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June 17, 2009

Smartphones and Emerging Markets: A New Technology Revolution?

David del Ser '08 and Mark Pedersen '07
Founders, Frogtek
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It is no secret that the mobile phone industry is thriving in emerging markets, and that this growth has helped make cell phones the fastest spreading technology in human history. Less known, but equally as important, is that this growth has extended well beyond the ability to make phone calls. Today mobile operators in Africa, Asia and Latin America also offer their customers the ability to send cash to relatives, pay bills, and even check whether a taxi is legal or illegal, all via their cell phone. Many of these services have even begun transforming entire societies — in Kenya alone a mobile phone-based cash transfer service called M-Pesa has over six million customers.

However, despite these innovations, we believe mobile-phone based services remain limited relative to their potential in emerging markets because they rely on a fairly basic form of technology: SMS text messaging. These messages are limited to 160 text characters and due to their simplicity are simply not designed to deliver the advanced services we are accustomed to in more developed markets.

For us, these facts beg the question: when will mobile services in emerging markets evolve beyond text message technology? Relatedly, when will consumers in emerging markets embrace the enhanced functionality that comes with purchasing a more advanced handset? We believe that time is now, at least for certain customer groups. So-called “smartphones” — phones such as the Blackberry, iPhone and G1 that have the ability to download new software applications — have already transformed the way consumers in developed markets use and access data (iPhone customers alone have downloaded more than one billion applications). And certainly smartphones, which are in effect mini-computers, have even greater potential in emerging markets where relatively few computers exist. There is little doubt that smartphones will soon be more widespread in emerging markets yet a central question remains: who will build applications for these underserved customers?

Enter Frogtek, a for-profit social venture that began as an idea in the classroom at Columbia Business School and will soon begin formal operations in Colombia. Frogtek is premised in part on the theory that smartphones can solve several major problems endemic to emerging markets that text-messaging based technology solutions cannot. Of course, we recognize that getting customers to use smartphones in emerging markets today comes with a unique set of challenges. Perhaps most prominently, smartphones are still fairly expensive. Moreover, most software applications for smartphones were developed with a rich consumer in mind. These challenges are not insignificant.

For these reasons, Frogtek today is focused on what we believe can be a vanguard customer group in emerging markets, one that already has access to capital and a demonstrated need for simple and customized technology solutions: micro-retailers. The need we’re addressing is that most of these “mom-and-pop” shops do not keep sales records, which can result in inefficient business operations and even bankruptcy. Hence, our first product is an accounting and inventory management tool that allows a shopkeeper to use a smartphone as a point-of-sale device; the camera even doubles as a bar code reader. The phone generates basic reports about sales, inventory and profitability, and information is also uploaded to Frogtek servers wirelessly for secure storage and further analysis.

At this stage we have completed a prototype and will be working with SABMiller and a prominent Colombian NGO this summer to test our product with 50 shopkeepers. By the end of the summer we plan to have a complete version that we can distribute more widely in Colombia and eventually Latin America.

Accounting solutions are only the first step for Frogtek. If we are successful this summer and shopkeepers become comfortable using smartphones, we believe it will be relatively easy to develop and introduce additional products via smartphones such as micro-insurance and branchless banking. Time will tell whether our idea is premature but there is little doubt that smartphones are coming soon to an emerging market near you.

David Del Ser '08 is a 2009 Echoing Green Fellow. He is also the 2008 winner of the Nathan Gantcher Award in Social Enterprise at Columbia Business School.

Images courtesy of Frogtek

Comments

by Luke Davenport | June 17, 2009 at 5:36 PM

First off, congrats on your progress and on winning the Echoing Green Fellowship - great accomplishment! I'm currently working on an SMS-based business networking platform for small businesses in Kenya. The debate here in Kenya rages about the merits of developing for SMS vs. Smartphones. While smartphones are gaining traction (cheapest web-enabled phones are now down to about $45 after a recent value-add tax decrease on handsets), basic low end phones still dominate here - web-enabled phones are fewer than 1million out of 16 million subscribers in the country. While I share David's view that smartphones are the future in the developing world, for now we have determined that reaching a critical mass in Kenya means using SMS, and will for at least the next few years. If Frotek and other innovative smartphone apps aimed at the developing world push adoption and lower the cost of the devices, we will all be the better for it. Good luck!

by Ryan Petersen | June 18, 2009 at 3:40 PM

I can't wait til the first time I come across a kiosk in some remote corner of the developing world and get checked out by a lady with a Frogtek phone!

by Jake Samuelson | September 25, 2009 at 4:35 PM

David and Mark - congrats on your amazing work. Glad to see the economist showed mobile payments so more love this week as well: http://www.economist.com/opinion/displaystory.cfm?story_id=14505519 Keep up the great work - we'll be watching.

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