93041 Mobile at the Base of the Pyramid: Ghana, Mozambique, Nigeria, Zambia Growing Innovation Mobile at the Base of the Pyramid: Ghana, Mozambique, Nigeria, Zambia Summary Report Mobile © 2014 International Bank for Reconstruction and Development / The World Bank Mailing Address: MSN I9-900 1818 H St. NW, Washington D.C., 20433 USA Telephone: (+1) 202-458-4070 Website: www.infoDev.org Email: info@infodev.org Twitter: @infoDev Facebook: /infoDevWBG Some rights reserved. This work is a product of the staff of infoDev / World Bank. Note that the World Bank does not necessarily own each component of the content included in the work. The World Bank therefore does not warrant that the use of the content contained in the work will not infringe on the rights of third parties. The risk of claims resulting from such infringement rests solely with you. 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All queries on rights and licenses should be addressed to infoDev, The World Bank, MSN: I9-900, 1818 H Street NW, Washington, DC 20433, USA; email: info@infodev.org Acknowledgments This study, “Mobile at the Base of the Pyramid,” was commissioned by infoDev, a global technology and innovation program at the World Bank. The study was carried out under the supervision of Maja Andjelkovic of infoDev and prepared by Research ICT Africa’s lead researchers, Steve Esselaar and Christoph Stork. This report was made possible by the support of the Swedish International Development Cooperation Agency. iii Executive Summary significant role in supporting and advocating apps. However, this role is often only partially realized and this report makes recommendations to address this. The key findings in each of the three This report assesses existing mobile application areas, which also apply to app incubators, are: (app) business models targeted at, or suitable for, • Revenue sources—Multi-sided platforms are people living at the base of the pyramid (BoP). an under-exploited business model. Apps are The report addresses specific pain points for app more likely to make profits and be sustainable developers and provides practical, actionable if they provide services to consumers that are advice. Its recommendations are specific to paid for by businesses—the other side of the each of the four countries: Ghana, Mozambique, platform. Of course, the multi-sided model is Nigeria, and Zambia. dependent on apps addressing problems or While assessing the app markets in the four needs experienced by both consumers and countries, it quickly became clear that there is a businesses. wide range of business models. Each business • Payment facility—Premium SMS is the ideal model is unique to the sector and to the business payment facility because it reaches all mobile problem the app is attempting to address. This subscribers regardless of phone type. However, report focuses on three areas common to all premium SMS is challenging because mobile business models to provide maximum value for network operator (MNO) revenue shares can app developers: be very high. Nevertheless, this report finds rates are negotiable and MNOs are beginning • Revenue sources—Generating revenue is at the to realize that high revenue shares are slowing heart of any business model. App developers market growth. At the same time, increasing must choose how to make money from their smartphone penetration and mobile money products and services. Options include in-app adoption is rapidly creating alternative payment advertisements, pay per download of content facilities, outside of MNO control. or app, in-app purchases, upgrading free apps to more feature-rich ones for a fee (freemium), • Distribution platform—MNO stores are ideal and subscriptions. distribution channels because of their access to local subscribers, but this is unrealized. • Distribution channels—The availability of an As a result, independent distribution is the app is dependent on its distribution network. most common option. The Ovi Store1 is a Apps can be distributed through app stores, viable alternative for feature phones, but this mobile operators—through unstructured is an option only in Nigeria where Ovi Stores supplementary service data (USSD) services, have local presence. As smartphone adoption for example—or through local distribution increases, Google Play will become dominant. networks. There is a commercial opportunity for Google • Payment facilities—Main payment options to register developers as merchants, but few for app developers include premium short African developers can take advantage of the message services (SMSs), airtime transfers, opportunity due to different combinations of mobile money, and bank-based