After years of sparse rain, the floodgates opened

Just past Machakos junction towards Kitui, Ukambani, Kenya April 2013

Impact of mainstreaming and commodification of cyber cafe services

Around 2007, the urban cyber cafe industry began to display signs of maturing as the market saturated and the services specific to internet access underwent a process of commodification.  As it came to be perceived as no different a business than setting up a corner kiosk or hot dog stand, there was a shift in the profile of owner/operators. Many employed professionals such as doctors, teachers, accountants et al purchased going concerns as a means to increase their income streams, considering it no different from owning any other type of  shop which could be manned and run by employees during the day.  While computer literate, few in this new segment of owners were the computer savvy technical specialists or hobbyists who'd originally set up internet operations as a business nor were their employees for the most part.

Given this context, Mathew, who runs a thriving cyber cafe business spread over three towns a couple of hours north of Nairobi, articulated three reasons why many cybers were seen to have shuttered their business:

1. Gaining a reputation for unreliability - Inexperience and/or lack of knowledge on basics like virus management, maintenance or even not knowing how to make all the equipment work meant that systems were often down or not working properly quickly leading to customers avoiding the shop.

2. Quality and training of staff - There would be a difference in operations if the owner were to check in with the business and dealt with issues as they arose rather than showing up once a week for example. Finding qualified people to manage the cafe in the meantime, ensuring that at least one person with the requisite technical knowledge was at hand or on call was imperative to ensure the smooth running of the operations and gaining customer confidence regarding the quality of services offered.

3. Customer relationship management - Thus, building relationships with customers, ensuring loyalty and repeat returns over the long term was of importance to sustain the business.  Mathew himself had a sophisticated customer loyalty program in use across his three cafes - a smart card which could be purchased for differing amounts in advance and printed with the customer's photograph. He had set up a system by which his staff could monitor and track minutes used by this user base across the three different locations. It ensured loyalty as well as provided an upfront cash payment that is one of the benefits of a prepaid business model.

Perhaps this was why the decline was being seen so obviously in urban locations accustomed to having a cyber at every corner. In Mombasa, one of our interviewees mentioned that it felt like there was one in every building.  The urban industry had matured to the point that a cyber was as ubiquitous as an MPesa dealer or Coca Cola kiosk with the subsequent assumption by many that it could be run as easily as any other business. This aspect does not diminish the impact of other market forces such as internet enable mobiles and affordable data plans and modems but does help explain why we kept hearing that business was growing whenever we stepped out of the city.

As technology diffuses outward from the urban metros, the cybers are seen in ever smaller market towns and highway crossroads, that is, the industry is still in its growth phase, though certainly not in its infancy. A short conversation with a small town mobile shop assistant informed us that they were selling an average of 5 broadband modems a month and she herself found it cheaper and more convenient to browse via her phone. Another young man employed by a national operator observed that education was a critical factor as well - not in terms of the basics, as the region he supported had a very high literacy rate, but in terms of locales where more young people were going off to college and university, being exposed to the potential of this new technology then bringing it back home for it to spread further.

What this seems to imply is that its the casual or social browser - the chatting on IM, the Facebooking, the occasional email - who seems to have cut down on their cyber visits, and this is often the largest segment of people going online. The hard core enthusiasts, the business users or anyone who has not yet invested in their own set up but prefers the "comp" to quote one young man, aren't abandoning their trips.

What is happening however to the industry as a whole is a natural evolution. In the city, its the innovators who are thriving even as the basic shops decline - a case of may the fittest survive. None among the knowledgeable IT savvy owner operators ever even considered the mobile as a threat to their business, perceived or otherwise. The only constant response to the subject was that of the pricing plans mentioned earlier.

While the answer to the question of whether its mobiles that are pushing the cyber cafes out of business seems to increasingly be a No, our exploration of market forces acting on the industry is still throwing up factors that we had not taken into consideration when we began.

The role of the cyber cafe: Assisted entry ramp onto the information superhighway to use a cliche

Monica's cyber in the small town of Maai Mahiu, a market for a primarily rural area, is now the only such facility available. There was another cyber on the other side of the main highway, she said, but it closed within its first year of operation.  Internet access in this locale is available only through 3G and its a poor signal with spotty data performance.  JamFram Cyber Cafe offers the town its only source of business support services - photocopy, lamination, binding, secretarial services as well as 6 desktop computers networked on a 3G router.  When we were there, the electricity was out across the town and she was happy to talk while waiting for the lights to come back. In the half hour we were there, only two customers walked in - one asking for a photocopy, the other to check on his documents given for typing.  The cyber business was slow though she'd noted that mobile requests were increasing - the local phone dealer sending new owners of data enabled phones down to her to help them set up an email account and a Facebook page as well as the settings to permit browsing.

