enabling entrepreneurs in a mobile world

Enabling entrepreneurs in a mobile world

helping young people shape their future

01VimpelComEnabling entrepreneurs in a mobile world

“ There is increasing focus on the potential for digital technologies to contribute solutions to many societal challenges.”

Introduction from the CEO

About VimpelComVimpelCom – an international telecoms company operating in 14 countries and headquartered in Amsterdam. It is one of the world’s largest integrated telecommunications services operators providing voice and data services through a range of traditional and broadband mobile and fixed technologies in Russia, Italy, Ukraine, Kazakhstan, Uzbekistan, Tajikistan, Armenia, Georgia, Kyrgyzstan, Laos, Algeria, Bangladesh, Pakistan, and Zimbabwe.

www.vimpelcom.com

About 'Make your Mark'Make Your Mark is a key element of VimpelCom’s corporate responsibility strategy with a goal to ‘help young people shape their future’. Make Your Mark recognizes the challenges that today’s young people face in relation to issues such as poverty, youth unemployment, inadequate healthcare and education, food security, resource scarcity and climate change – reinforced by a rapidly growing population. Make Your Mark aims to provide young people with the technology tools, support and mentoring, and in some cases access to basic education, to help them tackle these challenges at an individual, community and national level – to shape their future.

helping young people shape their future

About the AuthorsCaribou Digital is a consultancy dedicated to building digital economies in emerging markets via investment advisory, research and consulting. This report was researched and written by Chris Locke and Marissa Drouillard from Caribou Digital, who each have over fifteen years experience in the mobile and internet industries globally, and who specialize in developing digital entrepreneurship in emerging markets.

Contents

Section 1 02Understanding the value of digital entrepreneurs

Section 2 06The challenges facing digital entrepreneurs

Section 3 16The role of mobile operators in supporting digital entrepreneurs

Recommendations 20Recommendations for mobile operators on how to support young tech entrepreneurs

References 22

At VimpelCom we are seeing the convergence of three important trends that are very relevant to our business.

Firstly, it is clear that today’s young people will face significant challenges over their lifetimes. Climate change and resource pressures, the ongoing fight against poverty and hunger, poor education and healthcare provision, all coupled with a population growing to 9 billion by 2050, will heavily impact quality of life. This comes at a time of significant youth unemployment when many young people are struggling to get a start in life.

Secondly, there is increasing focus on the potential for digital technologies to contribute solutions to many of these challenges, by helping to connect people more effectively, or even for the first time, to government or private sector services vital for their social and economic development. Mobile-enabled services can often bring a ‘step-change’ in efficiency and reach of service provision, and at the same time can play a key role in reducing environmental impact.

And thirdly, as this report highlights, much of the growth in innovation in digital businesses and app development is coming from aspiring young digital entrepreneurs in both developed and developing markets. But this growing opportunity is not evenly distributed across all regions and countries, and young entrepreneurs need support and nurturing for them to be successful.

As telecommunication companies continue to transition from voice centric to digital businesses, they are learning to work with a new ecosystem of players and different business models. This change in business approach, coupled with the trends indicated above, suggests an opportunity for companies like ours to help stimulate an innovation pipeline that will help young people shape their future whilst helping our business to prosper in a more sustainable commercial environment.

This report, the first commissioned as part of our newly launched Make Your Mark program (see on page 01) looks at the challenges and opportunities for young entrepreneurs and provides recommendations for mobile operators on how they can best support the growth of new digital businesses. I hope you find it interesting and helpful.

Jo LunderChief Executive Officer


There are 3.6bn global users of mob

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in the developed wo

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using sm

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Understanding the value of digital entrepreneurs

Figure 1:Measuring the impact of the digital economy

Section 1 The 21st Century is the era of the digital economyIt is clear to anyone with a smartphone that we live in the era of the digital economy. Increasingly ubiquitous, essential and demanded by consumers, access to digital networks and the services they provide is the defining feature of the 21st Century.

The exponential growth in global mobile adoption is an oft-cited phenomenon. There are 3.6bn global users of mobile phones, with 40-50% of those users in the developed world using smartphones (GSMA 2014). The internet revolution of the past twenty years has resolutely gone mobile in the last five years, with mobile and tablet usage of internet services fast outstripping other access methods with 80% of the global population forecast to have smartphones by 2020 (Evans 2014).

The other oft-cited phenomenon is the economic impact of this revolution in Internet access. We are familiar with the Deloitte statistic that for every 10% increase in mobile subscribers there is a 1.2% increase

in GDP (Deloitte 2007). But we are seeing a much more significant impact in more recent studies that look at a broader range of economic impacts from the digital economy.

A recent McKinsey report states that the digital economy is worth on average 3.4% GDP (McKinsey 2011) – which if it were counted as a sector would make it more valuable than Agriculture or Utilities. And we are still at the early stages of growth, particularly in emerging economies such as the BRICs and Sub-Saharan Africa and South East Asia.

Moving even beyond the direct GDP impact of the digital economy, the OECD has examined how the direct and indirect benefits of access to the Internet play into country economies. By considering the consumer surplus created by digital services and the socio-economic effects as well, their model builds a more complete picture of what the true impact of the digital economy is (see figure 1).

This approach starts to identify a more interesting impact of the digital economy, in particular in

the society-wide effects. We know that access to information via digital services has driven a much broader access to educational information, and via sites such as Khan Academy it has started a revolution in free access to world-class educational content. Massive open online courses (MOOCs) and an increasing trend within universities of opening up their course materials online has started to remove many barriers to quality education around the world. But beyond access to content, digital services have also improved the experience and management of the education sector – as can be seen in the case study of Bridge International Academies in Kenya, where digital financial services are having an unexpectedly large impact on the delivery of a quality educational experience (see case study 1).

