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The Digital Divide Will Not Be Bridged By Business Models Alone

By Guest Writer on December 7, 2015

digital-divide

Reading through “To Really Help the Global Poor, Create Technology They’ll Pay For” in the Harvard Business Review, I was conflicted by the main point made by Alex Deng, Chairman of Huawei’s Corporate Sustainable Development Committee, that for many ICT4D projects to scale beyond a pilot there needs to be some sustainability plan on how those projects will become self-sufficient in the long-term.

For many projects, revenue generation will remain an elusive if not impossible goal precisely because they address needs that exist in the spaces between business opportunities. Many will always rely on funding from outside sources, from charitable donations, from volunteer labor of some sort.

Yet, Deng has a point; if not revenue, there needs to be some sort of idea on how these projects will continue past their initial funding cycle, as he states:

As simple as it sounds, development projects need revenue. Many organizations aim to narrow the “digital divide”: the socioeconomic gap between people with Internet access and the skills to make use of it and people who lack those resources. Using information and communications technology (ICT) for development is fairly common, but surprisingly, most digital divide projects don’t generate revenue. Some projects seem never to have been designed as anything other than pilots: they remain limited and local, delivering only marginal benefits.

If Deng is equating lack of revenue with perpetual pilotitis, then I see the point, although I believe it to be sweeping beyond the point of usefulness. What we have here, as far as I can see, is an incorrect positioning of where technology fits into this process. Deng’s assertion that ICT4D projects need to generate revenue assumes that revenue can be generated at the technology level (either technology itself, applications, software, or infrastructure) or at the use level (either by individuals or governments).

I am not saying this cannot be true, but I think it demonstrates a misunderstanding of how technology serves these projects. The technology itself isn’t the focus as such; it is one agent in a larger system that stimulates the objective being done. And monetizing this activity undercuts the advantages being presented to those most bound to the negative aspects of the digital divide, as this quote from Tony Roberts suggests:

Provision of ICT4D on a fee-paying basis inevitably confers advantage on those with existing cash. Where the objectives of ICT4D initiatives include reaching people under-served by existing market mechanisms then mechanisms other than the market need to be found.

Again, this is the crux of the argument. To address the digital divide and those pockets of the underserved that have been failed by the market, it seems illogical to address that by turning to the very thing that assisted in generating the divide in the first place: the market. This isn’t some anti-market diatribe. The market indeed has much to offer emerging economies and ICT4D projects, particularly in terms of project feedback, which Deng accurately picks out in the following:

By charging even a small amount, ICT initiatives get a clear signal about how to adapt their offerings in response to changing conditions. Without this feedback, they operate in a vacuum of good intentions, insulated from the market and ultimately cut off from the very communities they are trying to serve.

Agreed with on the whole, but I am not sure how that cuts off these projects from the very communities they are trying to serve precisely as the very communities they are trying to serve are often beyond the pale of market reach.

If one wanted feedback on market awareness, particularly on what those most affected by the digital divide would be most willing to pay for, I suspect a good place to start would be to gather feedback on what they are paying for now. Where does your ICT4D service fit into that equation? How much expendable income is left over to invest in it? If the answer is none at all, then your funding sources automatically turn elsewhere, ie. Deng’s feedback collection turns elsewhere, however, to determine the best approach:

To determine the best approach to using ICT for development (or ICT4D, as it’s sometimes called), Huawei recently interviewed 150 telecom operators, government bodies, regulators, NGOs, and social enterprises in 11 countries. Many people we spoke with said there were simply too many projects that were based on good ideas but lacked adequate funding. Some countries have grown so frustrated with small, unsustainable pilot projects that they have actually banned them: Uganda, for example, which has only one doctor for every 25,000 people, has issued a moratorium on new mobile health initiatives.

Therein lies the problem. While the situation described in Uganda is a real (and painfully common) manifestation of too much cash available only as yearly or short-term expenditures (foundations, large NGOs, etc.), too little oversight (need for country-level M&E of ICT4D projects) and not enough collaboration (aside from the lack of PR benefits, how many of these projects could be combined?), I am not sure the counterbalance to that situation is a revenue-driven ICT4D economy, or least not exclusively.