So why would the townspeople call her when she took a slightly longer Christmas holiday earlier this year, making her cut short her intended holiday until the middle of January and return to open shop by the 3rd? Why were they concerned that she might have decided to shut shop like the other cyber which gave up after 5 or 6 months? We were left with the impression that the townspeople would support her business bureau's continued existence than lose access to her range of services.
We found that the cyber cafe has a role to play in the local community beyond the simple service of walk in to browse the internet.

Broadly the roles can be clustered under these main categories:

The cyber as intermediary across the digital divide (ICT)


In people's minds, 'Internet' was associated with the cyber cafe. We heard this over and over from cyber cafe staff that various telco dealers would send across customers facing challenges with the setup of their data enabled phone over to the cyber for help. Or after making the purchase of an internet enabled phone, people would come over to the cyber first - since you cannot set up an email account then make a Facebook page without a computer. Even someone like Jacqueline in Kagumo who was working at the local phone dealer and was saving up for her own laptop and browsed primarily through her phone had to visit the cyber first.

In Malindi, a significant proportion of Salmatech's customers were the beachboys whom market forces (their international tourist clientele) were forcing onto the internet via email, Skype and Facebook. Necessity drove them to learn how to use the basics of the computer enough so that they could respond to inquiries, communicate and make bookings in advance of the high season - this was critical enough that they would often trade off topping up airtime minutes on their mobiles in order to have money for the cyber's minutes of use. Here, the cyber was the go to place, even if some of them already owned laptops gifted by tourist friends, to learn and be informed about the hardware, the software and critically, the utility of the internet.

Most cybers offered customers the Kenyan Revenue Authority (KRA) online services for a fee - the facility to get PINs and submit VAT returns online being one of the first egovernment services rolled out nationally. Other such services offered were US Greencard lottery applications, visa application services, registrations for national examinations, even bus ticket bookings when offered online.
But the mediation was not simply between the customer and the internet. Cyber cafes whose operators had a technical background also tended to be full of spare parts and supplies, many offering maintenance and support for hardware in addition to basic services like virus removal, software updates and configuration.

We also found some cybers, particularly those with fixed unlimited access (such via WiMax or DSL), acting as micro ISPs - running cables out to their neighbours for a fixed monthly rate (usually much lower than what the service cost) in order to mitigate the risk of being unable to cover the cost since incomes were otherwise irregular and often unpredictable. But this behaviour, imho, has less to do with their role as an intermediary - though in fact that is what it could said to be - and more to do with coping mechanisms to help manage expenses on volatile cash flows.

The cyber as a training ground

Whether its formal classes offered in basics of computer use or simply the help received from a friendly generous cyber cafe staff or owner, the cyber is most often where learning and practice both online and on the computer takes place.

The cyber as a social place

Primarily seen in locations where there were many young college students, the cyber seems to have become the local hangout. Boy and girls were seen waiting outside for their turn at email or Facebook, chatting with friends, relaxing and mingling with no hurry to get anywhere or do anything in particular. One newish cyber in Kilifi even had an ice cream parlour with cozy tables and chairs in the front half of the spacious store, all decorated in bright colours and visuals.

The cyber as a business bureau

The majority of cybers tend to offer at minimum printing services along with scanning and photocopying depending on their choice of equipment. Most however offer lamination, binding, a variety of typing and basic typesetting services as well. Photo printing, passport photos and mPesa or airtime sales can also be added to increase sources of income but the basic concept of support services tend to default to the local cyber. This role perhaps explains why Monica's clients were concerned enough to encourage her return to work even if browsing the internet may not have always been their choice of service.

Typesetting or typing services have expanded to include helping students with their research online in some cases, and in places where the internet was not a popular enough service, this facility offered the opportunity to develop a regular clientele of small businesses, local government offices and students to sustain the business.