payments such regulatory and market barriers. as electronic transfers and checks, or debit and credit cards. This report also presents a brief assessment of 1 The Nokia Ovi Store is an application store for Nokia app incubators or hubs. These incubators play a phones. Nokia was recently purchased by Microsoft. iv • Incubators and hubs—The hubs and incubators There is large untapped potential in all four the team visited were staffed by inspired and countries. The primary obstacle to realizing this motivated personnel. The more structured potential is commercial intelligence that can the environment, the more beneficial it is for enable viable and sustainable app businesses. developers; specific programs are provided at regular and planned intervals. The target is to better mix commercial realities of launching a business with technical skills already available in the hubs. v Table of Contents List of Acronyms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . viii Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Understanding the Base of the Pyramid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Evolution of App Adoption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Smart and Feature Phone User Survey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Hubs and Incubators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Business Models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Basic Business Models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Freemium Business Models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Multi-Sided Platform Business Models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Revenue Sources—Paths to Monetization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 USSD/SMS-Based Content or Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 App Purchase, App Upgrade and In-App Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 In-App Advertisements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Freemium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Subscription . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Other Revenue Sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Payment Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Premium SMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Mobile Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Airtime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Direct Carrier Billing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Platform Currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 vi Distribution Channels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Operator App Stores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 OS App Stores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Handset App Stores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Third-Party App Stores. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Conclusions and Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Annex: List of Mobile Applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 vii List of Acronyms API application programming interface app mobile application BoP base of the pyramid CPC cost per click CPM cost per thousand impressions DCB direct carrier billing ICT information and communication technology IFC International Finance Corporation IP Internet protocol MEST Meltwater Entrepreneurial School of Technology MNO mobile network operator OS operating system RIA Research ICT Africa RoP rest of the pyramid SMS Short Message Service USSD Unstructured Supplementary Service Data VAS value added services VAT value added tax viii Introduction Apps can be used as standalone applications or • Mobile web services are services provided to support or complement products or services. through mini browsers such as Opera Mini. Another use is for content delivery. Products • Mobile applications are software packages and services offered via mobile phones are that run on feature and/or smartphones with further differentiated as mobile services, mobile different operating systems (Symbian OS,3 applications, and the mobile web. Android, iOS, etc.). • Mobile services include premium SMS, USSD,2 All three services—mobile services, mobile and voice services, which can be offered to any web and mobile applications—can be combined mobile user including basic phone users. These in a set of products. For instance, customers services are in the scope of this study as they can send requests via premium SMS to have cater to 80 percent of base of the pyramid (BoP) analytics delivered to their businesses via a mobile users, who mostly use basic phones. These application or mobile web. Mobile