It is clear from all of these studies that the impact of digital services is profound from both economic and social perspectives. What is also clear from the usage statistics is that mobile services are the engine of growth driving this revolution forward.

02 VimpelComEnabling entrepreneurs in a mobile world

Source: OECD 2014

ADDED VALUE GENERATED IN

SOCIETY-WIDE EFFECTSCONSUMER SURPLUS

(BEYOND GDP)

generated through consumption of goods and services offered through:

(BEYOND GDP)(PART OF GDP)

All other activities as the result of the internet

Activities purely based on the internet

Activities supporting the

internet

(e.g. through lower search costs, better matching processes, etc.)

(e.g. search engines, e-commerce web services, etc.)

(e.g. ISPs, internet equipment manufacturers, etc.)

All other activities as a result of the internet

Activities purely based on the internet

Activities supporting the

internet

Environment

Health

Education

Government transparency

04 VimpelComEnabling entrepreneurs in a mobile world 05VimpelCom


“. . . great potential for quality youth employment – manufacturing, agriculture, retail and hospitality, construction, finance and business services, transportation, government and social services, transportation, and ICT. Growth possibilities exist for ICT-related jobs throughout the value chains of each of these sectors. However, and specific to ICT as an independent sector, five subsectors offer significant potential for youth employment and entrepreneurship: Business Process Outsourcing; Development of mobile telephones; Telecommunication; Internet website design; Network administration.”

Understanding the value of digital entrepreneurscontinued

Digital entrepreneurs – particularly young developers – are the crux of this creation of value and social impactAs with many tech revolutions, young entrepreneurs have been at the center of the genesis of the new digital economy. The value of digital entrepreneurs can be measured, as stated above, in their contribution to driving the social and economic impact by providing new services to customers and driving economic growth, but it is also in creating employment and other opportunities that we can assess the value they bring to the table.

The world is facing a ‘youth bulge’ – a population explosion that, in a time of global austerity, is creating an unbalanced workforce with high levels of youth unemployment in most countries. Young people aged 15-29 will represent more than 50 % of the working population by 2020 and yet we have on average a 12% youth unemployment rate globally (ILO 2013).

This is creating a ratio of unemployed youth against adult employment that is a source of tension and concern. And this is not something affecting developing economies alone – many developed economies have suffered badly from the recent financial crisis and this is driving the imbalance. As we can see in the data below developed or advanced economies such as Russia and Italy actually have higher ratios of youth to adult employment compared to some developing markets where there has been more growth in the local economy.

At the center of this growth is the mobile phone and the app – bringing new services to customers around the worldIncreasing smartphone access is driving entirely new experiences for consumers, as slowly the majority of services we require become apps. This has become so pervasive that research shows in developed markets such as the US, the vast majority of time online is now spent on the internet using a mobile device, and the bulk of that time is spent using apps to access the internet (see figure 2).

But this is even more pronounced in emerging markets where access to the Internet can often only be achieved using mobile phones. And it is new services appearing on mobile phones that are driving the growth in usage of digital services.

This cuts across sectors – from entertainment, to health, to education, and most notably in financial services. Financial services have long been something that has been denied to many in emerging markets, but the arrival of ubiquitous, cheap mobile phones has brought about a payments revolution, with huge take up of the services in Africa, the Middle East, Latin America and South Asia. Deployments stood at 38 globally in 2009, but had risen to 219 by 2013 (GSMA 2013).

Mobile money has acted as a catalyst in these markets, both as a tool to create a formalized banking culture where previously there had been none. Also, as the economy moves from informal to formal, from unbanked to banked, an opportunity to monetize services that was not previously available, helping to create revenue streams for new businesses.

Not only are these new jobs categories opening up new employment opportunities for youth, but also they’re better paid. In the same Rockefeller Foundation/Dalberg report, monthly wages in the ICT sector in Ghana were substantially better than official minimum wages or the self reported wage in other sectors – by a factor of over five.

So, beyond the macro-level impact of digital services, we can see there is a very strong impact on the ground, as ICT jobs and training provide a fast-paced industry for unemployed youth.

What this points to is an opportunity for entrepreneurs – a connected audience with a varied and widespread set of needs creates the perfect ecosystem for entrepreneurs to enter into the digital services market. And this is where we see the most exciting activity and value creation around the world – in start-ups creating new app-based businesses built on these leapfrog services. It is this confluence of available, affordable technology, digitization of service delivery, and the broad adoption of increasingly powerful mobile phones that is driving a new generation of digital mobile entrepreneurship.

This is a once in a lifetime opportunity. And yet we have not seen the much-vaunted emerging market competitor to Facebook or Google yet. So what is holding back the growth of local entrepreneurs?

(Source: Benedict Evans 2014)

Bridge International Academies

Case study

In East Africa the mobile money revolution has had a knock-on effect in other sectors. When asked how digital technology can improve schooling, most people will assume smartphones or tablets with pre-loaded content is the most effective way. But Bridge International Academies have pioneered the usage of mobile money to improve the back-end systems of their schools.

Using nothing more complex than a US$80 smartphone and black and white Nook e-readers, the entire finance, staff, supplier and student management can be done. By receiving payments from parents and by paying suppliers using mobile money this school administrator – Paul from the Bridge Academy in Kisumu, Kenya – saves two days travel a week, days that can instead be spent on site at the school making sure the students and staff are supported well. This success is evident in Bridge Academies results, where core reading skills amongst students are 35% higher than average for Kenya, and core math skills 19% higher.