Estimating price in unexplored and untapped markets

In addition to estimating the size and value of the Kenyan cyber cafe industry for our client, Village Telco of Cape Town, South Africa, we were tasked with finding out what would people pay for their product, the Mesh Potato. This challenge was the equivalent of walking up to someone and asking:

How much would you pay for this thing you've never heard of and you're not sure what it does?

We discovered it was through the long rambling conversations we were having with our selected cyber cafe owner operators that we were able to get to this point of being able ask such a question. The conversations allowed us a peek into the way they thought about investing in new technology, and in many ways, reflected back to us the basics of the "BoP" consumer mindset that had already been identified previously.  For example:

Maximizing ROI (return on investment)

When asked what he'd pay for a Mesh Potato, our friend Moses responded with a question, "It depends,  how much money will it make for me?"

That is, as a business owner, his evaluation of the product's price was intrinsically linked to its ability to generate an income stream. Maximizing the return on the investment is his primary criteria - whether it will save him money or a significant amount of time, and how soon will that possible are all the factors that go into the decision to purchase. His question also implicitly holds the corollary premise of Minimizing Risk.

So rarely was the price seen in isolation but instead it was considered in context of a variety of other factors.  For business owners, their primary value driver was "Is this a source of increased income for me?"

Another factor was that of the need to question assumptions underlying traditional models for assessing pricing - from wikipedia's entry on the underlying assumptions used in Van Westendorp's model:

The assumption underlying the Price Sensitivity Meter (PSM) is that respondents are capable of envisioning a pricing landscape and that price is an intrinsic measure of value or utility. Participants in a PSM exercise are asked to identify price points at which they can infer a particular value to the product or service under study. PSM claims to capture the extent to which a product has an inherent value denoted by price.

What if price is not the intrinsic measure of value or utility but long term revenue generation potential is?

Until we are able to gather enough insights over the course of a number of such studies and come up with frameworks customized for a very different operating environment, it will only be through the willingness to question all our assumptions and adjusting our approach that we will be able to make reasonably accurate assessments for these untapped markets.

Mobile phones and China: Two concurrent factors of global urbanization of rural African market towns.

Do we need to play guess the country or will you take my word for it that three of these photographs are from the Visayas islands in The Philippines and other 3, that match, are from all over Kenya.

Exploring post-industrial platforms (to be illustrated)

This spread is the centerfold of an interesting little PDF called Fact, Forces, Fog:: Reckless guesses in a time of change by The Doblin Group of Chicago.  I was first introduced to it in the Fall (Autumn) semester of 2003 when I took Larry Keeley's class "Design Planning" (or whatever its being called now) at the Institute of Design-IIT. It captured my imagination, and to be honest, hasn't let go since then.

I bring it up in order to introduce the basic concept of a "post-industrial platform", from a post written some three years ago, here is my snippet:

What do we see when we look at the PDF centrefold?
Keeley shared that if we look at the way things were – the greyed out section on the left hand side titled Industries gave rise to material goods & services then look at how things are ‘now’ [approximately 2002/2003] Digital systems and connections amplify trends, using Doblin’s methods they were able to forecast the future direction of way things were going to be evolving.

The essence of the evolution if you look at the clusters closely is that business models are evolving away from the capital intensive industrial infrastructure requirements of an Industrial era towards post industrial platforms based on intangible concepts. On the far right hand side is the final section titled Hot fields foster powerful convergence. Doblin’s team identified 11 key areas:

Simplicity – Enlightenment – Talent leverage – Mastery – Travel – Entertainment – Personal Expression – Relationships – Financial health – Health & Environment – Political Freedom

Now, at first glance, comparing these words, with those I'd extracted in yesterday's post, it seems as though Wisdom itself is a meta-platform, comprised of the following:

Value -  Understanding -  High Standards -  Curiosity -  Love -  Uncompromising vision -  Ennoble - Eternal.
 
But a closer look at the concepts themselves will show that they are not all capable of becoming platforms in their own right, by virtue of the definition given above.  These are the individual qualities of wisdom, and needs must be taken together in order to embody Wisdom itself.
On the other hand, Love, as a concept, can and does exist outside of wisdom (as any cheesy soap opera will inform us).  And Umair Haque's articulation from his Wisdom Manifesto (see previous), has it as:

Strategy is the application of force. Wisdom is the application of love. Strategy suppresses, but Wisdom evokes. Its test is the ability to spark new ideas, concepts, and solutions. That is how to be valued by people, communities, and society

Wisdom is the application of love. That is, one discovers, that perhaps wisdom is not a platform per se, but its manifestation, which then can be articulated in the many ways already so discussed.  Therefore, one is left with the point to ponder further, is Love then a post-industrial platform in its own right? And if so, is it repeating any of the concepts that have already been covered by the existing 11 platforms articulated above? The closest seems to be Relationships, so I zoomed in on the clustering of tags shown around it from the PDF.