web, as such, services can be integrated with mobile apps is outside the scope of this study, it is included and mobile web services. where it is used in the context of mobile apps or services. Most websites have a mobile web view, 2 USSD stands for unstructured supplementary service but including mobile web in this mobile app study data. USSD is a protocol used by GSM (global system would mean including most e-commerce sites. for mobile communications) cellular networks to communicate with MNO servers. USSD is most commonly used for mobile money services. Unlike SMSs, USSD messages create a real-time connection to the server during a session that remains open, allowing a two-way exchange of data. 3 Operating system 2 Understanding the Base of the Pyramid of Internet adoption. They accessed the Internet for the first time on computers, mostly at Internet cafes. In Ghana, 94 percent of BoP users accessed the This section draws on nationally representative Internet from Internet cafes during the 12 months households and a survey of individual access prior to the survey and only 60 percent from to and use of information communication mobile phones. The ratio is reversed for Nigeria technologies (ICT) by Research ICT Africa (RIA). and Mozambique. The survey was conducted in 2012 in Ghana, Nigeria, and Mozambique.4 For the purposes of this report, BoP refers to the infoDev definition of persons who earn less than $2.50 per day.5 Individuals6 were classified in terms of average FIGURE 1: Internet Users Among BoP and RoP household income, that is, household income Customers (%) divided by household size. Less than a quarter of BoP individuals have access to bank accounts and about half own mobile phones. Of those that own mobile phones, 97 percent or more are prepaid; 99.4 percent in the case of Mozambique. Using mobile phones 36 as organizers or clocks and playing games are 31 the most popular activities, besides calling and 14 18 8 10 texting. Only 10 percent use them to browse the Internet. Mozambique Nigeria Ghana Internet use among BoP customers is generally BoP RoP low, between 8 and 14 percent in the three countries. In Mozambique and Nigeria, the majority of BoP users accessed the Internet for FIGURE 2: How BoP Consumers Accessed the the first time from their mobile phones. In Ghana, Internet for the First Time: Mobile Phones or most Internet users are still from the first wave Computers? (%) 4 The Zambia household survey was conducted by Intelecon and Research ICT Africa in 2010, and the results were 30 37 nationally representative. However, due to the sampling methodology, the results could not be disaggregated into 69 the base of the pyramid and the rest of the pyramid (RoP), as with the other country case studies. Also, the results are from 2010 and somewhat dated, when compared to 70 63 the other countries, where the data is from 2012. 5 infoDev, Mobiles at the Base of the Pyramid, infoDev 31 Project Concept Note, August 2011, available at http:// www.infodev.org/infodev-files/resource/ InfodevDocuments_1114.pdf Mozambique Nigeria Ghana 6 Individuals are classified as adults if they are 15 years and older. Mobile Phone Computer/Laptop 4 TABLE 1: Bank Accounts and Mobile Phone Use Among BoP Customers (Age 15+) Ghana (%) Nigeria (%) Mozambique (%) BoP individuals with bank or post office 21.8 21.8 13.9 account BoP mobile phone owners 51.2 61.1 42.1 Types of Prepaid 97.1 98.7 99.4 mobile phones Postpaid 2.9 1.3 0.6 owned Mobile phone capable of 22.7 14.4 22.3 browsing the Internet Usage Browsing the Internet 10.9 10.2 9.8 patterns Skype/voice over IP 1.3 1 5.1 Personal organizer/diary/ 43.6 39.7 75.7 notebook reminder/watch Taking photos or shooting 36.1 36.2 22 video Social networking 8.7 10.9 9 (Facebook, Twitter, Mxit, etc.) Transferring airtime 5.8 37.2 65.8 Sending or receiving 1.5 7.7 6.3 money SMSs to radio or TV 4.8 14.3 18.5 programs Playing games 33.6 53.2 38.6 Listening to music/radio 46.1 50.9 46.2 Downloading applications 10.1 11.3 7.3 Reading and writing 6.6 11.8 7.8 emails (Source: Research ICT Africa, 2012) 5 FIGURE 3: From Where Did Bop Consumers FIGURE 4: BoP Users with Email and Social Access the Internet for the First Time: Internet Networks (%) Cafes or Mobile Phones? (%) 77 80 70 72 64 60 45 82 77 94 46 44 Mozambique Nigeria Ghana Mozambique Nigeria Ghana Internet Café Mobile Phone BoP Internet users with email addresses RoP Internet users on social networks such as Facebook Another trend is the replacing of email by social These figures will have increased since then network applications such as Facebook. This as smartphone and feature phone prices trend is more prevalent on national levels but is have dropped considerably. An entry level also observable among BoP Internet users. In smartphone today is available for as low as Mozambique, more Internet users use Facebook $707 and prices are likely to fall further. and the like than email. For Ghana and Nigeria, • Between 78 and 86 percent of BoP consumers email use is still higher than social network use. do not have bank accounts. SMS or airtime- What are the implications of ownership and usage based payments are the only feasible way, at patterns for mobile application development? this stage, for BoP customers to pay for apps or services. • The RIA survey shows that 23 percent of BoP mobile phone owners in Ghana, 14 percent in Nigeria, and 22 percent in Mozambique had handsets capable of browsing the Internet in 7 What a $70 smartphone means for mobile in Africa, 2012. Between 10 and 11 percent actually used available at https://medium.com/what-i-learned-today/ their mobile phones to browse the Internet. 99674f8d4f6f 6 Evolution of App Adoption 20 percent of nominal SMS value, depending on applicable taxes. • Stage 2—Feature phone: The increasing adoption of feature phones in stage 2 weakens Generally, app adoption takes place over three control of MNOs and opens up the possibility stages for BoP individuals. of third party app stores such as the Nokia Ovi Store. These stores target feature phone users • Stage 1—Basic phone: Here, services can only and can negotiate better payment terms with be provided via SMS or USSD. In 2012, between MNOs by aggregating volumes. 77 and 85 percent of BoP mobile phone users across the four countries used basic mobile • Stage 3—Mobile computing: Smartphones phones that could not browse the Internet.8 open up a third revenue stream for The distribution platforms for basic phones are developers: app sales, in-app sales, and entirely controlled by mobile network operators in-app advertisements. Some MNOs operate (MNOs). MNOs, together with third party app stores, but the most popular are the facilitators, take up to 70 percent of after-tax ones linked to the operating system (OS), SMS value, leaving developers with around 5 to such as Google Play, iTunes, and BlackBerry stores. App stores usually take a 30 percent share, leaving developers with 70 percent, 8 There are no estimates for the BoP population in Zambia because the household survey could not be broken down a major improvement over premium SMS. into BoP and RoP populations Smartphones in stage 3 give developers the FIGURE 5: Evolution of App Adoption :[HNLZ :[HNL!4VIPSL]VPJL :4: :[HNL!4VIPSL]VPJL KH[H :[HNL!4VIPSLJVTW\[PUN (PY[PTL (PY[PTL (PY[PTL 9L]LU\LZV\YJLZ! :OHYLVMWYLTP\T:4: :OHYLVMWYLTP\T:4: :OHYLVMWYLTP\T:4: 4VIPSLVWLYH[VYZ :OHYLVMTVIPSLTVUL`MLLZ :OHYLVMTVIPSLTVUL`MLLZ :OHYLVMTVIPSLTVUL`MLLZ :OHYLVMHWWZHSLZ >LI 9L]LU\LZV\YJLZ! 4VIPSLTVUL`YL]LU\L :OHYLVMWYLTP\T:4: :OHYLVMWYLTP\T:4: +L]LSVWLY >LI 4VIPSLTVUL` :OHYLVMWYLTP\T:4: :OHYLVMHWWZHSLZ 9L]LU\LZV\YJLZ! :OHYLVMWYLTP\T:4: :OHYLVMWYLTP\T:4: :OHYLVMWYLTP\T:4: ;OPYK7HY[` :OHYLVMTVIPSLTVUL`MLLZ :OHYLVMTVIPSLTVUL`MLLZ :OHYLVMTVIPSLTVUL`MLLZ 4VIPSLVWLYH[VYZ +PZ[YPI\[PVU 4VIPSLVWLYH[VYZ 4VIPSLVWLYH[VYZ >LI JOHUULS >LI (WWZ[VYLZ ;LJOUVSVN` )HZPJTVIPSL -LH[\YLWOVUL :THY[WOVUL 5PNLYPH! HWWYV_ VM[OL)V7 HWWYV_ VM[OL)V7 HWWYV_¶ VM[OL)V7 4VaHTIPX\L! HWWYV_ VM[OL)V7 HWWYV_ VM[OL)V7 HWWYV_¶ VM[OL)V7 .OHUH! HWWYV_ VM[OL)V7 HWWYV_ VM[OL)V7 HWWYV_¶ VM[OL)V7 8 widest choice for revenue collection and need to consider that between 77 and 85 percent of distribution. Smartphone penetration among BoP mobile phone owners are still in stage 1. The BoP mobile phone users in all four countries is RIA survey shows that 23 percent of BoP mobile still very low, below 5 percent, but is expected phone owners in Ghana, 14 percent in Nigeria, and to increase with Android-based smartphones 22 percent in Mozambique did not have handsets coming into the market, priced at $70 or less. capable of browsing the Internet in 2012. It is The wider ecosystem in stage 3 includes additional changing rapidly, but the transition to stages 2 and players in the form of Google Play and Facebook. 3 will take time. However, app developers targeting BoP customers 9 Smart and Feature Phone User Survey FIGURE 6: Preferred Payment Methods for App Downloads and In-App Payments by Feature and Smartphone Users (%) This section draws on an entirely online survey   of 1,600 mobile users by research firm Jana9 in    Ghana and Nigeria. Users accessed the survey page via mobile phone, desktop, or tablet. The  details of respondents are displayed in table 2.   