Sunday, June 8, 2014

From ICT4D innovation to real solutions to Africa's problems

ICT4D (Information and Communication Technologies for Development) refers to the use of Information and Communication Technologies in the fields of socioeconomic development, international development and human rights (Wikipedia). The enthusiasm generated around ICT4D is real and it is clear that economic development can be accelerated and reinforced by access to information resource. However ICT4D has also generated some controversy. In this blog, I addressed some of those concerns in the following postings: The Unbearable Lightness of ICT4Development and Is ICT4D going to change Africa? or is it ICT4B .

In discussions about "how can ICT4D help Africa?", by far the most used example is the one of the African farmer who can now access the prices he can get for his crops on the market through ICT4D innovations using Internet. In fact the farmer could simply call friends in the city where the market is and get the prices. This simplistic approach is ignoring the major problem, and that is how can the farmer get his products to the market and get a fair and best price? Farmers loose one third of their crops between harvest and sales due to bad warehousing and transportation conditions.

A new organization the East Africa Exchange (EAX) established here in Rwanda is addressing that problem. (The following description is mostly taken from EAX's website and press releases.)

EAX is a subsidiary of Africa Exchange Holdings, Ltd. (AFEX). AFEX’s vision is to create lasting institutions that will capitalize on Africa’s agricultural potential, support African farmers, achieve food security, provide energy security and improve Africa’s overall global trade and capital market competitiveness. AFEX’s goals are to transform agriculture by creating more bargaining power for smallholders, including access to information, storage, and finance; increase Africa’s global trade competitiveness by building economies of scale; and deepen Africa’s capital markets by creating greater liquidity.

EAX offers the following services: Warehouse Operations, Trading, Warehouse Receipt Financing, Clearing and Settlement, and Risk Management and Compliance. 

EAX is providing professional warehouse storage and inventory management, including moisture testing, drying, cleaning and weighing of stock prior to storage to reduce storage losses. It’s expected that good storage management will translate into better revenues for farmers.

EAX recently signed a cooperative agreement and  memorandum of understanding with the Rwanda Ministry of Agriculture and Animal Resources (MINAGRI) to work together to provide grain storage and warehouse management services in support of farmer cooperative groups across Rwanda. Part of the agreement includes the Exchange managing thirteen (13) warehouses which have been set up by the Government of Rwanda around strategic production areas under land consolidation.  

EAX and the MINAGRI will participate in the development of agricultural value chains, particularly farmers, ensuring that farmers have access to more diversified markets beyond just the ‘’farm gate‘’ to improve their chances of securing a better income and reward for their toils. The partners also seek to transform small holder farmers from rural agriculture to commercialization.

The Exchange will provide electronic warehouse receipts, so that farmers could trade their grains through EAX world class trading platform with the help of EAX brokers. EAX operates a fully automated trading platform where participants can buy and sell products from the convenience of their location of choice, or trade from trading terminals provided by the Exchange. The trading platform is powered by NASDAQ OMX and can facilitate auctions, reverse auctions, spot trading, forwards trading, and futures trading. 

The farmers could also use their electronic warehouse receipts for loans from the Exchange’s partner banks.

An ICT4D internet portal providing access to market prices in the city for farmers is nice. But it only scratches the surface of the problem and may look "unbearably light". The EAX approach is much more comprehensive and involves more complex problems to solve, including the building of quality warehouses, the use of the NASDAQ trading platform, the delivery of electronic warehouse receipts to farmers than are accepted by banks as collateral for loans, etc. But that is the price to pay if we want to really solve the problem instead of creating false hope.

In addition to real solutions another requirement for success is leadership. Paul Kukubo, the CEO of EAX has a history of success as the the founding Chief Executive Officer of the Kenya Information and Communication Technology (ICT) Board. Paul has led the team that developed the Kenya National ICT Masterplan 2017, and was a leading member of the Konza Technology City Master-planning team. His leadership is another guarantee for the success of EAX.

Seeya later alligator...

Thursday, May 1, 2014

Is the Western development model appropriate for Africa?

The measure of development

In the Western conception, underdevelopment is seen as an objective condition, identifiable by a set of criteria or indicators such as red spots on the face allow the physician to diagnose measles. These indicators show a poor performance compared to the situation of countries described as developed. Some indicators used to quantify underdevelopment are per capita income, literacy rates, life expectancy, birth rate, distribution of the labor force between agriculture, industry and services, etc.

The indicator most commonly used because it summarizes all of them is the per capita income, that is to say the relationship between national income measured by the gross domestic product (GDP) and total population. For the record, the GDP is the market value of all officially recognized final goods and services produced within a country in a year. The GDP per capita then is a measure of the wealth produced and available in average per capita. To facilitate international comparisons, it is expressed in a common currency: the U.S. dollar.

Countries whose GDP per capita income is less than $ 1,500 are considered underdeveloped. Until the 1960s, a large gap separated the developed countries from the underdeveloped countries. Today, there is an intermediate category,  the “newly industrialized countries ", with a per capita income of 1,500 to $ 5,000 sometimes called the emerging markets. Included in this category are "dragons" in the Far East and the major Latin American countries. Despite their relatively high income per capita, these countries still have characteristics of underdevelopment, especially in social and income distribution.