Interesting. As a platform for business models, the intangible concept of Relationships resembles all the services available online for social networking, matchmaking, dating, sharing media and common interests as well as those which have tried to embody 'trust' into their interactions. But there's no mention of the emotions behind these qualities, the engine or driver of empathy or that indefinable, inexplicable sense of our common humanity.

Perhaps there is, indeed, room for one more post-industrial platform then. But  how would we extrapolate its manifestation, since so much of what we know as "love"  has been commodified into meaninglessness by every pop song or preacher around the world? Although it must be acknowledged that everything we talk about when we look at "doing well by doing good", or "social impact" or even, the triple bottomline over pure profits, seem to implicitly imply a form of love, perhaps for nothing else but simply that for our own emerging future.

This conversation will undoubtedly continue...

Your thoughts?

Why prepaid business models work so well for the rural informal economy - April 2009

We broke down the basic concept of the 'pay as you go' or prepaid mobile plan - in general, discounting the details of the various different strategies and pricing/time plans of different countries as a way to begin understanding what is it about this model that makes it work at the BoP, now in the light of our findings from the workshop.

Could we somehow find a general principle that could then be applied elsewhere, seeing as how successful this model has been amongst the lower income markets?

Fundamentally, all prepaid plans had one lumpsum upfront amount for the starter pack/activation and thereafter could be kept 'alive' by a minimum additional recharge or top up accordingly.

That is, this payment plan is flexible - it allows you to decide how much you wish to pay and when, though the absolute minimum frequency does depend on the provider's rules and this decision making thus puts you in control of how much you spend and when; based on your incoming cash flow and current priorities for your discretionary spending.

Just for comparison's sake, a mobile phone subscriber on a post paid model would have to pay the amount on the monthly bill by a certain date in order not to fall behind or incur penalties. That is, there is little flexibility (other than making actual changes to which plan you're on) and the control of when to pay, how much to pay and the frequency of the billing is all in the hands  of the service provider. The user (customer) has little control over time and money.

Now, bringing it back to our findings from the workshop on the financial planning behaviour observed among those at the BoP where we see that it is their ability to control the elements of time - periodicity & frequency; money - cash or goods and also social capital or in this context "trust" that in fact allows them to increase their ability to plan their 'cash flow' and 'working capital' across their multiple sources of income and resource allocation, thus decreasing the variance between their income and expenditure.

We can already see the fundamental reason why, then, the pay as you go model has been successful for those at the BoP, it is one of the very few that essentially puts control over time and money in the hands of the user (customer) rather than the provider (business). One could, at this point, say that the element of trust or social capital is also involved - just as Ram Babu's neighbour who loaned him Rs 1300 was willing to let him pay it back in small sums from the money he earned daily from his wheat mill until the total was paid off, the prepaid model does not impose fixed amounts and payment schedules on the user. The transactions occur at the customer's discretion.

Exploring the market forces acting on the cyber cafe industry in Kenya

This post continues on the challenges of estimating size and value of an untapped market in the developing world - in our current case, it is the cyber cafe industry in Kenya.  A critical aspect of this exercise will include assessing the impact of a variety of market forces acting on the industry in the present day as well as exploring the impact of trends on the near future.
Its only too easy to say that mobile phones will threaten the future of this industry as this June 2011 article does, but how valid is this assertion, really? Complicating the situation is the extremely rapid pace of change - for example the number of internet users in Kenya more than doubled in less than a year, from the end of 2009 to the third quarter of 2010, most via their mobile phones.
Yet, the results of a recent survey found on this Afrinnovator post by Mark Kaigwa in May 2011, contradict the dramatic headline of the June 2011 article:

via Afrinnovator

Kaigwa says: To unpack that a little further, the emerging trend is that the first experience of the internet has become mobile. This still doesn’t rule out the cyber cafe as the mobile experience on feature phones still cannot replace the “full-qwerty-keyboard-got-my-flashdisk-upload-that-document-and-email” use of cyber cafes but as far as social networking and general browsing, the mobile is the device of choice.