Figure 3: Youth unemployment ratio compared to adults in VimpelCom markets

Algeria 3.00

Armenia 2.50

Bangladesh 2.90

Italy 3.90

Pakistan 2.10

Russia 3.40

Ukraine 2.70

Zimbabwe 2.70

WORLD 2.80

(Source: ILO 2014)

Recent research by the International Youth Foundation looked at which growth industries can provide new jobs for this ‘youth bulge’ (IYF 2014) (see figure 3). Their analysis uncovered nine high growth sectors in sub Saharan Africa that offer:

Section 1

June 2013 June 2014

Figure 2: Mobile apps driving time online

0

250

500

750

1,000

1,250

MOBILEWEB

MOBILEAPP

DESKTOPWEB

US time spent online (billion minutes)


The challenges facing digital entrepreneursIn the previous section we discuss the opportunities that are there for entrepreneurs, building on the growth of mobile and digital platforms making it easier to develop new services, and a growing audience hungry for apps on their smartphones. But there are few countries that have replicated the success of Silicon Valley in terms of supporting entrepreneurs. We will look at what’s unique about the Valley, and what is replicable.

Section 2

06 VimpelComEnabling entrepreneurs in a mobile world

The San Francisco Bay Area/Silicon Valley entrepreneurship ecosystem was a trans-generational consequence of earlier investments in innovation.

It’s no coincidence that many of the world’s most successful digital companies were either started or scaled in the San Francisco Bay Area. Even overseas digital companies grew by creating ties to American investors, with many establishing significant offices in the Bay Area (Ahmed, 2014). But Silicon Valley would not be the epicenter of start-up activity without the institutions and cultural demographics that evolved over several generations. And while new digital ecosystems are emerging from Berlin to Bangalore, it will take at least a decade before they reach comparable levels of self-sustaining maturity as Silicon Valley.01

Two primary ingredients catalyzed the development of an early technology ecosystem following World War II: (1) US government investment in research and development, and (2) the emergence of a talent pool with skills and interest to advance and commercialize cutting edge technology. Following an initial focus on military uses for technology in the

1950s, Silicon Valley emerged in the 1960s as the premier place to work on innovative projects at prestigious Bay Area universities, such as Stanford and UC Berkeley, and government-backed technology companies (Leslie, 1993). Great weather and career opportunities attracted young, top-quality engineering talent to study and then stay to work at leading companies like Fairchild, Hewlett Packard, and Intel. (Scaruffi, 2014).

New wealth created from the semiconductor industry was then used to invest in the next generation of early-stage technology companies, beginning a trend referred to as the “Entrepreneurship Acceleration Cycle” (Endeavor Insight), where successful founders reinvest their time and money into new firms. By sharing networks and providing individual advice based on experience, early venture capitalists created a model for perpetuating success. Indeed, as noted in “How the ‘PayPal Mafia’ Redefined Success in Silicon Valley”, it was the advice given to new start-ups in addition to money that helped shape the next generation of start-ups (Forrest, 2014).

In addition to its defining culture, high levels of investment activity, strong capacity, and a close-knit support network make the San Francisco Bay Area/Silicon Valley a unique environment for scaling digital start-ups. The Bay Area also

benefits from a number of prestigious local universities producing highly skilled, entrepreneurial graduates. Combined with routine start-up churn, this results in a readily available talent pool for start-ups to tap into. But its not just accessible coders and cash that make the Bay Area unique, technology multinationals, accelerators, incubators and co-working spaces support rapid development and scaling. Not only are these organizations in close proximity to investors and universities, but also they are extremely well networked. The Silicon Valley venture capital firm Sequoia Capital uses their ‘Mobile Tectonics’ landscape tool to characterize the diverse set of stakeholders that now play a vital role supporting digital and increasingly mobile start-ups (Reilly, 2014). From analytics providers, to payment platforms, to developer tools, the concentration of leading technology companies in the Bay Area offers local start-ups an advantage, not only through easier access to resources and individuals who can help, but also through increased awareness of latest and greatest technology.

Through a process of replication and evolution, we are starting to see buds of entrepreneurship activity all over the world, but start-ups in emerging digital communities struggle for various reasons.Digital entrepreneurship communities begin with a small number of pioneering start-ups, and develop through increases in the level of support for start-ups, number of investors and investment levels, and interconnectedness with private sector, until the ecosystem becomes independent and self-sustaining.

The challenges facing digital entrepreneurscontinued

Section 2

09VimpelComEnabling entrepreneurs in a mobile world08 VimpelCom


The start-up Ecosystem 2014

The Ecosystem stagesThe Ecosystem stages

(Source: Caribou Digital analysis and The Start-up Genome, 2012)

01Seed

02Hype

03Independence

04Integration

05Expansion

06Contraction

First few start-ups within a concentrated area

First success stories, more talent and investors migrate

Ecosystem becomes self-sustaining

Local and global consolidation of talent and capital

Global integration and continuous growth

Braindrain, no renewal



Challenge 01A lack of a basic set of institutions to function, such as credibility enhancers, information analyzers and advisors, aggregators and distributors, and transaction facilitators (Khanna & Palepu, 2013)

In the early days, there are insufficient or missing local institutions to support digital start-ups and global options are not easily accessible. The lack of institutions, specifically channels and platforms for aggregation and distribution, facilitation of transactions, and institutions to provide early stage capital, partially explains why many digital entrepreneurs in emerging markets are still struggling.

