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We Need to Create Business Models that Deliver Value to Overcome the Digital Divide

By Guest Writer on November 25, 2015

digital-divide_business-models

Huawei recognizes the urgent need to reduce the deepening digital divide between those who benefit from connectivity and the internet, and those who don’t. Our new White Paper, Digital Enablement: Bridging the Digital Divide to Connect People and Society, released recently, shows that sustainable business models which create value extend the benefits of connectivity to more people more effectively than traditional models that give away services free of charge.

We also recognize that finding sustainable business models can be a challenge. We suggest two changes to current development thinking to make the processes easier and the business models more effective:

We need to rethink how we (and others) value connectivity and its benefits.

digital-divide-business-models

This requires accepting the premise that a project is unsustainable unless it provides services that are valuable enough for someone to pay for. Most digital enablement programs do not provide such value, and consequently fail to cover their operating costs. To make programs sustainable, organizations must adopt a more commercial, revenue-oriented model. Here are several ideas:

  • Monetizing an organization’s assets such as relationships, trust and networks with consumers, as well as distribution channels and data
  • Finding new types of payers – from consumer goods advertisers to banks, online content providers and governments
  • Accepting payment in installments, or with revenue-sharing arrangements, commissions, cross-subsidies, or freemium models
  • Finding faster routes to scale by distributing or selling through agent networks, franchises, mobile network operators, charities or strategic partnerships with other sectors.

Although unconnected populations are often poor, digital enablement projects should not necessarily aim to provide services free of charge. Instead, they should focus on creating services valuable enough that some beneficiary will pay for them. Ideally consumers should pay something, even if the amount is small.

When someone pays, there is a feedback loop. Services are forced to show they are worth paying for, which improves quality. In addition, they get the feedback they need to keep improving the offering. This, in turn, drives further adoption. When we focus keenly on providing worth paying for entertainment with Svenskkasinon online casino, we are forced to anticipate market demand; then, as we build a solution, we are forced to ensure that we meet the needs of our target market.

If consumers cannot pay, they should still invest something – time, desire, commitment, movement, behavioral change – to demonstrate that they value the service. If services are paid for by a government or another third party beneficiary, they must be backed up by a model that creates value. This ensures that the services can be funded through a fee-for-service model, and not as a grant.

We must think harder about how connectivity can benefit third parties other than consumers.

For example, connectivity can reduce costs, prevent problems, and create value in other ways. Recognizing this (sometimes not-so-obvious) value is a key to unlocking new funding, partnerships, and business models.

If connectivity enabled electronic voting, for example, the increase in efficiency would save governments time and money by removing the need to send paper ballots to inaccessible populations in remote areas, and then count them by hand. Enabling more payments to take place digitally could also bring new forms of tax revenue, and uncover new data – often in countries where both are sparse.

Connectivity can also improve public health including – lifting vaccination rates, for example, by sending electronic reminders and then monitoring progress by linking with electronic medical records. Such digital systems could prevent deadly outbreaks of disease and reduce treatment costs.

Third-party benefits are intrinsically linked to consumer benefits. Focusing on value creation by all stakeholders ensures that the whole ecosystem benefits, thereby greatly increasing the chances of an ongoing revenue stream and a sustainable business model.

In our Digital Enablement: Bridging the Digital Divide to Connect People and Society White Paper we provide two simple tools that can help organizations develop a sustainable business model and rethink their value proposition to find new sources of revenue. Download it here.

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4 Comments to “We Need to Create Business Models that Deliver Value to Overcome the Digital Divide”

  1. I agree with the premise of this piece but there are a few things that could have made the argument clearer and more persuasive.

    First, it would be useful to distinguish between public consumers and private consumers. While the basic principle that the users should pay something applies to both, the application is different in each case. The piece seems to be referring to private consumers, but often in low access environments public institutions lead the way by introducing internet in schools, health centers, and other public places. Because of their role in knowledge transfer and demand creation, schools are especially pertinent.

    Just like private consumers, schools and other public institutions must budget and pay for running and maintenance costs if the services are to be sustainable. But the process for doing so and the sources of finance are quite different from a commercial consumer model. Even with community organizations that finance activities through fees, there will almost always be a need for some level of public subsidy if the institution primarily serves the poor.