And previously in May 2010,  Oluniyi Ajao asked from Accra, Ghana "Are mobile phones pushing cyber cafes out of business?", where he ends confidently with:

It is clear that mobile phones, are pushing cyber cafes out, the same way public phone booths and “communication centres” have become endangered species. What waits to be seen is how long the few cyber cafes that remain would last. Would they close shop or evolve their business model? Time would tell.

but just a few months before in Sept 2009, Wayan Vota wrote  Cybercafes: Still a vibrant and viable business model with some thoughtful reasons supporting his argument:

Growing, not shrinking, need for public access
Miguel's point I most disagree with is the suggestion that there is a decreasing need for cybercafes in Africa because of 4P Computing:

Outside of tourists locations, they seem to be drying up everywhere to some degree as more and more of us travel with laptops or at the very least, wifi/highspeed data enabled phones that can do simple browsing anywhere we go.

While he and I may travel with netbooks and iPhones, the majority of Africans do not have such electronica, nor are they buying the expensive data plans that allow for mobile web access. They closely monitor their communication expenses, budgeting for Internet access out of meager daily wages.

Yet more and more business and government services, and professional social capital is moving online. Stores like Rachels' Bargain Corner and Kenya's eGovernment initiatives require full-screen Internet access. And with Facebook driving ICT use in Africa, the next professional networks will be virtual, not in person.

So as high-speed Internet and cool new gadgets increase usage by elites, there will be even more need for average Africans to get online, economically, through public access cyber cafes offering Internet access in multiple formats.

More than decline, this is the time to invest in African cybercafes!

So, the question remains unanswered, will the industry shrink or grow in Kenya? (Sept 18th, 2011)

Like any industry, cyber cafes are not all the same. Location matters as does size, speed and the variety of services on offer.  This background work  helps us to frame the broad questions we need to uncover answers to, so as to find the patterns that will help us evaluate the influence and impact of these market forces.

What does that mean? In this specific case, where if we are faced with conflicting information, then one of the key issues to find out will be the cost and ease of access to substitutes i.e. internet enabled mobile phones, cost of data and the patterns of usage behaviour, prevalent in the locale serviced by that cafe.

We'll also need to dig up the CCK's research results and then evaluate whether these substitutes are having a greater impact on the highly visible urban locations or is this threat a longer term trend and one that will affect a cybercafe regardless of whether its rural or urban.  And finally, we'll have to actually get out there and take a closer look  in order to understand what is really happening.

The challenge of assessing the size of an emerging market opportunity

Kagio fresh produce market, Kenya, April 2013

Untapped opportunities in the developing world bring with them their own challenges for businesses seeking to invest in them.  An interesting one is that of assessing the market size and value, particularly for the lower income demographic that operates primarily in the informal economy (often called the BoP or bottom of the pyramid).  This snippet frames it well:

To begin, it is critical to understand why traditional market sizing methodologies are ill-equipped to size emerging markets. To illustrate, if a firm were to use traditional methods to size a mature market such as the coffee market in the United States, it would consider demographic trends (e.g., aging baby boomers), psychographic trends (e.g., increased health consciousness), past sales trends and consumption rates, price movements, competitor brand shares and new product development, and channels/retailers among others. However, conducting such an analysis for emerging markets presents a challenge as several of these factors (e.g., past sales, demographics of the customer when there are no current customers) don't exist because the markets are presently untapped.

The situation is exacerbated  by lack of easily available demographic data, few formal retail channels, little consumer knowledge, and if the majority of the target audience happens to be outside the urban population centers, even lack of basic infrastructure like roads. One must begin from scratch. Can any rules of thumb be developed as we increase our understanding of the next few billion customers?
This conversation will continue.

Republishing the Village Telco series from Nov 2011 covering internet diffusion and innovation adoption across rural and peri urban Kenya

Masaai moran capturing opinions onland rights protest in real time video to FaceBook, Narok county, Kenya. March 2012

Due to the nature of the current project, now that we're wallowing in all the data collected from the field in rural Kenya and rural Maharashtra, I find myself wishing to reflect upon the writing from the Village Telco project conducted for Steve Song in the Kenya informal internet cafe "cyber" industry. 

After full publication, I'll collate them here: