a sexy of a proposition as a new app for ecommerce, agtech, fintech, etc might be. Those are easier to invest in since you’re playing with a world of software, not any hardware or infrastructure to muddy your hands with. Unfortunately, in my BRCK world, we have to deal with atoms, not just bits and bytes (though we do those too). Which is why many of my conversations find me explaining why connectivity is critical – thus this post.

What I find interesting is that everyone wants to benefit from a basic underlying availability of connectivity, but few understand what it is or why it is so important. If you’re with me at a public event, I’ll eventually spout off something along the lines of, “you can’t have a 21st century economy without power and connectivity.” This is my simplified way of stating that for any industry to be meaningful on the world stage (or even their own country stage), they need the ability to move data. If power and connectivity are the foundation, then the aforementioned ecommerce, agtech, fintech, and others are all pillars that stand on that foundation.

Economic growth

I’ve written before on how smartphone penetration has reached critical mass and proceeds on a noteworthy trajectory across Africa and other frontier markets. Africa, coming from a largely 2g/Edge based on old legacy GSM technology will have some of the highest growth rates in mobile data subscriptions globally, driven by chat apps and mobile video, as we transition to data-only networks. In 2022, there will be eleven times more mobile data traffic in Central and Eastern Europe and Middle East and Africa (Ericsson 2017).

Mobile subscriptions (global)

  • 250M smartphone subscribers in 2016
  • 770M by 2022 (Y-o-Y growth of 30%) (Ericsson 2017)
  • Over half of mobile phone shipments into Africa in 2016 were smartphones (Deloitte 2017)

All of this means that there are millions of new customers available for new, smart, and data-intensive financial products, agricultural services, marketplaces, logistics, and the list goes on. This is why we’re seeing the rise and rise of startups in these spaces, as well there should be.

What we’re not paying attention to is this: the market is still smaller than it could be.

Imagine that you’re finding amazing market traction with your new mobile lending app, or with your logistics system, or with your online goods marketplace. Imagine that you’re doing well, however did you know that you’re only reaching 20% of the people who own smartphones in the country…. Oh, right, that’s the piece that’s surprising! You could be doing even more, growing faster and capturing more market share if only the other 80% of smartphone owners in your market could afford the costs of getting online regularly to use your service.

This is where BRCK is stepping in with our Moja platform (free to consumer internet). You’ll benefit greatly from our growth. We’ll benefit greatly from your growth.

Social development

Even though I’m largely driven by the economic reasoning for connectivity alone, since I believe that the best way for us to make significant change in Africa is to grow wealth for everyday Africans, there is a strong social argument for widespread and affordable connectivity as well.

Connecting an additional 2.5 billion people to the internet would add 2 trillion dollars per year to global GDP and create 140 million jobs

  • It enables improvements in health (Deloitte 2014)
  • Unlocks universal education (Deloitte 2014)
  • Strengthens civil society through public services, social cohesion, and digital inclusion (Deloitte 2014)

It turns out that if we connect people to the largest, greatest network of knowledge and information in the the world, then a lot of great social benefits are realized across a number of important areas. It’s hard to argue against more jobs, better education, better healthcare, more informed citizens, and a stronger civil society in any country.

Connectivity is the foundation

Like everyone else not involved in the plumbing and distribution of the internet, I used to think of this only academically. It’s easy enough to understand and think through intellectually. However, I found that in living it, in dealing with the practicalities of the internet, in coming to know the end-user I began to appreciate just how important connectivity is. Building a new app or service can have big effects, changing the affordability equation for connectivity and you send a shockwave reaching everyone, everywhere.

A Life Well Lived

As a child I grew up in Sudan and Kenya. When I lived in Sudan, we had no power most of the day or night, and I kept myself busy with quite a bit of reading. Reading for escape, for adventure. Like many, I grew to love Tolkien’s hobbits and the Lord of the Rings. I began to think of hobbits and Shire folk again recently, which inspired me to look up quotes from the great wordsmith Tolkien.

“Even the smallest person can change the course of the future.”

–J.R.R. Tolkien

This week I’m a part of the Unreasonable Goals program, where 17 business men and women are gathered, since they’re focused on solving some of the world’s most intractable issues. It’s filled with remarkable people working on some very hard things, in very creative ways.

Take for instance, Samuel Alemayehu of Cambridge Industries in Ethiopia. He takes in an ungodly amount of waste and then proceeds to create energy, paving bricks, and a slew of other byproducts that provide jobs and opportunities for 50,000+ Ethiopians.

Or, how about Gayathri Vasudevan of LabourNet, working to to provide jobs and enable livelihoods for 10 million informal sector workers in India.

I mean, this is heady stuff, with people not just dreaming and building, but actually doing it. And, there’s 15 more CEOs of companies that are all here working on *things that matter*, that push the envelope. It’s no exaggeration to say that some of the individuals in this room will make a real dent in the world, and that you’ll see their names in even bigger lights one day.

In my Tolkien quotes journey I also came across another quote. One that has been gnawing on me all week:

“It is no bad thing to celebrate a simple life.”

–J.R.R. Tolkien

We sometimes overly celebrate those who tilt at windmills, who climb mountains, who conquer all before them. Some of them live a good life, a fulfilling one. They are called to this, their gifts and skills almost compel the new reality that they stamp upon the world.

And we forget… We forget that there is a life equally well lived for those who live a simple, quiet life. Sometimes they support those on grand adventures, sometimes they have a resounding impact on their small community, and sometimes they softly raise a family, keep the engines going in a company, or happily bake cakes (and everyone loves cakes!).

I’m grateful to be amongst the genius and talent in this room. I’m similarly thankful when I reflect on the many who live a quiet and equally accomplished life.