Underdevelopment perceived as a "lag"

The development of the “Western world" has often been identified, including by economists, as technical progress, increasing the production of goods, to raising the standard of living. And there is no doubt that the implementation of the great discoveries and modern technology has allowed, in two centuries, to multiply by more than twenty the per capita product, which is unheard of in the history of the planet.

"Modernization" of the West is carried out according to an economic and social "model" proposed as an example, namely liberal capitalism, which is characterized by:
- Entrepreneurship
- Rational economic calculation
- A profit-oriented mentality
- The spirit of competition between elites
- The critical importance of private enterprises as an engine of growth
- The role of the State or the close cooperation of the latter with private enterprise.

From there, underdevelopment was naturally conceived as a “lag to catch up “, which is a Western-centric vision because it idealizes the Western model. Development would therefore be for the developing world to "modernize, that is to say, first implement the factors that made the success of the West, including its techniques and management methods; secondly, remove obstacles that oppose it like traditional religions, archaic social structures, etc. ; you can’t make an omelet without breaking eggs!

Such a model "justifies" the language of developed countries, and the forms of aid they offer: “helping” underdeveloped countries to "catch” the developed countries.

Taking apart the Western development model and measure

In the GDP/Capita fraction, the numerator and denominator do not count the same amount of people. The income is earned only by those who work while the denominator represents the total population, including children, the elderly, and the unemployed. But the relationship between "active” and" inactive” population is very different in developed and developing countries. For example, the population between the ages 15 to 64 which represents the number of people who could potentially be economically active is 67 percent in the USA versus 54 percent here in Rwanda. In sub -Saharan Africa, 43 percent of the population is below age 15 compared to only 16 percent in Europe. In addition unemployment is higher in developing countries, particularly in Africa, than in developed countries as indicted on rate of unemployment maps. Therefore there is a big difference in the denominator between developed and underdeveloped countries to the detriment of the latter ones.

As for the numerator, some elements are not counted in the GDP.
This is particularly true of certain personal services. In the West, the entry of women into the labor market has generated a range of services that are counted in the GDP. The more a country is "developed", the more personal services are marketed: hair salon, laundry, catering, entertainment, etc. In underdeveloped countries, these services are executed by housewives and are not counted in the GDP. For international comparison, it would not matter if the percentage of goods and services ignored by the national accounts was everywhere of the same order of magnitude. But far from it, and unfortunately the GDP of underdeveloped countries is systematically undervalued.

On the other hand, some elements are not subtracted from the GDP.
The development is ambivalent: it has its downside. GDP should be estimated using the accounting rules, i.e. having assets and liabilities, and only the balance should be taken into account. Unfortunately, macro economists do not know the sign “-“, they always add.
But in the so-called developed countries, huge amounts are spent to repair the damage of the “Western Development”:
- Car accidents;
- An unbalanced and too rich diet (too much sugar, fat, alcohol, tobacco) which generates medical costs due to tooth decay, cancers, cardiovascular diseases, etc.;
- Adverse effects of television that have an impact on crime, school performance, sociability;
- Pollution in all its forms;
- The absence of both working parents in the family cell that creates social problems among youth who engage in drugs consumption.
All these give rise to nuisance activities that are recognized positively in the GDP. Again, from the point of view of international comparison, it would not matter if the same phenomenon appeared with equal intensity in all countries. But it is not so: those problems increase with the GDP, perhaps at an accelerated pace. To the point that the Club of Rome sounded the alarm in a report with the provocative title “The Limits to Growth“ by Donella Meadows. One should in any case make a clear distinction between GNP (gross national product) and NNP (net national product), and for a number of countries, this may call into question the growth, at least in its current forms.

How is it that countries add those nuisance activities to the positive side of the GDP? Such an attitude can be explained – I didn’t say justified - for several reasons:
- The increase of GDP is used by governments to measure their performance; politically they will not give it up easily;
- A clear perception of nuisances should logically lead to policy development, heartbreaking changes: for example, favoring public transportation to the detriment of the automotive industry, but 2.5 million citizens living in the US, - voters and their families-  are working in that industry;
- Logically, the cost of the removal of pollution should lie with polluters, compromising their profits; but this is a politically powerful group.

The wrong assimilation of happiness with wealth

Being a " Chrysometer" (“chryso” means wealth in Greek) or measure of wealth, the GDP/capita indicator implicitly assumes that happiness depends on wealth, understood as the accumulation of material goods. This concept expresses the materialistic aspirations of a major part of the Western world in its evolution over the last century. If this chrysometer is used to measure the level of development, the Western world easily appears as “higher” civilizations than developing countries. Does it justify imposing it on developing countries? For a more developed answer see my posting on Can we impose our values to other cultures? It also calls into question these benchmarks. From the perspective of anthropology, each civilization "traditional" is considered original, capable of performing its own performance against which the West is sometimes well back. How can we not appreciate the “sociability “of the Negro-African world, compared to the western neurosis generating hyper-individualism?

The Western development model

The historical development of the development process in the Western industrial economies "should" happen again, with just a time lag in the developing world economies. This belief assumes the universality of needs (liberal theory).
Whatever the circumstances of time and place, at every level of income in a market, there should be a corresponding typical demand structure, and in businesses, there should be a typical combination of production factors. This design is unacceptable.
Beyond the basic needs (food, protection from the cold, etc. . ), to which different civilizations provide a variety of responses, it appears that it is the socio-economic system, namely the state of productive forces and social relations , which determines the needs within a given society. The Western development therefore mostly addresses the needs entirely fabricated by a system in which goods are estimated, not by their usage value, but by their exchange value, that is by the benefits they provide to the production system. Today one can doubt that the production structure corresponds to "real" needs of the greatest number. A recent paper published by Princeton researcher Martin Gilens shows that in the USA the government followed the directives set forth by a small number of individuals (the rich, well connected and the politically powerful, as well as particularly well placed individuals in institutions like banking and finance) much more often than the preferences of the average American. This might explain why mandatory background checks on gun sales supported by 83% to 91% of Americans aren't in place, or why Congress has taken no action on greenhouse gas emissions even when such legislation is supported by the vast majority of citizens.

People in the Western world have become aware of the terrible ambiguity of the liberal economic progress guided by profit maximization. While there is no denying of its contribution to social progress, what about its failures, its physical and psychological damage? It is now feared that its cost exceeds its usefulness.
Exacerbated needs: we always want more, always better and in less time. Great choices are deflected by the holders of economic power: for example, in favor of the automobile at the expense of public transport.

After having tried to lecture them, should now be the time that we get inspired by developing countries civilizations to bring back home important values we have lost: sociability, needs moderation and, finally, a way of living that leaves us less helpless before death?

The impact of the Western model on developing countries

Development policy applied almost everywhere in developing countries is inspired by the Western model. It led to a “bad development” because it neglects or disadvantages the vast majority of people.
In agriculture, cash crops are grown at the expense of food crops:
a) excessive areas are devoted to cash crops;
b) they have privileged access to modern inputs (fertilizers, improved seeds) and supporting efforts.
Why? Because they provide the necessary foreign exchange money needed for imports of luxury goods for the bourgeoisie in power.
As consequences :
a) domestically : food production is in deficit and it is necessary to make food imports, which results in people - especially urban – getting  used to eating foreign food that local agriculture will never produce : wheat bread replaces millet patties or cassava preparations; imports of food negatively impacts the balance of payments .
b) at the international level : the favor granted to third world cash crops products leads to overproduction that lower prices on world markets; therefore, what is gained on quantities, is lost on prices.

In industry, Western style development of is twice disadvantageous to developing world:
a) In terms of the  production structure:
Development policy gives preference to "import proxy " industries, under the pretext of improving the balance of payments. However imports are largely composed of luxury goods for the benefit of a minority of wealthy citizens. The local industry therefore produces cars and household appliances instead of small agricultural machinery for example.
b) In terms of the production functions: developing countries buy "turnkey " plants, following the Western model, i.e. not adapted to local specificity;
i ) Production factors are capital intensive and require skilled labor, which does not correspond to the factors available in country;
ii) As a consequence, companies have a high break even threshold and often function only at a small percentage of their capacity; as a result, their costs are excessive and they can’t be competitive, they must be overprotected; their products are more expensive and less satisfactory than imported products;
iii) The domestic industry depends of inputs from abroad (raw materials, semi-finished products, spare parts) generally overpriced and payable in foreign currencies.

So is the developing world right to be inspired by the western development model?  In many ways, it is an anti-model.

PS: This posting is mainly inspired by a course on "Economic Analysis of Developing Countries" taught by Fernand Bézy in 1990.

Seeya later alligator...

Thursday, April 3, 2014

Why IBM's Watson Cognitive System Could Be More Successful in Africa than in America

Last month, IBM launched "Project Lucy", a 10-year initiative to bring Watson and other cognitive systems to Africa in a bid to fuel development and spur business opportunities across the world’s fastest growing continent.

Cognitive computing systems learn and interact naturally with people to extend what either humans or machine could do on their own. They help human experts make better decisions by penetrating the complexity of Big Data.

Watson is a cognitive system that became famous with its 2011 win in a contest against two of Jeopardy's greatest champions.  Jeopardy is an American television game show that features a quiz competition in which contestants are presented with general knowledge clues in the form of answers, and must phrase their responses in question form (Wikipedia). For example when proposed with the following clue: “It’s the only American state lying south of the Tropic of Cancer”, the answer should be the question leading to that clue: “what is Hawaii?”.

The Watson win is sometimes compared to another IBM technology victory between IBM’s Deep Blue system and world chess champion Kasparov in a televised chess game, yet the Watson win was quite different. Deep Blue was a "brute force" system programmed to anticipate every possible answer or action needed and that could examine 200 million chess positions every second. Watson instead was trained using artificial intelligence (AI) and machine learning algorithms to sense, predict, infer and, in some ways, think using a large volume of data. Watson had access to 200 million pages of structured and unstructured content consuming four terabytes of disk storage. The sources of information for Watson included encyclopedias, dictionaries, thesauri, newswire articles, and literary works. Simply put, Deep Blue was the math whiz while Watson is an English major.