Challenge 02A lack of channels and platforms that fill institutional voids in emerging digital entrepreneurship ecosystems

In the US, Europe, and more mature emerging markets, Internet platform players such as Google and Apple play a facilitation role by aggregating products and integrating payments, in addition to enhancing credibility for relatively unknown start-ups. These platforms, however, have limited relevance in the developing world where smartphone adoption rates are low and a minority of the population holds credit cards. To target the masses in these markets,

entrepreneurs must utilize alternative mobile channels, such as messaging (SMS or USSD) or interactive voice response (IVR), at least until smartphones become more prevalent.

Yet accessing these channels is a problem for many early stage start-ups. Mobile operators and other third parties who control mobile channels aim to make a profit and generally charge for network services on a per unit basis – so delivery costs increase with traffic volumes. While some operators discount for large volumes, early stage start-ups with only a few or a few hundred customers are unlikely to generate sufficient volumes to reach lower price bands. This means

* iHub_ and the emerging tech community in Nairobi

It often takes a ‘foundational’ company to kick-start an ecosystem for entrepreneurs in a country. Just as the founders of Fairchild had a role in shaping Silicon Valley, Nairobi’s current tech scene benefits from alumni from two pioneering start-ups: Ushahidi and 3Mice Interactive. What we can learn from them is how a community of like-minded start-ups can lay the seeds for an entire sector’s success.

Ushahidi was founded during the aftermath of Kenya’s disputed 2007 election as a crowdsourcing platform for social activism and public accountability. One of Ushahidi’s co-founders, Eric Hersman, went on to establish the _iHub* as a space for Nairobi’s emerging tech community, as well as co-found another Kenyan start-up, BRCK, a physically robust multi-mobile network hub with enough power to survive a blackout.

Hersman is also a General Partner in the African VC and accelerator Savannah Fund.

3Mice Interactive Media was one of the first technology start-ups in Kenya, founded in 1998 by Paul Kukubo, Ken Njoroge and Betty Mwaniki-Kukube. Kukubo is now the first and current CEO of the East Africa Exchange (EAX), based in Kigali, Rwanda, after previously serving as the founding Chief Executive Officer of the Kenya Information and Communication Technology (ICT) Board. Njoroge moved on to found Cellulant, a pan-African mobile payments infrastructure company connecting mobile operators, banks, businesses and customers. Cellulant is now in eight countries and is serving 25 banks across the continent and has touched the lives of over 10 million customers.

Case studythat relative to revenues that start-ups currently generate using these channels, mobile resources are expensive, limiting the viability of many business models. Indeed, research in Kenya found high costs of operator resources to be the greatest technical challenge that digital entrepreneurs were facing (50 per cent of respondents). Whereas in Silicon Valley monetization is sometimes an afterthought, in many emerging markets cash flow is a serious concern for early-stage entrepreneurs, many of who fund their own way through services launches. Because effectively emerging market entrepreneurs can be priced out of the market for using mobile channels, the markets they can reach are limited.

Challenge 03A lack of information analyzers and limited specialist advisors hinders the ability to deploy capital

Securing finance is difficult for a start-up in any market, but it's particularly challenging in emerging digital start-up communities because of relatively fewer specialist technology funds and experienced investors or entrepreneurs. As a result, finance is a bottleneck to scaling digital services in many markets. Funds that do specialize are limited by their capacity to provide guidance and consequently there is less capital to go around, particularly for very early stage start-ups. Whereas in the US approximately US$162 billion has been invested during Q1-3 of 2014, significantly less was invested in emerging ecosystems: US$6 billion in the Russian Federation, US$100 million in Bangladesh, and US$24 million in the Ukraine.

Figure 4: Challenges in Emergent Digital Entrepreneur Ecosystems(Source: Caribou Digital analysis and Khanna & Palepu, 2013)


Section 2

• Limited ‘App stores’ for feature phone users

• Lack of independent credit agencies

missing or non-functioning market ecosystem that companies depend on

• Relevant information on market demand is lacking

• Few technology specialist VC or angel lists in developing world

• Mobile operators exert control over channels for accessing featurephone end-users

• Mobile money facilitates transactions, however many operators have yet to roll out integrations

MERITOCRACYMentorship

CREDIBILITY ENHANCERS

INSTITUTIONAL VOIDSculture that nurtures entrepreneurship

only beginning to develop

NASCENT CULTURE

INFORMATION ANALYZERS & ADVISORS

AGGREGATORS & DISTRIBUTORS

TRANSACTION FACILITATORS



Sometimes being too technologically advanced is a disadvantage when speaking to local investors. One tech savvy Kenyan investor noted that his firm has recently changed tack and is shying away from risk-taking companies, opting for safer bets on proven models – mainly because it’s hard to be one of the few firms being that innovative in a country. That said, because across all sectors there is less infrastructure and fewer legacy business models, the disruption that has currently transfixed developed markets actually fills institutional voids when launched in the developing world (e.g. taxi apps, etc.), and there is plenty of opportunity for copy cats.(see figure 5).

Challenge 04A lack of a nascent start-up culture that cultivates meritocracy and mentorship in emerging ecosystems

The defining characteristics of Silicon Valley culture – a social system that provides opportunities based on ability and a belief that success should be ‘paid forward02’ through mentorship – contributed to the creation of a successful model for scaling innovation. In addition to institutional voids, these cultural aspects are the other primary reason why start-ups struggle in nascent ecosystems. At the root is really a lack of success stories: this affects the confidence and ambitions of entrepreneurs, the number of angel investors and mentors, and the size and

banglalink in Bangladesh

Bangladesh is a country starting to come to grips with Internet access, but still only 24% of the population has Internet connectivity. Of that number, 97% access the Internet via mobile phones.

