Kentaro Toyama of Microsoft

Posted on December 11, 2009 / 2 Comments

I am currently based in Bangalore India, but as you can tell I’m not Indian. There’s some things which I don’t understand emotionally, though I do understand intellectually. For example, singing in the rain is an exception in Hollywood, but it’s the norm in Bollywood. I can’t muster the same joy at the rains, but the entire country gets a bonus when it rains on time. There’s a huge difference, based on a similarity. I want to talk about a few things on the same lines. My group at Microsoft India tries to understand how people use technology and find interventions. Three Myths Needs trump desires As an example. If you had 25% of your annual income to spare right now, which would you spend it on? a) travel and tourism b) a personal assistant c) a gadget or vehicle. A wealthy person would consider a personal assistant, but both of us would go for A or B. So myth number three (of 10) is that needs trump desires. BOP ‘needs’ – healthcare, education, better income opportunities BOP actually spends on – ring tones, music and movies, weddings and funerals. So people spend money on what we consider frivolous things. Automated is always better [Shows photo of elevator operator] Let’s face it, this is not a job that requires a job that doesn’t require much skill. However, there was a time where the labor for a lift operator is less expensive than upgrading the machine. There are lots of circumstances where automation is not even cost effective. Sometimes there is a user preference for human-mediated systems. How many people are as rich as they would like to be? How many are as educated? How many are as compassionate? There are 41 million pages on how to be rich. There are free MIT courses online. The Dalai Lama has seven practices online. The reason I mention this is that all of you have easy access to the Internet right now, so this suggests that something besides accessibility to information is responsible. This happens so much in development. Information is very rarely the bottleneck. Information is just one of many deficiencies in poor communities. In order to cross the digital divide you need more than just digital. We’re tempted to believe this because most other factors are in place (physical, human, etc). In the developing world most of these things are missing or insufficient. My recommendation to companies, etc is that you either need to partner with an organization willing to supply those components, or build it yourself. What I find interesting is, the cases where there are successes. I

2 Comments

Lakshaman Bandaranayakeq
December 17, 2009, 12:20 pm
I do not agree with Toyama’s assertion that there was no fortune in BoP. Contrarily Asian FMCG companies have been mining BoP opportunities with a combination of pricing X distribution startegies. It is called “Sachet” startegy. Package products in small SKUs so that the investment per purchase is low. Couple that with appropriate low cost distribution to reach low income neighborhoods.

Sri Lankan telco operators successfully adopted this “sachet” strategy (as Helani Galapaya correctly identified) to reach low income groups and low usage groups.

Toyama’s statement I suppose reflects his experience with expensive Microsoft products only.
Kentaro
December 21, 2009, 10:04 pm
Thanks for your comment. What I said was something like, “I don’t believe there’s a fortune at the bottom of the pyramid — the fortune is in the middle of the pyramid.”

On the one hand, I agree that this statement should come with some fine print, very much along the lines you mention. I concede that you can make money at the BOP.

On the other hand, I also believe that the sachet strategy is overrated as a way of making a “fortune,” and that I maintain it’s easier to make a fortune in the MOP.

If you follow the original sachet story (in shampoo in India), it turns out that the sachets created a price war between FMCG companies Hindustan Lever Ltd and P&G India, leading to a bizarre situation that continues to this day… It’s cheaper to buy 100 ml of shampoo in sachets, than in bottles — bulk purchase is more expensive than single item! Effectively, the middle class, who can’t be bothered with sachets for shampoo happily pay a higher cost. Meanwhile, while HLL gained in market penetration (and volume), they saw dramatic decreases in profit margins, and at least according to one news article I recall, even absolute net profit also decreased. (I’d love to track down a source, if anyone can confirm.) If true, this means, they lost a fortune through sachets.

Similar, if not identical, lessons will likely hold true in mobile. It’s no coicidence that the ARPU in India is <US$10, while in the US it's $50+. And, that's average… imagine what the ARPU must be for the poorest half of the current mobile users in India (LIRNEasia research?). (Frankly, I’m surprised that telcos are still eager for more customers — I’ll bet they haven’t looked at their data enough, or are just competing for market share.)

Indian telcos these days are desperately seeking VAS’s in the hopes that they can squeeze more revenue from the MOP and TOP — a strategy that makes complete sense from a business perspective. In most of Africa, meanwhile, the telcos keep their costs high, effectively barring extreme BOP usage while catering to the MOP.

To summarize, I concede that there is lots of money to be made at the BOP. But, if you’re a business whose main goal is to maximize shareholder value, I would recommend the far juicier, higher-margin, lower-hanging MOP.

(As an incidental note, let me make an even stronger statement that Prahaladian BOP rhetoric is hogwash. Some corporations have happily latched onto it, as a way to make their profit-making look good. Even in his book, out of some ~20 case studies, he can barely muster an actual for-profit business making real fortunes. This is not to say that corporations can’t have a positive effect on society. Just that, turning poor people into consumers is not necessarily the way — what works best is to turn them into producers.)