9 Jana is the world’s largest mobile research and rewards platform covering 237 mobile operators. Registered panelists log in to mCent, see a list of surveys and .OHUH 5PNLYPH offers available. If they participate, they earn airtime. Respondents can access the survey via any means— (PY[PTL *YLKP[ 4VIPSL 7YLTP\T computer, tablet, or mobile phone. KLK\J[PVU JHYK TVUL` :4: The survey is not representative because TABLE 2: Survey of Smart and Feature Phone participation was based on self-selection; users Users in Nigeria and Ghana could decide to participate or not and there was no random selection. Only the first 800 responses per Ghana Nigeria country were used. The majority of respondents were male, the average age was 23–24, and about Responses 800 800 93 percent had already downloaded applications for their phones. Thus, respondents can be classified Female 23.3% 30.3% as early adopters and indicative of a future trend in Average age 24 23 each country. 60 percent of respondents in Ghana and 52 percent in Nigeria used Google Play to Minimum age 15 15 download apps, indicating that more than half of Maximum age 61 65 respondents were smartphone users. Rural responses 31.8% 24.3% 81 percent of users in Ghana and 66 percent of users in Nigeria preferred airtime deduction to Installed mobile apps 93.8% 92.9% pay for apps. In other words, direct carrier billing App stores Google 60.8% 52.4% (DCB). This is in contrast to the low popularity previously Play of premium SMS, which only scored 4 percent in used Ghana and 6 percent in Nigeria. Because these Nokia Ovi 29.6% 39.5% are early smartphone adopters, it indicates that MTN app 20.8% 23.1% premium SMS is best to target basic and feature Store phone users. As people transition towards smartphones, new payment methods such as DCB Samsung 15.5% 6.5% and mobile money are vital to support innovation in app store the app ecosystem. (Source: Jana mobile user survey) 10 Hubs and Incubators in Accra, Ghana, offer structured daily classes over 18 months, and an additional six-month pre-incubation period. Developers are expected to be on campus from 8 a.m. to 6 p.m. every day. The survey team visited seven app incubators, The better the structure and offerings, the more labs or hubs in the four countries. The visits successful are hubs in encouraging participation were inspiring, thanks to the commitment of the and collaboration from developers. leadership team to develop apps in their country. The second attribute for a hub’s success is a Visiting the hubs across this diverse range of combination of technical and commercial expertise. countries provided a relatively unique perspective: This takes the form of interactions between a helicopter view of hub operations. developers, industry players, and investors A common theme was that the more structured facilitated by the hub. MEST has a particularly the environment, the higher the level of structured approach, which requires that teams— participation and stronger the success of the formed at the end of the third semester (18 months apps. Structure, in this context, means creating into the two-year program)—consist of both dedicated space and time to deliver learning technical and commercial team members. opportunities to app developers. For example, MEST stands out for several reasons: Mobile Web Ghana conducts three-week courses every six months. Course content varies from • Competition and collaboration is built into the technical skills to business modelling for apps. system. Students are aware that they must establish partnerships with fellow students Hub offerings vary; the most basic only provide by the end of their first year. It is also clear shared office space and guaranteed Internet that teams need to include technical and bandwidth. High-end hubs such as the Meltwater commercial team members. Entrepreneurial School of Technology (MEST) TEXT BOX 1: Incubator Case Study: MEST The Meltwater Entrepreneurial School of Technology (MEST) is based in Accra, Ghana. It is funded by the non-profit Meltwater Foundation, which in turn receives funds from the Meltwater Group. MEST is an educational institution with the objective of training young Africans to become software entrepreneurs. During the two-year program at MEST, entrepreneurs develop software applications targeted at the global marketplace. MEST received $20 million funding from the Meltwater Foundation as operational funding for the ten-year period from 2008 to 2018. All education and living expenses are covered for the first year for students enrolled at MEST. At the end of the third semester (18 months into the two-year program), students are required to form teams with the objective of creating a business. This first step is a selection process. Teams must consist of commercial and technical team members. Once