While the Watson – Jeopardy contest was showcased as human intelligence against machine intelligence for publicity reasons, the purpose of cognitive systems like Watson is really to have machine intelligence assist humans in taking on challenges together and achieving more than either could do on its own. For example Watson enables more natural interaction between physicians, data and electronic medical records through its highly sophisticated question-and-answer technology, and it helps physicians make more informed and accurate decisions faster and to cull new insights from electronic medical records (EMR). It does so by accessing and analyzing massive amount of data (Big Data) of medical information that one human being could not possibly memorize and analyze, even more so when one considers that 10 million new pages of medical information are published each year.

After Watson’s win in the Jeopardy game, IBM has been struggling turning the technology into big business and it has not delivered significant revenue for IBM yet. So, could Watson be more successful, and valuable in Africa?

I see several reasons why it could be.

The lack of data, and particularly reliable data, in Africa is hampering its development. Shanta Devarajan, the World Bank’s chief economist for Africa, struck a dramatic tone in his address to a conference organized by Statistics South Africa, calling the state of data collection on the continent “Africa’s statistical tragedy.” The lack of reliable data on Ghana's performance on the MDGs was identified as one of the major challenges facing the country’s development projects. In Kenya, lack of data hampers national economic and developmental planning. Better geospatial data access would be good news for the globe's poorest people, who are often worst affected by natural disasters. Access to historic data about market prices of crops, which show trends in crop price fluctuation, would enable better decision making on which crops to plant to yield the highest income.

The digital data scarcity described above is also the result of a "chicken and egg" situation. On the one hand there is little data available. Most data in the region is available in analog format (on paper) as opposed to digital format making it difficult to be analyzed by computer systems and cannot easily be transformed into valuable, actionable information. This is the case particularly for small and medium sized enterprises (SMEs) in the private sector as most of their business processes are still manual. On the other hand, people and institutions are not building their capacities in data analysis and statistics because of the data scarcity and the human capital, such as analysts and statisticians, is missing.  

So the first value of IBM’s project Lucy is to break that chicken and egg problem by making one of the best cognitive systems available in Africa. Big Data technologies have a major role to play in Africa’s development challenges: from understanding food price patterns, to estimating GDP and poverty numbers, to anticipating disease – the key is turning data into knowledge and actionable insight. When data is processed into valuable information, it contributes to fact-based decision making in the public or private spheres, improving decision’s quality. That is what Watson can be applied for.

Then I believe that once people will see the value of Watson’s analytical capabilities, they will start collecting more data to feed into the system to get even more value from it. And in turn this will inspire young talent to develop their skills in that area as I can see with my students when I teach them about the strategic value of digital information.

Africa’s lack of data could actually turn out to be an advantage. In America, we are overloaded with data from many different sources in various formats, structured and unstructured, some call it Big Data. The challenge has been really how to clean, integrate, load and transform that data from different sources in the appropriate format to be analyzed by systems specially programmed for it. So another reason why Watson could deliver value faster in Africa is that there is not much legacy data and systems in place as explained earlier and new data can be formatted for analysis by Watson. Watson represents a new era of cognitive computing, in which systems and software are not programmed, but actually improve by learning so they can discover answers to questions and uncover insights by analyzing massive amounts of Big Data. Once Africans understand the value of Watson, they will be incentivized to generate and collect data for Watson analysis resulting in reduced time-to-value.

Another advantage is that in Africa businesses and organizations will be using a different IT paradigm. Instead of decentralized data systems installed on premise in enterprises and public institutions as is the case in developed countries, Africa is moving straight to the new model ofaccessing or creating data from mobile Internet devices (tablets, smart phones,etc.) connected to centralized IT resources in cloud service centers. By storing data in a central cloud space we may find that it facilitates data integration and makes access to data quicker and easier . For example, the use of mobile based Point of Sales (POS) systems in retail stores connected to cloud-based services provides instant centralization of data (important especially to chain stores), and the ability to access that data from anywhere there is an Internet connection.

Moreover, the use of mobile devices for data collection may allow for capture of better quality and more relevant data since it is generated closer to its source of creation.
But I think that the main reason for the potential success of Watson in Africa will be the “infinite” value it can deliver. The use of such systems could accelerate at a rate similar to the mobile phone penetration.

When mobile phones first became available in developed countries, they were a "nice to have" technology, but not critically needed. Indeed those societies already benefited from good communications for long time with postal services, express mail services, land-line phones, faxes, Internet email, etc. So the mobile phone was just another new and more convenient communication tool.  Such was not the case in Africa. Until the mobile phone arrived, there was no communication generally available: no post mail, very few phones, not to mention very limited Internet and that lack of communication has been identified as one of the main reasons for Africa’ slow development. So when mobile phones became available, their added value was “infinite” because there was “zero” communication systems available.  As a result, the mobile phone market in Africa has grown more rapidly than any other technology in any market, reaching more than 50% by the end of 2010, less than 10 years after its introduction.

Much like mobile phone use, Watson could be a game-changer in Africa. Watson’s added value in the West is analogous to mobile phone technology when it became available in that part of the world: marginal. There, enterprises and organizations have been using business intelligence systems and analytics for long time. While Watson capabilities are superior to these “old” technologies, the added value in the West was marginal. But in Africa, Watson’s value is to be viewed relative to existing data analytics capabilities.  In Africa, such systems are practically nonexistent due to the combined scarcity of data and skills to analyze that data.  This is why a system like Watson presents an “infinite” value, which could lead to a similar penetration phenomenon than that of mobile phones.

