Archive for August, 2011

ICT *or* Development, Part Deux

August 22, 2011

“It is very difficult to make a lot of money by selling goods or services to poor people in a way that has meaningful, positive impact on their lives, particularly with ICT,” quoth the Jester in a previous post. In this post, the Jester explains why.

 (The Jester imagines a day when millions of college students will learn to quote the Jester when they take the mandatory course, “Technology and Society: How to Avoid the Mistakes of Your Technologist Parents, Grandparents, and Great-Grandparents,” but for now, he will have to be satisfied with quoting himself.)

The Jester suspects there is another Top Ten List in here somewhere, but for now, his meager brain can think of only six reasons why it is so difficult to make a lot of money and serve the poor by selling them stuff. And, here they are…

  • The “Two Birds” Problem: In general, it is much more difficult to simultaneously meet two goals, rather than just one, especially when there is a tension between the two goals. It is hard enough making a healthy profit by itself (ask any Silicon Valley venture capitalist). And, it’s perhaps even harder to have meaningful impact in development. So, setting the goal of both making a killing and having positive impact makes things much harder than either goal by itself.
  • The Ethics Problem: Selling to poor customers raises the question of what to charge them. In making this decision, one can lose money, break even, or make money. Obviously, the first two options do not make anyone a lot of money. If, on the other hand, one makes money, then it leads to the same question faced by Compartamos Bank and SKS Microfinance: Are they laying the conditions for commercial investment, or profiting off the backs of the poor? Muhammad Yunus says of them, “I never imagined that one day microcredit would give rise to its own breed of loan sharks.”
  • The Cost-of-Business Problem: Prahalad pooh-poohed the “poverty premium” – the higher prices that poor communities often pay in comparison to rich ones. Clean drinking water is widely considered “free” in the United States, but anyone living in Kibera will tell you it costs money and/or effort. But, he was wrong to think it represented a major money-making opportunity. The poverty premium exists exactly because poor communities are harder to serve (e.g., bumpy roads to rural villages), riskier (e.g., no credit history), and more likely to buy in small quantities (e.g., sachets). All of these factors contribute to a higher cost of doing business, and while there might be value in trying to shave off every shilling in the cost of a product, shaving is exactly what it will be.
  • The Competitive Pressure Problem: Given the above, any social entrepreneur will be at a disadvantage in the market against not-so-social entrepreneurs. Who will win the fight in the long run? The social entrepreneur tying one hand behind their back so that they can have a positive impact on their poor customers, or the pure entrepreneur ruthlessly chasing higher margins and greater share? The Jester cannot think of a single category of product in which the industry-leader is a social enterprise. (Readers are encouraged to submit exceptions that prove the rule.) Then, guess what industry leaders do to their slower counterparts?
  • The Branding Problem: In the Akshaya telecenters mentioned earlier, the entrepreneurs often faced a branding dilemma: Do they swim upstream and market to wealthier clients who are seeking a higher-class product? Or, do they target their advertising to the very poor as a social service? The dilemma is that it is difficult to both convincingly at the same time. Poorer customers are often scared off by glitzy things that seem out of their reach, anyway. Meanwhile, the last thing that the rich customers want is a product associated with poor people. Don’t believe it? Continuing the unfortunate stream of references to Snooki, the Jester happened upon a news article, which claims that luxury brands send Snooki competitors’ products as a way to lower their appeal. (The Jester refuses to divulge how he came upon this article, for fear or incriminating himself.) The lesson? It’s not easy to market the same product the same way to rich and poor.
  • The “It’s Good for You” Problem: Finally, the Jester arrives at his favorite claim: Given the choice (and there’s always a choice), most people – rich or poor – tend not to purchase things that are “good for them.” How many needs assessments in international development come back with healthcare, education, and skills training as desperate needs of poor people? Almost all of them. And, how many poor people actually pay beyond what they’re already paying for better versions of these goods? Almost none of them. And, this point is doubly true for information, that stuff that is channeled through ICTs. Normally, human beings are precariously perched between self-improvement and sloth. Then, when you have to pay for it, sloth looks pretty good.