teams are formed, each team is given three months to come up with a business concept and pitch for investment. If the investor decides to invest in the concept, MEST covers all expenses for another nine months. If the investor decides not to invest, then the team’s time at MEST is over. If MEST decides to invest in a project, it acquires between 20 percent and 40 percent equity in the business. The founders’ equity (the remaining equity after MEST has taken its share) is vested in a trust over a period of four years, each founder being allocated equity regularly over this period. If one of the founders quits after six months, they receive their percentage of equity allocated. If the concept is sold during the course of four years, MEST gets 100 percent of the equity it was promised during the investor pitch, even if the full vesting period has not been completed. 12 TABLE 3: App Hubs and Incubators Nigeria ccHub ccHUB is a for-profit multi-purpose space for creative social technical ventures. Its primary role is to bring together stakeholders—technologists, social entrepreneurs, government, technology companies, impact investors, and hackers—to address social problems in Nigeria. ccHub has four tiers of membership, ranging from free virtual membership (red membership) to blue membership, which costs Nigerian naira 300,000 ($1,902) per year. It is targeted at small and medium businesses. iDEA hub Founded in 2013, iDEA is a not-for-profit organization. Its primary aim is to accelerate the development of the software industry in Nigeria. Entrepreneurs accepted into iDEA centers receive support in terms of physical work space, shared facilities, training, mentoring, and access to capital. Ghana Hub Accra Hub Accra provides co-location space, bandwidth, and conference rooms. Hub Accra runs training programs via Startup West Africa and provides the opportunity to network with a range of stakeholders. Membership fees range from Ghanaian cedi 5 ($2.43) per day to Ghanaian cedi 1,000 ($487) a year. Mobile Web Mobile Web Ghana is a non-profit organization that supports app development. Ghana It offers co-location and bandwidth space. Mobile Web Ghana also runs mobile entrepreneurship training sessions every six months, followed by a period of mentorship and incubation. Membership ranges from free (crystal) to platinum, which is Ghanaian cedi 35 ($17.1) per month for a minimum of a year. Zambia BongoHive Founded in May 2011, BongoHive provides co-location space for Zambian entrepreneurs to create sustainable apps. Membership to BongoHive is free. The objective is to get people to meet and share experiences with each other and develop sustainable apps through collaboration. BongoHive equips and connects creative technologists by providing forums for collaboration, information and training for skills enhancement, and exposure to potential clients, investors, and partners. Mozambique Maputo Living The Maputo Living Lab (MLL) is a collaboration between the Eduardo Mondlane Labs University (EMU) and the Autonomous Province of Trento (Italy). The Maputo Living Lab’s goal is to use ICT to stimulate development and create new business opportunities for the local community, and also create joint-ventures with international investors. Exchange rates are based on average exchange rates for 2013, source Oanda.com • Awards are given out at regular intervals. Just • Failure has consequences—students have to getting enrolled at MEST, with all living and leave MEST if they cannot achieve certain goals tuition expenses covered, is an achievement. at various stages. Then, there is the option to stay an additional • MEST has significant funding, allowing it three months to work on a business concept to plan for the longer term and to bring in and pitch to investors. If successful, students resources to train students in cutting-edge are funded for a further nine months for tuition technologies. and living expenses. 13 • There is a daily structure; students are and experiment with different revenue streams expected to be on campus from 8 a.m. till and business models. Several viable businesses 6 p.m. every day. have been created, as a result. • MEST is an ideal model for a hub, with the Hubs have an important role in the app ecosystem caveat that it is an expensive model. in terms of imparting technical and commercial The contrasting models of the other six hubs skills and as advocates for app developers. For provide a useful counterpoint. Without the funding example, hubs could play an important advocacy resources of MEST—and its structure—the other role in encouraging operators to adopt direct hubs are primarily co-location areas, providing carrier billing as a payment channel. Internet bandwidth and desk space. The hubs do try to create a collaborative atmosphere through Hubs with more structured environments seem special training events and app competitions, but to better understand the commercial realities both collaboration and competition are transitory. of launching an app. In comparison, hubs that The discipline required to create apps with assume ad hoc networking will automatically commercial returns on investment is missing. App produce synergies between developers, rarely developers at MEST, in contrast, actively research achieve success. 