Banglalink, the 2nd largest mobile operator in Bangladesh, recognized a need to address the opportunities for young entrepreneurs to use mobile apps. In 2011 banglalink launched its ‘Grandmaster’ competition to identify and nurture ideas and apps from young developers. The idea came from brainstorming internally, as staff felt the need to establish platforms for development of Internet services across the country and within the company. The Government’s vision for ‘Digital Bangladesh 2021’ was an influence, and they felt mobile was the key platform to enable this.

Targeting Universities and Colleges, the first year of the contest was focused on an idea generation

contest – “Bring the ideas” which was a simple and very open format for 2-4 person groups to bring ideas that required a mix of talents from technology, business development and marketing. This first year saw over 4,500 registrations.

Now in its fourth year the competition has moved on so participants are supported in developing beyond the idea stage to create actual apps. The banglalink app store has already been launched, where the top 25 apps from the competition will be made available, and where they will receive royalties, support and marketing from the company. This will be a step ahead from the previous years where winners will not only receive awards but also get the opportunity to showcase their entrepreneurial talent at young age. Alongside this support, in 2014, previous finalists have benefited from a partnership with Huawei, visiting their technological labs and research centers in various cities in China for training, workshops & personal development. In 2015, Banglalink has planned to partner with an organization having app development expertise, which will further support the young digital entrepreneurs of Bangladesh to shape their own future.

www.banglalink.com.bd

Case study

availability of local technology funds and business accelerators. Because fewer experienced entrepreneurs are available to pass along advice on what it means to be a start-up and how to go about creating value, often entrepreneurs are poorly prepared to pitch to an investor, let alone run a business.

This can be frustrating for investors; a wide-spread perception persists among investors that most start-ups in Kenya are creating code, not creating companies, and it’s not uncommon for an investor to be approached by a solo developer, or two technicians with no operations, finance, or marketing team members. Indeed, investors are right to assess that many start-ups lack proper team structure, track records, and skills necessary to run a business.

Compared to peers in other innovation hubs, there is a real difference in terms of experience: whereas the average age of entrepreneurs in Silicon Valley is 34, in Kenya 86 per cent are younger than this and have little formal work experience. Similarly, in Moscow and Santiago the average age is 28, and in Sao Paolo 31 (Telefonica Digital & The Start-up Genome, 2012). Combined with the fact that start-ups do not receive enough business advice from mentors who have walked before them, this explains the other major reasons why start-ups struggle. The net result is that relatively young and tech-heavy start-ups in emerging markets focus on what they know – product development – rather than on understanding the customer. It’s then not surprising that marketing is such a challenge for start-ups in emerging markets.

Ecosystems eventually reach an inflection point where they are self-sustaining locally and attracting international investment.Among those countries that attract more than 1 per cent of global investments, Bangalore, Moscow, Shanghai and New Delhi are the fastest growing emerging market technology ecosystems03. So far in 2014, start-ups from these regions have raised a total of nearly US$23 billion, which is about 10 per cent of the amount raised globally. While no comparison to Silicon Valley in terms of thetotal amount of funding, there has been a dramatic shift in focus even in the last year. According to CrunchBase data (2014), nearly three-quarters of the investment that start-ups in Bangalore have received to date was received just in the current year (US$9.9 billion out of US$13.9 billion). Furthermore, just recently in September 2014, the world witnessed the high profile IPO of China’s Alibaba, which raised US$21.8 billion, valuing the company at over US$168 billion (Bloomberg, 2014). India’s e-commerce titans are not far behind China. Flipkart recently raised US$1 billion (Shu, 2014), and Snapdeal, which competes with Flipkart, is already planning to list publicly in the US sometime in the next 12 to 24 months (Farr, 2014). Meanwhile, the Russian Federation’s ‘Amazon’, online retailer Ozon.ru, recently raised US$150 million, based on a US$694 million valuation, surpassing a previous US$130 million investment in Rocket Internet’s e-Commerce giant Lamoda (Hopkins, 2014).

(Source: Caribou Digital analysis and CrunchBase database, 2014)


Section 2

Figure 5: Total investments in Digital Technology (2010-2014)

2010 2011 2012 2013 2014

Billions $16

14

12

10

8

6

4

2

0

ArmeniaBangladeshBrazilChileChinaAlgeriaGreeceIndonesiaIndiaIsraelItalyKenyaNigeriaPakistanPhilippinesRussian FederationSingaporeUkraineSouth AfricaZimbabwe

Note: Countries with very low levels of investment are all indicated by grey lines. This data cannot be easily differentiated in the chart.



The Global Innovation Fund, a US$200 million nonprofit collaboration supported by DfID, USAID, Omidyar Network, Sida, and the Department of Foreign Affairs and Trade in Australia is one of these initiatives (Global Innovation Fund, 2014). Recently launched in New York in September 2014, the fund will provide grants and risk capital to scale breakthrough solutions to global development challenges. While not specifically tech in remit, the fund builds on lessons learnt from previous decades that innovation can come from any sector and that flexible financing approaches are needed.