Yet for Watson’s value to be fully realized, two conditions have to be met.

First, Africa needs more, and more reliable, data and we hope that Watson’s value will incentivize stakeholders to undertake more data collection, as explained earlier. Thecurrent open government data movement could also be a factor as government isthe major data producer in the region .

Secondly, there must be more data scientist skills available. While the mobile phone is relatively easy to use, requiring minimal skills, Watson requires expert skills even if the use of artificial intelligence is facilitating the human-machine interaction. It is critical for academia to enter the game here and for IBM to collaborate with universities to promote the development of those skills in Africa.

In the meantime, an open data movement in Africa can attract expert skills from the world to analyze its data and deliver the value that may have an immediate impact on Africa's development, thereby leading to more interest and accelerating the movement.

“Watson's cognitive capabilities hold enormous potential in Africa – helping it to achieve in the next two decades what today's developed markets have achieved over two centuries.”

Seeya later alligator...

Sunday, March 30, 2014

Africa is in need of an African App and Content Store, and can bitcoin help?

In the last 5 years, Africa has seen a fast growing number of innovation hubs, labs, coworking spaces across the continent.


Here in Kigali, the kLab has become a central meeting point for young (and older!) people passionate about ICT and working on developing mobile apps to address and solve needs in the region.

The challenge for many of these entrepreneurs is to get their solutions to the market. While they usually have good technical skills (or rather the community of them offers an incredible combined pool of skills) they are usually lacking commercial/marketing and financial skills making it difficult to sell and monetize their innovation. They need to devote a significant part of their efforts in creating their own company for that purpose.

There could be a solution to that problem: making it easy for them to publish and sell their mobile applications or content in "app stores". The app store would then automatically take care of the publishing, sales and distribution of their apps or content. There are two major "app stores" in the world today: the Apple AppStore/iTunes, and the Google/Android Play Store.

The problem is that none of these stores are appropriate for young African innovators and the African market.

First these stores offer large numbers of apps of which the majority are irrelevant to or can't be used in the African market. They are in a language (English) that most Africans don't understand, they require infrastructure not existing in most of Africa yet, and they address different needs than those existing in Africa.
Apple App Store recently hit 1 million apps, Google has 800,000. Unless these stores provide a dedicated space for African apps (which is unlikely), apps from African innovators would be lost in these huge stores. If good, they could make it to the top of rankings and be more visible, but for that to happen, their target users (from Africa) should be able to find them easily.

But here comes the next problem: to buy these apps, they will need a credit card, and that is a show stopper for most Africans.

So how can we solve this problem?

This is where I advocate for Africa to create its own African App Store platform. If such an appstore would exist, it would allow African innovators to publish their apps and have them easily accessible by African users. This will be an easy way for them to monetize their efforts and allow them to focus on more innovation instead of creating their own company.

What are the requirements for such an App Store to be successful?

Many of those requirements will be similar to those required by the Apple or Google Store. First is to put in place strict technical and quality criteria for apps to be published in the store. Quality should also imply ease of use to compensate for the low ICT awareness in the region.

Another requirement is to provide an appropriate payment mechanism. In Africa, people don't use/have credit cards. They use mobile money like mPesa in Kenya. The app store should support mobile money payments. The problem is that each telecom company in Africa has their own mobile money and that they are incompatible. For example, if you have a Tigo mobile phone, you cannot send Tigo mobile money to an MTN phone. In addition, you cannot send money outside of the country as the currency is different. The appstore platform should support all mobile money in all coutries, which is probably impossible because telecom companies are not willing to open up their mobile money system to other companies. Unless an independent organization like Swift in the banking word organizes a cross platform payment system, I can't see a solution to this problem.

This is where I'm proposing to investigate the possible use of bitcoin.

Bitcoins are a so-called 'cryptocurrency' which exist only digitally and function without the involvement of conventional financial institutions. Launched in 2008, they form a kind of virtual currency that can be transferred between users in what can best be described as a peer-to-peer electronic cash system. Bitcoins are purchased using ‘real’ currencies and then stored in ‘e-wallets’ from which payments can be made. They are universal and can be used in any country.

Not being a technical person I propose the following idea for my readers who have more technical expertise than I to comment.

An appstore is mainly about micro-payments. Typically content like songs sell for $0.99 or apps for a few dollars. Using bitcoins would make it easy to pay in any country independently of the local currency. The challenge is: how can African users buy bitcoins? Most Africans today have access to mobile money. They exchange cash for mobile money on their mobile phone which they can then use to pay for things they buy or to send to other phones through a mobile call/sms. In each country, there is an existing network of telecom representatives or counters where people can exchange cash for mobile money.

If we could find a system to transform mobile money to bitcoin, they could use bitcoins to buy mobile apps or content in the African App Store from any country in Africa.

One of the problems of bitcoin is the volatility of its exchange value. This is mainly because its use it not very spread yet and most bitcoin buy and sell activities are speculative in nature. As the use of  bitcoin extends, volatility should diminish.