This last point touches on the harebrained idea that poverty is something that is alleviated through consumption. Of course, consumed goods can add convenience, pleasure, and some other good things to life. And, sometimes, there are products or services that help a person earn more. But, consumption is the result of having the ability to consume, not the primary cause of that capacity. What matters in development is increasing that capacity, not selling people stuff. In short, you can’t consume your way out of poverty. (Incidentally, this is a major error in standard economic thinking, which routinely conflates the metric – amount consumed – with its underlying cause, which is income and, further, the means to earn income. Consumption correlates with income, but they are not the same!)

In the next post, the Jester outlines his simple-as-possible-but-no-simpler view of development as a way to explain that selling people things and doing development are two very distinct, even opposing, activities.  

ICT *or* Development

August 14, 2011

[The Jester is in a rambling mood. Those who wish to get straight to business should skip to sixth paragraph, just after the break.]

It’s been over two months since the Jester last wrote, and he returns with renewed amazement at bloggers who blog every week, Facebookers who update each day, and Twitterers who tweet once an hour.

It’s not that those two months have been without comment-worthy incident. The Jester’s notebook is filled with notes to self: “write post on ridiculous belief that associating with a for-profit guarantees breaking even”; “blog about non-profit crisis of faith in non-profit model”; “add Seva Mandir to list of NGOs keeping their eye on the real target of human growth”; “do Q&A entry for people thinking about an ICT4D PhD”; “spank Thomas Friedman for superficial analysis of role of IT in global problems”; etc.

So, the intention to write those posts was all there, and so was the technology. So, the Jester is left to conclude that it’s his own lack of capacity that is at fault. He will conveniently place blame on his advancing age.

Instead of starting with his backlog, which would (in the manner of the Indian rail system) cause all entries to fall behind by two months, he will instead reschedule his backlog to some as-yet-unknown future date (also in the manner of the Indian rail system), and continue with his most current thoughts. (To be fair to the Indian rail system, their on-time rates, particularly on express trains, has improved dramatically in just the few short years the Jester has known it.)

This week, the Jester finds himself in Nairobi, where he will debut a new act titled “ICT or Development: Why It’s So Difficult to Get Rich and Help the Poor Simultaneously.” Those fortunate enough to be in Nairobi can catch the talk at the iHub on Aug. 18. (The announcement does not yet indicate the time of the event, but not to worry – the Jester doesn’t know, either!) Throughout this week, the Jester will, if his advanced age doesn’t prevent him, post portions of the argument. So, to begin…


In 2004, the Jester visited some of the Akshaya rural telecenters in the Malappuram district of Kerala, India. These centers were initiated and subsidized by the state government, who sought “100% computer literacy” for the state, meaning that one person in every household should learn the basics of PC operation, e-mail, and Internet browsing. The state saw it as a development project, but unusually for communist-leaning Kerala, the telecenters were meant to be run as for-profit businesses by local entrepreneurs.

The telecenters the Jester saw on that trip varied in their apparent success. One had a row of shiny new PCs in a swanky air-conditioned office space and bustled with customers furiously working through a computer-literacy curriculum. The owner boasted that he was already making a good profit. Another stacked computer equipment floor to ceiling, so that at most one PC was actually usable. The owner said that he dragged members of low-income families in his village to his center to learn about PCs, even if they kicked and screamed. When asked about breaking even, he demurred, “What I care about is the development impact of this project.”

A year or two later, then-PhD-student Renee Kuriyan went back to the same district to explore in depth, and among other things, she confirmed what the Jester had seen informally – that most Akshaya entrepreneurs fell into one of two categories: Those who made money by marketing to richer clients, and those who had some impact on poorer clients, but made little money. A very small minority made money and served poor clients.