14 Business Models FIGURE 7: Overlap of Choices Entrepreneur, software developer, and business school professor Tomi Davies, during an interview10 in Lagos, defined a business as an Distribution Channel entity that must solve a problem, make a profit, obtain customers, and keep them. Applied to app development, a developer has to choose a problem to solve and think about how to make Payment Revenue money from solving it. Revenues need to exceed Facilities Sources costs. The first important consideration is revenue sources. Obtaining customers is about choosing the right distribution channels and using suitable payment channels. Keeping customers is about continuously delivering value. services. The key feature of a multi-sided platform Decisions on distribution channels, revenue is that it facilitates transactions between two (or sources, and payments are intertwined. Most more) distinct yet interdependent customers. developers choose several combinations, either sequentially or simultaneously. • Revenue sources: Fees and subscriptions, Basic Business Models in-app advertisements, pay-per-download The three basic business models are displayed in of content or apps, in-app purchases, and figure 8. upgrade of free apps to paid feature-rich apps. • Distribution channels: Via an app stores or App Store directly to MNO subscribers as value-added The key feature of the app store model is that services (VAS). content or services are sold by app stores such as • Payment options: Premium SMS, mobile Google Play or Nokia’s Ovi Store. The developer money, airtime, credit or debit card, and cash gets a share of the value of the app. For example, or checks. in the Google Play store, a developer receives 70 percent and Google Play 30 percent. This The combinations of these determine the business applies to in-app purchases too.11 models available to app developers. Broadly, there are three categories of business models in order In this business model, these are the key questions of complexity: basic, freemium, and multi-sided that developers should ask: platforms. The basic business model includes three versions: app store, VAS provider and • How does the developer gain visibility in the content provider. The key feature of the freemium app store? business model is that it is a blended model: • What is the payment mechanism? Google free services are offered alongside premium paid Play does not allow a business in any 10 Tomi Davies is CEO of TechnoVision Communications and 11 Google Play, 2013. In-App Billing Availability and a visiting professor at Lagos Business School. He was Policies, available at https://support.google.com/ interviewed by the author on October 23, 2013. googleplay/android-developer/answer/1153481 16 FIGURE 8: Basic Business Models App purchase Revenue Developer App Store Customers Share in-App purchase Monthly Bulk SMS Businesses VAS Provider Customers subscription Premium SMS Content Customers Provider Bulk SMS African country to register as a merchant, so on iTunes for $0.99. Revenue share is 70/30, with developers would have to go to other countries 70 percent going to the developer. that act as intermediaries with Google. VAS Provider • What is the revenue share with the app store? The MTN App Store in Nigeria has a revenue The key feature of the VAS provider model is share of 40/60, with 40 percent going to that content and/or services are distributed by developers. In comparison, the revenue share bulk SMS, which is paid for by businesses or for Google Play is 70/30, with 70 percent to institutions. In this model, the distribution channel developers. is not an app store, but the mobile network operator (MNO) network. These are the key • Are there any particular benefits of each app questions that a developer should ask: store choice and/or conditions of exclusivity? For example, local app stores may promote • Does the client provide the subscriber database apps but require exclusivity in return. or is it from a third party? An example of the app store business model is • How do developers market their services to