But bitcoin volatility should not impact appstore transactions for the following reasons:
1) Appstore transactions are micro-transactions. Volatility is a concern for people investing significant amount of money in bitcoins, not if you spend a few dollars or less.
2) Appstore transactions are short term transactions. When the user decides to buy a song for $0.99, he or she buys bitcoins with his/her mobile money and send those bitcoins to the appsstore to execute the buy. The appstore then does the same operation in reverse (if so desired by the owner of the song) transforming bitcoins back into mobile money for the content owner. This should take a few minutes, the value of bitcoin is not going to change much during that time. The value of bitcoin here is mainly to serve as an exchange currency allowing you to get payments across country borders and currencies without the cost of international transfer usually charged by banks. In addition, banks would not allow transfer of such small amounts, and if they do the transfer cost would be prohibitive relative to the amount transferred.

So the question is: can someone develop a mobile application that can instantly transform mobile money into bitcoin and vice versa bitcoin into mobile money? I found two such applications: Kipochi and Bitpesa. However these seem to be specific to mPesa, the Vodaphone mobile money used in Kenya. Is it possible to develop bitcoin-mobile money exchange apps that can work for any mobile money in any country? Or does each country need to develop such an app specific for that country's mobile moneys?

Looking forward hearing back from you and your suggestions.

If we can solve this problem, we can implement an African Appstore and open the gates to Africans innovations with an easy solution for the monetization of their mobile apps, games or content. This could change Africa's mobile apps market and launch a new industry in Africa.

Seeya later alligator...

Sunday, March 16, 2014

"One Laptop Per Child may be done", what is the future in Africa?

The following paper appeared in VB  News this week: One Laptop per Child may be done.
While I have been critical about some technical aspects of the OLPC project, it is sad to see this project shutting down. I still believe that Negroponte's vision is the right one. But a vision without execution is hallucination, and maybe it was the execution that failed. In this fast moving IT industry it seems that OLPC was not able to adapt and deliver solutions fast enough and that they miscalculated their market. This is just my assumption as I have no information and OLPC has always been very mysterious, not posting much information on their website. This may also explain why they did not answer my recent emails.
Perhaps another mistake was to concentrate a lot of efforts on proprietary hardware instead of the content. I think that it is really innovative e-learning content that can make a difference in children's education, more than technology that changes almost month by month. Perhaps a better model is to develop that content and make it available on any technical platform, but targeting mobile Internet devices that become more affordable than the OLPC itself.
An example of such content is delivered by Mediae, an organization producing media for education and development. The challenge is the development of quality content both from a technical stand point and from an educational point of view. In Rwanda we have the new Africa Digital Media Academy (ADMA) that trains people doing just that. ADMA can train people creating good quality digital media content, companies like Mediae can help these people developing content for education and development, Rwanda is implementing a 4G wireless network across the country within one year, and affordable tablets become available on the market, It seems that the stars are lining up for a great future for e-learning. And this is not AID or charity! There is business to be done here. Alex Lindsay, founder of Pixel Corps, the Californian company that is partnering with the government of Rwanda for the ADMA estimates that the educational digital media market for Africa is a multi-billion dollar market.

Seeya later alligator...

Friday, February 28, 2014

Why $19Billion for WhatsApp could be a bargain for Facebook and what does it mean for Africa?

Facebook, the world's largest online social network acquired WhatsApp the world largest mobile messaging service for $19 billion. WhatsApp’s price tag is by far the company's largest acquisition, bigger than any that Google, Microsoft or Apple have ever done. It puts WhatsApp's capitalization (founded five years ago in 2009) higher than that of for example SONY founded in 1947.

It is this high price tag that has been the subject of most media published in the last days. The consensus seems to be that it is a brilliant move by Facebook but some called it "pricey" or some called it "over priced" like that journalist on French TV news who said that we are going back into a new bubble! 

I join the minority of people who think that $19 billion could be a bargain!

In this posting I would like to explain why and what the potential impact could be for Africa.

I can understand that for traditional economists such a high valuation does not make sense for a company that was barely making any money (they had $8.257 million on their bank account in mid 2013), that was in business for less than 5 years, had only 55 employees and never spent 1 dollar in marketing! Robert Reich, former United States Secretary of Labor declares that WhatsApp is everything wrong with the U.S. economy!

To explain that valuation we need to understand how new technologies are disrupting traditional business as we move into the Personal Data Economy. (Explaining this new economy does not mean any endorsement on my side, see this interesting blog post: "The Cost of Identity in The Personal Data Economy"). 

The Personal Data Economy and its supporting innovations

Businesses are dependent on marketing (since the mid-1950s) to find the right products for their customers, ideally for each customer individually: one-to-one marketing. For long time the notion of one-to-one marketing has been largely a myth and the holy grail for marketers particularly in consumer packaged goods industry. One-to-one marketing is almost here and this change is driven mainly by three new technology based innovations that emerged less than 10 years ago: online social networks, mobile Internet devices and Big Data.

Indeed the leading online social network organizations like Facebook, Twitter, LinkedIn, etc. did not exist 10 years ago. I remember people' sarcasm wondering why would anyone want to publicly tell their friends how they feel, what they do, what they think, what they like or not, share personal pictures or videos, etc. Well 10 years later, Facebook has 1.23 billion users (more than 17% of world's population)  who are active on their website every month doing exactly that.