The telecom operators, government bodies, regulators, NGOs, and social enterprises are stakeholders, surely, but not the only ones. Community-oriented feedback, at the most granular of levels, might balance this revenue-only model a bit. Ultimately, it will be a balance between revenue and philanthropic work. One goes where the other cannot, and vice versa. So they work in some sort of symbiotic balance, ideally.

You may also be interested in Huawei’s report Digital Enablement: Bridging the Digital Divide to Connect People and Society

By Michael Gallagher of Panoply Digital and originally published as ICT4D as revenue generator: complications in serving the underserved.

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One Comment to “The Digital Divide Will Not Be Bridged By Business Models Alone”

  1. Adam Lane says:

    Dear Michael

    Thank you very much for this post about the article published in the Harvard Business Review by Alex Deng at Huawei. We agree with much of what you say in your post. .

    In the HBR article, we sought to emphasize a few particular points about the need for business models: first, that any ICT4D project needs a business model, and second, that the beneficiaries should ideally contribute something in exchange for whatever value they receive. This both makes a project more sustainable and generates feedback that can improve the project going forward.

    In our recent white paper (though not in the HBR piece), we add a third point, which is that even if the beneficiary does not (or cannot) contribute, someone else should contribute in a way that is sustainable – not just, for example by providing a grant.

    This means that the “someone else” – whether a company, a government, or some other organization –
    is contributing in a way that renders the project sustainable. Often, this party contributes because it receives some type of benefit. For example, a government may fund a project in perpetuity because doing so improves healthcare delivery, reduces social welfare costs, or achieves some other beneficial goal. This is thus a fee-for-service, not a grant. If the project provides poor service then next year the funding should go to a rival service; but if the service is suitable and the government goals and budget consistent, it is a sustainable revenue source.

    Similarly, a company funds a project like The Audrey Pack because of the marketing benefits they get, and will continue to get as long as they provide funding.

    We agree that ICT on its own cannot be the entire solution; indeed, such an approach is often the reason that projects fail. However, we do believe there are a number of financing arrangements that can evolve to overcome the issue you identify regarding the under-served who lack cash. Those arrangements could include flexible payment options (loans, micro-payments, payments at harvest times, subsidies) or redirecting existing funding into more productive uses, as with the M-Kopa example. The question we all need to consider should be how to create a solution that enables the under-served to pay for a service, or is valuable enough that someone else decides to pay.

    For example, if an agricultural information service really enables productivity growth, there should be options to utilize some of that extra income the user gains to pay for the service; or if the service benefits the mobile operator by retaining active users, then the mobile operator should be willing to fund the service to retain its user base.

    As mentioned in the article, the key may not just be to have users pay for a service, but also to develop pilot programs in ways that test business models, not just technologies or impacts. Philanthropic funding still has an important role to play in seeding innovations, covering certain costs to scale-up (until a service is more sustainable) or evaluating impact (which a service may not be able to afford with its own revenue). But providers of philanthropic funding should pay more attention to the business models of initiatives they fund, to ensure that those initiatives have a sustainable impact.

    We would hope that philanthropic and revenue-based solutions can work together, rather than in different contexts. Few revenue-based solutions were successful without some philanthropic funding at some point. Many solutions blend both, either by subsidizing certain users from profits elsewhere, or by using philanthropic funding to extend new services to under-served groups and leverage off revenue-based platforms.

    Revenue-driven ICT4D on its own is not the answer. Government policy, government use of ICT, and government willingness to pay for and implement ICT all play important roles as well. Naturally there will be major variations between different countries and even within countries too.

    Your comments and analysis are important as we all work to identify the best solutions and implement them effectively for sustainable impact.

    The White paper can be downloaded from http://www.huawei.com/minisite/digital-enablement

    Regards
    Adam