Since then, the Jester has seen or heard of myriad attempts to make a profit by serving the poor, or as C. K. Prahalad put it, “eradicate poverty through profits.” Yet, despite the ongoing excitement around social enterprises and the bottom of the pyramid, in actuality, it is very difficult to make a lot of money by selling goods or services to poor people in a way that has meaningful, positive impact on their lives, particularly with ICT. The Jester made a similar point last year as ICT4D Myth 4, and will delve further this week, by explaining why impact through profits is so difficult, why the development world should stop being distracted by this mirage, and what the alternatives are.

But, before he does so, he will insert a few clarifications for those contentious readers who have cued up potential counterexamples. The hope is that this will save the Jester from having to name more Fools-for-the-Day than are strictly necessary.

First, the statement contains a hedge: The Jester only says that it is very difficult, not that it is absolutely impossible to make a lot of money by selling meaningful goods or services to poor people. One or two counterexamples do not falsify the assertion. Even with the hedge, though, the Jester pushes back against bandwagon-jumpers who assume every development challenge can be solved with a for-profit solution.

Second, the thesis is about making a lot of money. A little money is easy. Of course, what is a lot depends on the eye of the beholder, but it seems reasonable to suggest that “a lot of money” is not what microentreprises make when they primarily serve poor communities. There are also some interesting social businesses, of the kind that Muhammad Yunus advocates. For example, Yunus says that microfinance organizations should charge no more than 15% above operating costs (that does not allow for profits a la Compartamos Bank in Mexico). Another example is Aravind Eye Hospital, whose sincere focus on ending preventable blindness keeps the owners from becoming Sir Richard Branson.

Third, the claim is about profit and impact made by selling goods and services to poor customers. Specifically, it excludes instances where the buyer is not the beneficiary. The most prominent cases of this are when governments or charitable donors purchase goods or services on behalf of poor customers. Here, it’s possible to get rich, as some “beltway bandits” do in the United States – these firms, so called for the circular highway that runs around Washington D.C., earn their primary income by winning development contracts from USAID, the World Bank, and other large funders. Bandits raise two kinds of issues: One, do they deserve credit for serving the poor, if someone else is footing enough of the bill to make them rich? If a Good Samaritan pays full price for a loaf of bread to feed a hungry child, does the baker get to claim to have aided the child? The Jester thinks not. Two, if the beneficiary isn’t paying, then does it count as social enterprise or public service? The Jester says public service. The only enterprise in such cases is the outsourcing of a task – that part of it is not social. Conversely, the social intent lies between the funder and the beneficiary. Anyone getting rich in the middle is a profiteer.

Fourth, the net impact must be meaningful and positive. Coca Cola is certainly making a lot money by selling to poor clients, but is their impact positive? Does the joy from carbonated sugar water outweigh the consequences of lost teeth? Is the cost of changing a ring tone really worth the money spent?

The Jester has so far avoided the possible counterexamples of the mobile phone (voice call) and M-PESA, both of which appear to be making lots of money and serving the poor. Indeed, if their net impact on the poor were conclusively positive, the Jester would concede that they are valid – and powerful – counterexamples. But, the Jester would not be the Jester if he accepted conventional wisdom without a fight. He denies, rather, that all the evidence is in yet.

He can’t help but think of the case of television, once hailed as the means to bring education to millions, but now the means by which millions self-lobotomize by watching Snooki. Mobile-watchers rhapsodize about the rapid proliferation of GPRS and the ironically named smartphone, but won’t they just become another channel for Snooki? And, what will corporations with large marketing budgets do when the world’s least educated people can transfer money by phone? It’s almost enough to make this nut long nostalgically for market imperfections.

In any case, the Jester’s core point is a warning for those hoping to get rich by selling to the poor and a caveat for those thinking breaking-even is the only, or the effective, route to scale. In the next post, the Jester will enumerate why it’s so difficult to make a lot of money by selling goods or services to poor people in a way that has meaningful, positive impact on their lives, particularly with ICT.