Clearly, the incredibly large number (more than a billion!) of Facebook users is exceeding anything we have seen in this industry before.

One reason for the large number of online social network users is the fast emergence of mobile Internet devices like smart phones and tablets. Global unit shipment of smart phones and tablets started to exceed PCs since end of 2010.

In developing countries in particular, more people use mobile devices to access Internet than PC.  In India that inflection point happened in mid-2012. 

                                                  Source: StatCounter Global Stats, 11/12

It is clear that in the future the majority of people will use mobile devices to access Internet, even more so in developed countries due to the lower cost of those devices. And because online social network's appeal is based on the capability to share thoughts, events as they happen, mobile devices that you carry with you are becoming the access interface of choice.

Online social media collect trillions of diverse data from billions of users every day. Here are some numbers: YouTube: 100 hours of video every minute of every day, Twitter: 100 million tweets per day, Instagram: 40 million pictures per day, SMS: 100,000 SMS/sec, Facebook: 30 billion pieces of content per month. That is Big Data! And all this content is recorded and stored by these social network companies.

The real value of those online social networks is not in the service they deliver, but it is in the data they collect, reason why they offer the service for free. As Andrew Lewis said in a community weblog: "If you are not paying for something, you are not the customer, you are the product being sold!". The information contained in the social networks is a real treasure for marketers. It contains a myriad of information about each individual user making it possible to profile them into categories that can then be targeted by customized advertising: close to one-to-one marketing. 

New technology can analyze billions of pictures and automatically classify them (and thus the people represented on the picture) in relevant categories that can then be sold to marketers for content monetization. For example, they can be categorized as People (e.g. infant), Interests (e.g. golf), Travel (e.g. beach), Sports (e.g. basketball), Landmarks (e.g. Eiffel tower), Entertainment (e.g. Rock'n Roll), Activities (e.g. wedding) and more. The following people will likely receive offers for newly weds in their mail or on their Facebook page.

Those technologies can be quite accurate and capable of distinguishing very similar but yet different pictures. Here is an example of automated categorization of skying vs. figure skating pictures.

The market of techniques and technologies to analyze and transform complex unstructured data into actionable information is booming. Sentiment analysis technique can detect favorable or unfavorable opinions toward specific subjects such as organizations and their products from analyzing large number of documents or social media data. An enterprise can then combine this unstructured data analysis with its traditional data analysis and utilizes both types of information to discover significant business insights that could not otherwise have been obtained. For example, trends in the numeric data can reveal a slowdown in sales in a particular region during a certain time period. Analysis of the related documents, using sentiment analysis can discover customer complaints and product reviews, can help determine the cause of the slowdown. 

In summary, affordable mobile Internet devices have accelerated the use of online social networks allowing people to share information about themselves or things of interest to them at a pace never achieved before. New Big Data analytic technologies allow to extract insights from this large volume of data that can be leveraged by businesses to make better decisions and deliver one-to-one advertisement to their customers,  dramatically changing the way business is done is many industries.

Big Data  is the next frontier for innovation, competition, and productivity that puts the one-to-one holy grail of marketers within reach. It is in this context that we must analyze WhatsApp's acquisition by Facebook.


What has been driving WhatsApp' success?


WhatsApp is a different social network than Facebook and it brings another profile of users. How can we explain its success?

Mobile phone saw the fastest growth ever for a technology and in particular in Africa. But phone calls were still expensive for the poorest and telecom companies started offering SMS (Short Messaging Service) for a cost of typically less than one hundredth of a one minute voice call. So SMS became most popular with poor populations.

But the cost of a SMS was still very high, it was actually a rip-off! If you consider that a one minute phone call represents about 500,000 bytes of information depending on the codec you are using, an average SMS of 20 characters only uses 20 bytes, i.e. 25,000 times less, yet the telco company would charge you only 100 times less!
WhatsApp became popular because it allows their users to send text, multimedia, voice messages for free, by using the Internet to send data instead of the cellular network. They do it using a "chat app" build for the mobile phone. It allows free unlimited texting (although the cost is 99 cents per year after the first year of service), anywhere, without advertising. It also lets users communicate with people overseas without incurring charges for pricey international texts and phone calls.

Examples of other chat apps vendors are GroupMe, Line, WeChat, Kakao Tech. Almost 19 billion messages were sent per day using chat apps in 2012, compared to only 17.6 billion SMS messages. Users of chat apps were found to be about six times more sociable than texters using SMS, sending around 32 messages on average every day, compared with just five SMS texts.

In addition to its free messaging service, WhatsApp lets users chat with their phone contacts, both one-on-one and in groups. The service allows people to send texts, photos, videos and voice recordings over the Internet. They have just announced that they will add voice calls.  So while WhatsApp offers similar services than Facebook, a major difference is expressed by a WhatsApp user: "Facebook has become a junkyard of updates from people I don't really know. WhatsApp allows me to chat with my friends only when I want, saving me from logging on to Facebook and being inundated by its news feed and it's always on". 

The success of WhatsApp is also due to the availability of low cost feature phones that incorporate access to Internet (3G/EDGE or WiFI when available, non-HTTP/non-web socket data channels) and are capable of supporting third-party software like WhatsApp through platforms such as Java J2ME. This led to fast penetration of WhatsApp in emerging markets like India, Africa or Latin America. A recent survey found that 55% of mobile messaging users in India use WhasApp. Last year Nokia announced a low cost ($72) mobile phone with a WhatsApp button to access the free texting service. The cost of those feature phones is easily offset by WhatsApp free texting services replacing the "high" cost of SMS.