    For decades advocates of the private provision of public services have envisioned a demand model where public services are financed through user fees. I have never seen evidence that this is a sustainable model for modern public institutions that serve the poor. Institutions can cover some costs (typically in my experience this will be in the range of 25%-40% of operating budget), which is great, but still far less than what is required to sustain an institution. That said, some of the financing techniques used in commercial models, such as pay as you go accounts, could be used by public institutions.

    Second, I would have liked to see the author acknowledge more directly that in many cases sustainability in very low income settings requires a “hybrid” model that includes some form of subsidy. The author tacitly acknowledges this by saying consumers should pay something, but it would have been better to explore the commercial and financial implications of the hybrid model. Is a subsidy required only during the period of demand creation where the objective is rapid expansion of access and adoption in low income communities? How does the need for a subsidy affect the financing model?

    Finally, the alternative argument would be that internet connectivity is now a basic public good that should be provided to consumers for free or at very highly subsidized prices. There might be an interesting parallel with the history of distributing treated mosquito nets. For over two decades sustainability advocates pushed a “social marketing” model that argued sustainability in the use of bednets to prevent malaria would only be achieved through a consumer business model. The exact same arguments about individual benefit, compelling interest, consumer demand, and valuing something that is paid for were used to support this approach. The counter argument, often made by developing country Ministries of Health, was that there was an over-riding public health interest in ensuring that all people, regardless of purchasing power, had access to free bednets. This was finally decided when the international community set up and funded global anti-malaria programs to distribute free bednets on a mass scale.

  2. Adam Lane says:

    Hi Patrick
    I fully agree with your first point. Public institutions do need an ongoing budget and I agree that there often needs to be some level of public subsidy – some contribution towards the costs though does help drive some local ownership. And you are right, some innovative financing models may come into play more in the future. For example, if the BYOD concept grows in developing countries (which could then enable the use of devices at homes, for adults and so on) then users may buy their own device, or pay some part towards the device and this would almost certainly have to be in installments. Such a solution may be good for device safety at schools whilst increasing the utilization of the device and reducing the cost to the school too.

    I also agree that more hybrid forms of financing are necessary, and would like to explore this further in the future. As I hint at in the latter end of the article, I could see a world where different stakeholders contribute together in interesting ways, and not just governments: for example devices could be provided with subsidies provided by a bank, a consumer goods company, a mobile operator and others as part of their marketing budgets (and possibly with some commitment to certain service requirements or loyalty aspects). In a sense some of the emerging loyalty schemes like Mpaani are taking this approach. The question of subsidies is a very important one, which we should pursue further. With smart monitoring of usage, mobile money and other tools, it can be possible to enable a number of innovative options that are almost “freemium” in nature.

    I do see a strong line of argument around providing internet access as a public good, but I do not see many parallels with mosquito nets. Connectivity is a service, not a product. Firstly, we’d need to define how much internet should be given for free (in terms of data), how fast should that be (and when should speeds/technologies be upgraded), and are devices (shared or private) provided to? There is certainly something to be said for the provision of some form of free internet access in public spaces that can be accessible to all, though it is only a start. For some it may spark the purchase of their own internet if they can afford it, but for others. Shared access is not the solution by any means due to the lack of convenience/usability and likely restrictions on use (streaming educational videos for example), but it is better than nothing.

    Then there is the question of the services provided over the internet, whether it is agriculture, education, training, job searching, health and so on. All of these need to be tailored to varying degrees, actively managed, updated, provided in multiple languages (and maybe technologies/formats) etc. Potentially governments could subsidize or run these but most likely they would not be very successful and certainly without a strong customer feedback loop may not meet actual needs.

    These are important questions that you raise and certainly worth exploring further.

  3. Thank you for this document. it very clear to meet and inspiring

  4. I find it useful to distinguish between a mission and a business mode in sustainability discussionsl. The beneficiaries in the mission may or may not be the customers in the business model: from a business perspective, they may be (as they are for FB) more nearly the product. The key questions here are what is the organization selling, to whom (its business model) vs. why is the organization in the business that it’s in (the mission, which for a social business may be to benefit the end user). Without applying this distinction, we could spin our wheels without much traction over the issue of contributions (of monetary or whatever sort) from end users.

    In the special case where community with end users is the organizational goal, then some contribution would be required from them: no community is possible without it. But that is a separate issue from the business model, which may or may not require contributions from end users. It could even be that contributions from end users/participants is required in spite of the economics, which might flow better when end users are incentivized to participate in ways that fidelity to the mission precludes.