Milind Singh, principal at Strategy& (formerly Booz & Company), comments how telcos can join the digitalisation revolution.
Although most of the developed world today is enjoying the digitalisation revolution, its potential is only partially realised in the Middle East and North Africa (MENA), where Internet penetration is 39%, and in In Sub-Saharan Africa, where the penetration rate is 16% (compared with 85% in North America). Bringing these substantial numbers of unconnected online represents a significant revenue opportunity for telecom operators, worth an additional $400 billion globally from 2015 to 2020.
One of the main barriers to bring people online, beyond the well-known issues surrounding connectivity and affordability, is the availability of local and relevant content. In the broader Middle East and Africa region, only 25% of the population has enough relevant content to consider going online.
A key question across emerging markets is the divergence in the maturity of local content ecosystems, irrespective of the level of development of the Internet user base. In the analysis of the stages of evolution of digital ecosystems in 75 markets, three key themes emerged:
Digital content ecosystem have four distinct stages of evolution: The first stage involves building a content foundation. The second stage is when the number of users reaches critical mass as the “network effect” is leveraged; content and services become more valuable as more people use them. The third stage is when there are enough users so that content developers can monetise their offerings. The fourth stage happens when the user base continues to expand as content becomes more diversified and sustainable.
Monetisation models play a key role in ecosystem development: Most emerging markets have a structural economic challenge in monetising and sustaining digital ecosystems. Emerging markets have found it very difficult to develop deep digital content ecosystems, unlike developed markets where content developers were able to rely on either subscriber propensity to pay (e.g. e-commerce) or rely on advertising dollars (e.g. social networking) to develop content platforms. Beyond these two sources of monetisation, risk-taking by patient investors led to creation of large digital platforms, which have ultimately been monetised as a part of a shareholder exit (e.g. messaging platforms).
By contrast, in emerging markets the limited propensity of subscribers to pay for content, still small advertising markets, and a lack of patient investors are creating challenges to both start-up and scale-up companies.
Non-global network content categories are the weakest in emerging markets: Content does not develop uniformly across the six most content categories in digital ecosystems—business services, communications, entertainment, information, sharing platforms, and utilities (including government services). Certain categories, such as sharing platforms and communication platforms, which can be of global scale, are well developed and built across most emerging markets and languages. However, the utility and information content categories, for example education, health and local news, tend to be less well developed. Indeed, the gap in content availability between developed and emerging markets is at its widest in the utility category.
While these challenges are significant, a concerted effort by stakeholders, and telecom operators in particular, can catalyse the development of digital ecosystems. Operators can encourage more people to discover the Internet and to adopt digital services by promoting new content developers, either through investments or by promoting local content providers in their marketing campaigns. They can also better articulate the benefits of connectivity and content together by using the content-bundling approaches that have succeeded in some markets. This is important because many of those who are unconnected or barely use the Internet are discouraged from doing so by the cost involved with first buying connectivity and then deciding if there is relevant content to consumer. Finally, operators can fill the role of the patient investor in some of these content categories.