Affordability and the Future of the Internet

The first few decades of the internet has been about getting the signal everywhere. The current decade is about making the internet affordable to everyone. The internet will be free, and the future belongs to those with the courage to create and fund the business models that support creating an onramp for that last blue ocean of internet users.

It takes someone in Africa four days of work to earn 1Gb of internet. In the US and Europe, it takes just two hours to do the same. (note: see bottom for the math on this)

Connectivity can be generally broken down into two buckets:

  1. Accessibility – which is generally about having the signal for the internet and the devices to connect to it.
  2. Affordability – the ability to pay for the internet.

There’s a good piece in Wired about the slow down in connectivity around the world. We’ve made great progress in the initial half of the world connecting to the internet, but the remaining half is coming along a lot slower, and at a decreasing speed each year.

“The data shows that growth in global internet access dropped from 19% in 2007 to less than 6% last year” The Guardian

Why?

For the last two decades we’ve been focused on some pretty big population numbers as well as more wealthy demographics; connecting cities (in both first-world and frontier markets) and the relatively prosperous populations of the world wherever they may be. Currently, on the accessibility front we’ve been forced to work in harder areas with less population density, where the numbers for a cell phone tower are slower to show their ROI, and where frankly it’s not worth using our older technology and our older business models to unlock the internet to that population.

So we come to an interesting time in history, where there is a lot of discussion about, “connecting the last 3 billion”, but not a great deal of courage in doing so.

Sidebar: since I’ve been sitting on an airplane for many hours, I watched the movie 1970 movie Patton, which is likely why I’m thinking so much of courage. In it he quotes Frederick the Great (possibly wrongly attributed) as saying:

“L’audace, l’audace. Toujours l’audace.”
“Audacity, audacity. Always audacity.”

And it is about courage. Most people look at the problem of the internet and think about current tech, or even future tech. They try to do something a little bit cheaper, maybe the go all out and and try something truly mind-blowing, such as balloons, satellites or drones. And, they each do play a small part. But, that’s it, small. We’re at a point where even these seemingly world-changing technologies are relatively small since there is a bigger picture that eclipses tech accessibility.

The big picture is that the internet will be free. Everywhere. Eventually.

Which means connecting the next 3 billion is a business model problem, not a technology problem.

If the is true, then let’s keep investing in these marginal accessibility changes. We need them, we truly do. Every time we get a new Viacom satellite, a Safaricom cell tower, a Google Loon balloon, or a new terrestrial cable dug across Africa or Asia, we get a needed marginal improvement. We push the costs down and the accessibility equation goes a tiny bit higher.

But back to courage. In our plans to connect the world to the internet, it doesn’t take a great deal of bravery to invest in a little bit more infrastructure. For these types of initiatives we’ve had our formulas for a decade or more, and we know they work. A few accountants and legal to check the boxes and a couple million more USD gets spent. We know how to charge for it, and that business model has seen but iterative change in two decades. We’ll always need cables and satellites, but in the world where the internet is free for everyone, it’s the business model that needs the most work.

So, how do we solve this business model for free internet? After all, the internet isn’t free, someone always pays.

It doesn’t come from charging a consumer who has limited disposable income. Just like the internet is moving to free in most public spaces in the US and Europe, I believe it will be the same in most of the rest of the world. The answer comes in looking for indirect revenue streams, and there are multiple paths to this.

This is where the big companies have let us down. Not due to their lack of investment, but to their lack of creativity. Whether it’s with satellite companies who provide low cost subscriber models, helping a moderate percentage more of the population get online regularly, or the Google Loons that side with telecom oligopolies, or the ISPs and mobile phone companies that are too deeply entrenched in their legacy business models to make any meaningful change.

Large organizations have a lot of resources. But… these same large organizations don’t think creatively enough about the solution.

Too many resources tends towards lazy problem solving. After all, if you’re a heavyweight going up against a featherweight, your only strategy need be bludgeon your competitor to defeat. In our world, a lot of money starts feeling like a hammer that you can start bludgeoning with – which tends towards solutions like the original “Free Basics” from Facebook, which looked a lot like an organization trying to do the right thing and then realizing that they couldn’t afford to give everyone the whole internet for free, so instead tried to make a good bit of it free – and ended up with a useful walled garden that set a lot of people on edge.

Compounding this is that the people making decisions around the initiatives at these larger organizations are not the entrepreneurs who built the company, they’re middle managers who like to reduce their risk profile inside the organization so that they can maintain their nice salaries and perks.

But, we can make the whole internet free, and we don’t have to buy it. What we need is a bit more creativity in coming up with new business models that represent the future of connectivity, not the past.

So, if big organizations aren’t the answer, and old infrastructure models are just iterative change, then what is the answer?

It’s a combination. Matching up the resources (and capitalist business models) of these large organizations to get these new users onto their platforms, and the creative solutions that come from smaller, hungrier companies give us a wonderful blend. When these two come together, interesting and explosive change can happen.

I’ve seen all of this first hand. Both the marginal change of the aforementioned global organization efforts alone (or worse, paired with some other large organization), as well as the magic of what happens when one of them works with a smaller company that has a real ground game and understands the problem from a different level.

I’m convinced that we’re solving this right now at BRCK, and that’s due in no small part to the infrastructure team we’ve had the chance to work with at Facebook. We’re not the only ones either, I’m seeing some other companies working on some pretty neat solutions too that gives me optimism for actually solving this problem. The only thing we need is more of the large companies to embrace some of these changes and work together with the companies on the ground in Africa, Asia and Latin America.

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Reflection on 5 Years of BRCK