Last week, during an industry analyst conference call, Facebook CEO Mark Zuckerberg unveiled Facebook Lite for low-end Android phones, or those that connect at 2G speeds. The new app requires only about 30MB of space and is intended for use in emerging markets. As a ‘light’ version of Facebook, it does not have the capability to support advertising and therefore is not as profitable for the company. An analyst on the call questioned Zuckerberg as to why Facebook is expending resources on this app, and other initiatives such as internet.org, without an immediate expected return on investment. Zuckerberg shot back:
“It matters to the kind of investors we want to have.”
Like many companies, Facebook is looking toward frontier and emerging markets as an avenue to expand its user growth, and is investing in infrastructure and services now in the expectation of long-term success. Other large corporations, having already achieved saturation levels in mature markets, are also seeking to expand their presence in the developing world as a critical element in their long-term growth strategy.
Facebook’s growth potential, in particular, is enormous. Of everyone on earth that is connected to the internet, 43 percent use Facebook on a monthly basis, accounting for 1.23 billion active users. However a McKinsey study has found that 4.4 billion people remain without access to the internet. Even if the 43 percent rate drops significantly among the unconnected 4.4 billion, Facebook has an opportunity to double the number of monthly users to its site. Google and other mobile tech companies are eyeing these potential 4.4 billion consumers closely as part of their long-term growth strategies.
While the appeal of this ‘next 4.4 billion’ is impossible to ignore, the correct way to execute such a growth strategy in emerging and frontier markets remains much less obvious.
The high cost of laptops and desktops, coupled with unreliable electricity in developing economies, has led to a commonly-held belief that smartphones will be the best medium with which to connect these billions to the internet. The adoption rate of smartphones is growing quickly and they are being introduced at more affordable price points. In 2013, for the first time smartphones accounted for more than half of the global mobile phone market, and Techcrunch reports that, in just three years, most Africans will own a smartphone.
The mobile industry’s trade body, GSMA, forecasts that there will be six billion smartphone connections by 2020, accounting for two-thirds of all connections to the internet, excluding the ‘internet of things’. Approximately 80 percent of these smartphone connections will come from developing markets.
As we detailed here, even older ‘feature phones’ have had a transformative impact on the lives of many in the developing world, spurring innovation and delivering access to healthcare, and also empowering farmers and educators. With the power of the Internet at their fingertips, individuals, families and entire communities will be further empowered.
Yet much still needs to be accomplished in order to connect these billions of individuals in Africa and throughout the developing world. According to McKinsey, between 1.1 billion and 2.8 billion individuals cannot currently get online via the mobile network because they do not live within sufficient mobile network coverage.
While Facebook and Google are working on futuristic, large-scale plans to develop balloons and drones that connect individuals in rural areas to networks around the world, we recently profiled one company that is already doing this. Endaga, a telecom hardware startup, is working to build profitable networks in some of the world’s most remote and inaccessible markets such as rural Indonesia and Somalia.
Perhaps the best strategy for deployment of mobile services can be found in an investor letter where Mark Zuckerberg famously declared,
“We don’t build services to make money; we make money to build better services“
The deployment of smartphones and mobile technology in frontier and emerging markets is sure to have a transformative impact on the lives of billions. As Facebook, Google, and other companies are discovering, these developing economies hold similarly transformative potential for their own long-term growth potential.