At the time of its acquisition by Facebook, WhatsApp had 450 million users and was adding users at a rate of 1 million a day! Their users are extremely active, sending more than 600 million photos a day -- more photos than Facebook users upload. A whopping 70% of WhatsApp users are active every day. By way of comparison, 62% of Facebook users are active daily. People around the world send 19 billion WhatsApp messages per day, including 200 million voice messages and 100 million videos.

Why did Facebook acquire WhatsApp?


In business, the biggest challenge is to find customers willing to buy your products or services. There is a cost (market research, marketing, promotion, sales force, etc.) associated with that challenge: it is the Cost to Acquire Customers (CAC). That cost then needs to be put in balance with the ability to monetize those customers, i.e. how much money can that acquired customer potentially spend with you over his/her lifetime: the Lifetime Value of a Customer (LTV). Many businesses fail because their CAC exceeds their LTV. CAC obviously varies across industries and could vary from few dollars to thousands of dollars per customer.

The price of $19 billion to acquire information of 450 million WhatsApp users is a CAC of about $42 per customer. That is a bargain in many industries, particularly compared to some of its competitors. LinkedIn's share price values that professional social network at $153 per user. Twitter trades at $140 per user, and Facebook itself is at $123. But the cost is actually lower than $42 because WhatsApp can provide Facebook with more than 450 million phone numbers as they have access to the phone numbers in the address books for those 450 million people. Here is an excerpt of WhatsApp agreement you sign before using it: "... you acknowledge and agree that you will have to provide WhatsApp with your mobile phone number... You expressly acknowledge and agree that in order to provide the Service, WhatsApp may periodically access your contact list and/or address book on your mobile device.."

More importantly WhatsApp market penetration has been significantly faster than that of Facebook in its 4 first years of existence.

The fast growth rate of Whatsapp was a major threat for Facebook and the acquisition cost was growing accordingly. So there was not much of a choice and others before like Google tried to acquire WhatsApp but the synergy was probably best with Facebook as we will see. Facebook can now merge the list of their customers with those of WhatsApp and combine the information collected about their users in Facebook with WhatsApp's information making their data even more valuable. 

But there are more reasons for that acquisition. 

First we have seen that the future is the use of Mobile Internet Devices for access to Internet. This is why the mobile advertisement market is growing at 40+%. WhatsApp users are exclusively using mobile devices providing Facebook with access to that market. 

Second we have seen than WhatsApp market penetration is particularly high in emerging markets where Facebook is lagging even if they are growing. WhatsApp acquisition extends Facebook's market leadership to emerging markets.

Third, the growth projection for WhatsApp is that they could reach 5 billion users within the next years. Their pricing strategy of 1 dollar per year which should be easily accessible even to the poorest people makes this a potential $5 billion revenue per year, probably an illustration of the "Fortune at the Bottom of the Pyramid" book by Prahalad.


What could be the impact of this acquisition in Africa? 


As WhatsApp becomes popular in Africa, it means that it will become more than extensions of people's social lives. In this High Tech business, constant innovation is required to keep ahead. WhatsApp needs to constantly create new value for its users in Africa. For example, combining social network-style services with existing mobile money systems. It has to go beyond replacing SMS to provide a range of connected services like games, virtual content, video/voice calling, e-commerce and more.

It should not ignore the local advertising culture and invest in raising awareness with a traditional media campaigns (billboards, media ads, etc.) which are still efficient in Africa. That is how Line a messaging company in Thailand was able to take over market leadership from WhatsApp.

Africa is the next frontier for many businesses. The "Fortune at the Bottom of the Pyramid" and the fast economic growth rate of the past decade has put Africa in the center of attention of many global companies looking for new growth markets to compensate for the anemic Western world market. However, the lack of data in the continent is a challenge. Shanta Devarajan, the World Bank’s chief economist for Africa, struck a dramatic tone in his address to a conference organized by Statistics South Africa, calling the state of data collection on the continent “Africa’s statistical tragedy.”

WhatsApp may soon become the largest private data data collector in Africa. While they have a "no advertisement" policy, Facebook doesn't. Consumer goods companies can't wait for it.
But WhatsApp can also become a cheap and efficient tool for data collection, I mean a tool to reach people and ask for information. Several companies entered that business in Africa: Open Data Kit, Camfed, EpiSurveyor, TextIt. However for it to work WhatsApp will need to open their system (through an API) which is not the case today, probably to protect itself from spammers. 

Another potential mover is the recent announcement by IBM to make its Watson cognitive system that famously won the contest against Jeopardy champions,  available in its research lab in Nairobi. So more data collection capabilities combined with access to advanced Big Data technology may break the data-analysis chicken and egg problem in Africa.

Communication is required for any economic development to take place. There is strong evidence that big data can play a significant economic role to the benefit of not only private commerce but also of national economies and their citizen. WhasApp can deliver both improved and affordable communication and data collection to the benefit of Africa if used appropriately.

Seeya later alligator...