Ideabox Myanmar, a community for entrepreneurs that is focused on building the next generation of Internet companies through events, new start-up incubation and acceleration of existing companies, was launched in Yangon in early 2014 by Ooredoo, even before the mobile operator launched mobile services (Ideabox, 2014). Moreover, Orange, the multinational mobile operator based in France, recently launched its partnership initiative for developers and start-ups, to address two critical issues already mentioned in emerging markets: i) APIs (Application Programming Interfaces, the code needed to connect apps to operator services such as billing) for payments (as well as offering APIs to other Orange innovation platforms such as rich communication, cloud, connected objects, etc.) and ii) channels for product distribution or promotion to Orange customers globally.

In addition to the BRICS, Berlin, Tel Aviv and London are also formidable ecosystems, and in some instances competitive with Silicon Valley as a head-office destination. Fab, a US company based around providing ‘flash sales’ online, recently closed down and the CEO moved to Berlin to start an online furniture company, tempted by cheaper operating costs (such as premises & staff). This comes at a time when burn rates (the rate at which investment money is spent in new businesses) in Silicon Valley are at historical highs (Koh & Winkler, 2014; Quittner, 2014). Indeed, before the layoffs at Fab began, the company was burning US$14 million a month.

Cheaper real estate is not the only reason to move to Europe and regions outside of the US04. Telefonica Digital and Start-up Genome (2012) found Tel Aviv to be a highly advanced ecosystem and the leading alternative to Silicon Valley. Indeed, Israel is known for its big acquisitions, such as Waze to Google and Snaptu to Facebook.

Emerging Market Mobile Operators at the crossroads

The recent focus on digital entrepreneurs in the developing world reflects not only a realization that private sector development is crucial to economic growth and poverty alleviation, but also the critical role that entrepreneurship and innovation play in solving problems and creating opportunities. In particular, developing world mobile operators are at a critical crossroads. While in nearly every country operators have enjoyed a decade of rapid consumer adoption, eventually subscriber growth will saturate just as in developed markets, limiting revenue growth from customer acquisitions. Similar to the broader ICT industry, the mobile industry is becoming increasingly competitive and commoditised; limited ability to differentiate core service offerings – such as voice calls, SMS, voicemail, and data – is leading to fierce price competition among mobile operators. As noted by one African mobile operator, “Network coverage is no longer a competitive advantage; therefore we [need to] innovate on the service layer. As we evolve we will become service and marketing companies, instead of just mobile network operators.”Entrepreneurs developing ever new and innovative services are therefore critical to the future growth of the mobile industry – both in the developed and developing world. Digital services address business challenges, enable transparency and efficiency for government, and offer convenience, entertainment, and empowerment to consumers.

The secret of their success, according to the 2009 book Start-up Nation: The Story of Israel’s Economic Miracle, is mandatory military service where the culture within the Israel Defense Forces fosters the same kind of meritocracy mindset that stimulated entrepreneurship in the early days of Silicon Valley. In addition to the many examples cited in the book, ‘Viber’ – a rising messaging service start-up founded in Tel Aviv to compete with Skype – was created by Talmon Marco, who was the former chief information officer of the Israeli army central command. The company was recently bought by Japan’s largest ecommerce company by sales, Rakuten, for US$900 million, and remarkably never received any institutional financing (Mance, 2014). London and Berlin vie for third place behind Tel Aviv, but are still developing aspects of their support infrastructure. While London was second to Silicon Valley in terms of support, there is still a significant funding gap (likely due to insufficient early stage investors and micro VCs targeting deal sizes between US$500,000 and US$2.5M) and slightly less support from mentors than start-ups in Silicon Valley (3.24 vs. 4.04 mentors per start-up).

They also create demand for more sophisticated devices, increase revenues for mobile operators and add to a country’s economic value. As discussed, mobile operators play a central role in emerging ecosystems by enhancing credibility, aggregating and distributing, and facilitating transactions, however for most start-ups securing such partnerships has been a difficult road. More effort needs to be made to work collaboratively and constructively, harnessing the skills and experience of individuals and institutions outside the four walls of mobile operator offices. Through collaboration, a thriving ecosystem of support can be developed to enable entrepreneurs building locally relevant content and services. Supported by robust institutions and a strong entrepreneurship culture, entrepreneurs will truly transform digital economies in emerging markets.

So what can mobile operators do to encourage digital start-ups, create communities and enhance entrepreneurship initiatives?

Meanwhile, Berlin is currently hyped as ‘just behind New York’ in terms of its development, and one of the leading start-up ecosystems in Europe. With a few successful entrepreneurs turned business ‘angels’ (early stage investors), Berlin now has a burgeoning Venture Capital scene. However, according to Alexander Ljung, the Founder & CEO of SoundCloud, while entrepreneurs share know-how and experiences among each other, they still lack significant support from advisors and mentors, making Berlin a difficult place to scale a company (Telefonica Digital & The Start-up Genome, 2012).

In some ecosystems, governments, donors and mobile operators are all trying to stimulate digital entrepreneurship

Clearly, ecosystem maturity, both culturally and in terms of infrastructure, affects the ability of entrepreneurs to enter into the market and scale digital services. While progress will continue organically, in some ecosystems mobile operators are trying to kick-start the volume of activity by providing capital, mentorship programs, or other support functions.


Section 2

As we have seen in section 1, the primary mode of Internet access for many users is mobile, and as a consequence mobile operators find themselves playing a crucial role in enabling entrepreneurs to reach their audience with their digital service. We have just discussed in section 2 how there are many structural problems that are barriers to success for digital entrepreneurs, and how differing market conditions are preventing many countries from replicating the success of Silicon Valley.

