RDVP Class (10/11/2004)

The readings for this class included two articles from C.K. Prahalad, see, for example: Prahalad and Hart, The Fortune at the Bottom of the Pyramid. A third article (from the NY Times) described CMU professor Raj Reddy's effort to build a low cost computer for the bottom of the pyramid, asserting that entertainment was the Killer App.

Stuart initiated the discussion by asking us to consider different major industries, and how they might innovate to serve the 4 Billion people at the Bottom of the Pyramid. Looking at "mega-health" the obvious product was low-cost meds, and possibly health insurance; though people raised objections about ability to pay. I think this somewhat misses the point: how do you create a viable product/service that falls within their ability to pay? For "Mega-Telecom", it was easier to see the fit: Grameen Phone has already proved out a model where a Phone Lady purchases a cell-phone and re-sells usage of it. Stuart pointed out that since the telecom industry already has a "pay-per-use" business model, it's less of a stretch for them to pick up this model in the bottom of the pyramid context. For "Mega-Media", it's already happening: programming is being broadcast, and consumers at the bottom of the pyramid are receiving it. Greg questioned whether there was advertiser support for the developed content, and pointed out that in the US, the trend his been to concentration of media, not dispersion. Mans wondered if the fact that there are fewer competing outlets would mean that there could be advertiser support for those that existed. Here again, though, I think that people are too quickly transferring their expectations of US-based media companies. What if the model were more like what Bruce Lagninan described last week? Local studios, with very low cost broadcast--think more like local access cable. Live coverage of football matches. Local political debates. Local entrepreneurs giving 1 minute infomercials. Talent shows. Local market information. Local weather reports. If busy Stanford students can run their own TV station, why not any other municipality of 40,000 people?

The "Computer" industry (and Jose's example of ISP's that give you a free computer with a 2-year dialup contract) led us into a more general discussion of the attributes of what could lead to a successful BoP company. Yann felt that the current approach has been very haphazard, and a framework (ala Michael Porter's 5 forces) is needed. We sketched out some of the points that might be included:

• Innovative Business Model
  
• Technology to support low-cost production and low-overhead transaction
  
• Well-established distribution chain
  
• The "Daily Dose": People prefer small transactions both for cash flow and to avoid wasting space with excess household inventory
  
• Revenue-generating: The way to succeed is to help the BoP consumers become BoP producers. E.g., Approtech's "MoneyMaker" treadle pump enables people to boost agricultural yields by irrigating more land.
  

This distinction between production and consumption was a key point (that will re-surface in the report of the guest speaker for the second half). Also discussed was how the local BoP producers could keep money in the community and compete against Multi-National Companies (MNC's) like Coke and Pepsi. We cited some examples of niche competitors (Inca Cola, Mecca Cola), but I think the model that we should be considering is those that we in the US have never heard of, but work at the local level.

Stuart stated that the focus on operations (franchising, distribution chains) is just as important as the IDEO-style user focus. Greg wondered if we could perhaps do more good by focusing on the supply chain for the goods the BoP producers already make, and ensuring that they get a bigger slice of the value-add (both by producing more finished goods and by eliminating middlemen). Mans gave the example of a coffee cooperative being set up by the Colombians as an alternative to Starbucks. He went one step further, claiming that appropriate free trade (eliminating subsidies, dumping) might be more important for developing producers to compete with MNC's than the marketing tags of "Fair Trade" goods.

Stuart posed an interesting example of an individual who offered to sell his consumption on eBay: basically a reverse auction for the right to provide him with electricity, telecom, etc. We chatted briefly about this (hazards of skimming off the most profitable customers, leaving non-profitable customers without affordable service) but were cut short by the arrival of the guest speaker (see next blog entry...)