Primarily, these issues can be summarised as the general lack of a supportive ecosystem for entrepreneurs, and a lack of organisations willing to bridge the gap between the needs of the entrepreneur and the capacity and experience of larger corporates. There is a structural gap in many markets that means the mentorship, funding and technology and commercial partnerships that entrepreneurs require are not in place.

Mobile operators are in a strong position to fill this gap. Alongside playing the role of Internet provider for consumers in most markets – bringing audiences to digital services – mobile operators have the capacity and capability to help build ecosystems to support digital entrepreneurs in their markets. Specifically they have key assets they can bring to the problem:

> Technology platforms (billing, customer management, app stores)

> Deep market experience & consumer knowledge

> Marketing & distribution platforms > Commercial knowledge and expertise

There are, of course, Value Added Service (VAS) teams within mobile operators who are often competitive to external digital service companies, and there can be a resistance to partnering with or supporting entrepreneurs for fear of cannibalizing existing revenue. But increasingly mobile operators are recognizing the value of open innovation, where they partner with external innovators to bring services to their customers.

This makes commercial sense. As the data in section 1 shows, the vast majority of time spent online in many markets is now spent on mobile apps. It is forecast that the global app economy is growing at 28% CAGR and will reach a value of US$143bn in 2016 (Vision Mobile 2014). This is a significant stream of revenue that mobile operators can share in with the right strategies to work with innovative entrepreneurs.

We have seen at an industry level how some mobile operators are trying to support app entrepreneurs – the trade industry body the GSM Association is both developing a standard set of application interfaces for developers in its OneAPI program05, and has hosted the App Planet06 part of the annual Mobile World Congress for the past four years. This program has done a lot to bring small app developers to the attention of large mobile operators at the main industry event.

The role of mobile operators in supporting digital entrepreneurs

Co-creative:Creating value by sharing or combining resources from firms, suppliers, and active customers to create new services.

Collaborative:similar, but the sponsoring organisation controls services developed with contributors.

Co-operative:similar, but sharing or combining resources only between agreed parties.

143bnGlobal app economy will reach a value of US$143bn in 2016 (Vision on Mobile 2014).

Section 3

But an increasing number of mobile operators are adopting open innovation strategies to harness the energy and creativity of external innovators themselves. These strategies typically fall into three groups (see below).

17VimpelComEnabling entrepreneurs in a mobile world16 VimpelCom




The role of mobile operators in supporting digital entrepreneurscontinued

There are further sub-categories within these groups, and we can see there are various operator strategies that are currently being deployed within these areas of activities (figure 6).

These programs that forge relationships with developers can benefit mobile operators both from bringing in the ideas of the entrepreneurs to their core business, and also looking at what commercial relationships can come from these programs.In this way mobile operators can respond to the institutional voids and nascent tech start-up culture that exists in emerging markets, which are in many cases preventing start-ups from entering or scaling. In addition to the strategies set out in the table (see figure 6), we identify below six ways in which mobile operators act to support the ecosystem and fill the institutional voids (figure 7).

Figure 6: Mobile operator strategies to drive innovation

Figure 7: Mobile operator opportunities to address emerging ecosystem challenges

In Conclusion – there are significant benefits for mobile operators in developing programs to support mobile digital entrepreneurs.

Consumer attention and Internet browsing activity is migrating inexorably towards mobile apps, and a significant share of industry revenue is migrating to app developers as a consequence.

WIND Business Factor and Luiss Enlabs incubator in Italy

In Italy, the ecosystem for entrepreneurs is not very well developed, despite the traditional high number of small and medium enterprises. There are few VCs and more of a ‘job for life’ working culture. As a consequence there is no strong track record of global leading tech start-ups, although there are some fantastic, global major corporations and brands. So there is no lack of expertise and experience, but no ecosystem to support young tech entrepreneurs, or to bridge the gap to let them benefit from this wealth of large corporate knowledge.

The Wind Business Factor virtual incubator (set up by Wind), and the Luiss Enlabs incubator (set up by L-Venture Group in partnership with WIND and Luiss University), aim at plugging this gap, but to do so they had to create a strong tech ecosystem themselves. They recognized that money isn’t enough – entrepreneurs need mentorship

and advice. They also need to be close to other entrepreneurs, so they can share experience and learn collaboratively. The Luiss Enlabs/ L-Venture Group is an acceleration program in partnership with Luiss university of Rome, physically located in premises which comprise a 2,000msq space in Rome, on the second floor of the main railway station. This means they are very central, and handy for Milan-Rome trains and the river of corporate talent that flows between these two cities.

The facility runs a five month program for young tech entrepreneurs with a very strong focus on mentorship and support – every two weeks the teams have an update meeting and presentation to advisors to track where they are and what help they need. At the end of the program there is an investor day, where the teams pitch in front of a group of investors.

This approach has been successful – in 2014 they have accelerated 10 startups, adding to a total portfolio of 25 start-ups. The total program investment runs at 2.8m euros, but has attracted 6.7m euros in further follow-on funding from investors.

Alongside the direct mentorship, the incubator hosts events to introduce corporate guests to the teams. There are tech events such as a recent Facebook ‘hackathon’ and a session exploring Google cloud services, and business events such as dinners with big corporate guests, entrepreneurs who have exited, etc. On recent visits by Wind management some of the companies incubated – GamePix, NetLex – secured a marketing and distribution deal with the mobile operator, proving that this mix of support, training and investment can work.

www.windgroup.it

Case study

But this should be seen as an opportunity rather than a challenge for mobile operators because, as we have seen, there are still significant challenges that entrepreneurs encounter that are a very strong fit with the capabilities of mobile operators. Understanding how best to harness the assets within mobile operators, and developing the best programs to bridge the divide between them and entrepreneurs

can have a significant commercial value to the operator alongside a significant social value in creating and supporting new, young businesses within the country. The role of the operators is unique, and considerable, and it is unlikely viable ecosystems to support entrepreneurs will develop in many markets without their participation and support.

Section 3

• GSMA OneAPI

• banglalink (VimpelCom Group) Grand Master Programme

• Telefonica Digital

• NTT DoCoMo Capital

• Wind Italy (VimpelCom Group) and The Venture Group

• Safaricom M-KOPA

• Orange Data for Development Challenge

• Sprint Developer Programme

• Orange

APIs

App store and marketing resources

Acquisition of start-ups

Majority/minority stake in start-ups

Start-up incubator/accelerator

Co-branding with start-ups

Crowd-sourcing and contests

Developer communities

Joint R&D with Universities and Hubs

Open InnovationStrategy Spectrum

Co-creative

Collaborative

Co-operative

Mobile Industry Examples

(Source: Caribou Digital Analysis)

Mobile operator role Ecosystem strengthening result

Credibility enhancers

Information analysers and advisors

Aggregators and distributors

Transaction facilitators

Creating a culture of meritocracy

Sharing experience and knowledge

Customers trust the reputation and brand of mobile operators

Customer context information

Local App stores, marketing capabilities, agent networks, software push technology

APIs to enable monetization, channel access at affordable rates

Start-up and developer programs that make services available (not necessarily for free) with a clear pathway for stronger partnerships

Direct investments and in-kind support to start-ups, along with training and mentoring.



Recommendations

Shift the culture – adapt to the world of Digital Entrepreneurs

Based on this review of the digital start-up landscape, there are three main recommendations for mobile operations on how to support young tech entrepreneurs.

Understand the needs – listen, and respond with practical support

Evolve the ecosystem – create the right environment through partnerships

01 02 03

The report shows there is a wealth of innovation coming from an energetic group of young developers, and there are strong benefits in opening up and partnering with them. This requires a different way of thinking, a different organizational culture that recognizes that innovation does not always come from within.

Actively creating bridges to bring this innovation into the core business is beneficial, as we saw in the WIND/Venture Group case study where commercial partnerships have come from a culture of embracing the digital entrepreneurial world.

The levels of ecosystem support and investment vary wildly from country to country and region to region. What works well in one location may fail elsewhere so it is important to be flexible and adjust the strategy as the program develops. banglalink has evolved its Grand Master program in every year since its inception, increasing what is required from entrepreneurs each year to identify the real talent, and increasing the support to make sure that the best ideas have the best chance of success. They are learning from experience and improving year on year – which shows in their results.

There are many ways of partnering with entrepreneurs and supporting them but, as noted above, context is everything and needs will vary from market to market. Therefore the likelihood of implementing a successful program is greatly increased by fully understanding the specific needs of digital entrepreneurs market by market.

In many countries it is difficult to bridge the gap between small entrepreneurs and large corporates, but mobile operators can open up to developers and offer practical support such as access to marketing resources and distribution channels, sharing knowledge, open APIs and access to app stores. The report indicates the significant importance of mentoring and mobile operators can look for opportunities to build general business skills in tech-focused start-ups, either directly or through convening powers (see recommendation 03).

Beyond these relatively lower cost options, operators can also look at ways to attract and develop young entrepreneurs and their businesses in ‘full service’ incubators/accelerators. Bringing entrepreneurs together to support each other is equally important. Often technologists starting a business have brilliant ideas and the ability to execute on them, but lack more traditional business knowledge and skills. Equally, there are many bright MBAs searching for opportunities to develop a start-up. Creating a virtual, or physical, community of like minds within a program increases the chances of success and entrepreneurs finding the right partners and staff.

Operators should recognize the value other partners can bring to a program, and actively seek out partnerships with other companies, supporting institutions, software vendors etc. Partnerships with app ecosystem players like Facebook and Google can provide strong support to the program, and insight for the entrepreneurs in how to increase the audience for their services. Finding the successful start-ups and ways to leverage this back into the community builds confidence that success is possible and creates a pipeline of mentoring resource.

Equally, university or business school partnerships provide access to talent, and supporting skills from faculty. Partnering with Government agencies can bring resources and institutional support. Working with VCs and other funders can bring follow-on funding. The mobile operator cannot do it all alone, but can play a critical role in convening the ecosystem.

Section 4



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End notes

01 Estimate based on an average 8-14 years from Angel/VC investment to exit, and the critical role that experienced entrepreneurs play in guiding the next generation of start-ups (Peters, No date).

02 ‘Paid forward’ refers to one of the defining characteristics of Silicon Valley noted by Steve Blank and others, where successful entrepreneurs are willing to help mentor, network and connect strangers, stemming from a belief that “I was helped when I started out and now it’s my turn to help others” (Blank, 2011).

03 5-year CAGRs of 138 per cent for Bangalore, 133 per cent for Moscow, 38 per cent for Shanghai and 28 per cent for New Delhi (TechCrunch Data Analysis)

04 According to Tech Crunch, n New York, Fab paid US$250,000 per month for two floors of office space. In Berlin, the company spends US$125,000 per year on rent (Lunden, 2014)

05 http://www.gsma.com/oneapi/

06 http://www.mobileworldcongress.com/see-do/app-planet/

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enabling entrepreneurs in a mobile world

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