the iWarrior game from Leti Arts. This is a game businesses? Where do they find businesses with African iconography. The purpose of the game that are interested in sending bulk SMSs to the is to protect a village from wild animals such as developer’s customer base? elephants, lions, and cheetahs. iWarrior is sold FIGURE 9: iWarrior Business Model Revenue share OS store purchase App store Customers 17 FIGURE 10: mNotify’s Business Model Monthly Developer subscription m notify Bulk SMS Wholesale Bulk SMS Customers Bulk SMS other m-apps or resellers An example of the VAS provider business model An example of the content provider business is mNotify in Ghana. mNotifiy provides bulk SMS model is Exam Success Points. This is a mobile services to businesses, institutions, individuals, application providing learning notes for O-level and clubs. Clients can send bulk SMSs through examinations in Nigeria. The notes are available the mNotify webpage. Subscriptions are linked to for English, Physics, Chemistry, Biology, and the quantity of SMSs and vary from Ghana cedi 5 Economics. The application is available for feature ($2.44) for 148 SMSs to Ghana cedi 500 ($244) for phones and Android phones, but not through 17,858 SMSs. mNotify also offers an application Google Play. The Android version is downloaded programming interface (API) to app developers directly from the publisher Greenspek’s website. that allows them to include an SMS-based Greenspek initially allowed payment through notification feature in their applications. airtime. When subscribers grew concerned that airtime would be charged and no download would Content Provider be received, it switched to a premium SMS model. The key feature of the content provider model is Exam Success Points has a 60-second free trial that customers pay for content and/or services after which subscribers have to pay Nigerian naira through premium SMS or interactive voice 100 ($0.63) via premium SMS. Of this, Greenspek response (IVR). Premium SMSs are distributed via receives between Nigerian naira 20 ($0.13) and 40 the MNO network. The content provider receives ($0.25) depending on the operator. On an average, a small revenue share of the premium SMS value, Greenspek receives Nigerian naira 25 ($0.16) per but the main portion goes to the MNO. These are Nigerian naira 100 ($0.63) across Nigeria’s three key questions that developers should ask: major networks. Exam Success Points had been downloaded 47,250 times at the time of this survey. • What is the revenue share between MNO and developers? Nandimobile is another example of the content provider business model. Its main product is • Is marketing done by the MNO? If not, how will Infoline, a web and mobile application that enables developers ensure that customers are aware of organizations and businesses to interactively their content or services? communicate with customers. Companies send FIGURE 11: Exam Success Points Business Model <:+WLY WYLTP\T:4: (WWKV^USVHK .YLLUZWLR 95% Developer revenue share: >95% Developer revenue share: >95% Developer revenue share: >99% Mobile money Customer base: 1.5 million (active) Customer base: 400,000 Customer base: 417,000 Customer base: 400,000ϩ Bank-based: Bank-based: Bank-based: Bank-based: Bank-based: Developer revenue share: >95% Developer revenue share: >95% Developer revenue share: >95% Developer revenue share: >95% EFT/check Customer base 15ϩ: 27.6 million Customer base 15ϩ: 4.3 million Customer base 15ϩ: 2.3 million Customer base 15ϩ: 2.1 million Developer revenue share: >95% Developer revenue share: >95% Developer revenue share: >95% Developer revenue share: >95% Credit/debit card Customer base: unknown Customer base: unknown Customer base: unknown Customer base: unknown Other: Other: Other: Other: Other: Vouchers/ Developer revenue share: >95% Developer revenue share: >95% Developer revenue share: >95% Developer revenue share: >95% scratch cards Customer base 15ϩ: 66 million Customer base 15ϩ: 8.8 million Customer base 15ϩ: 7.8 million Customer base 15ϩ: 5.5 million 28 FIGURE 21: Payment Facilities in Terms of Reach to Subscribers (in millions) 66 27.5 8.8 5.5 7.8 1.5 4.3 2.1 2.3 0.417 0.4 0.4 Nigeria Ghana Mozambique Zambia Bank-based Operator-based Mobile money transactions are even possible. As a result, delivery. In Mozambique, short codes are allocated most mobile money providers target high value largely to MNOs, making it difficult for app transfers rather than micro-payments.18 developers to access. Micro-payments are an enabler for mobile Of the four countries, Mozambique has the application innovation. Premium SMS is the most best revenue split for premium SMS, with app viable payment option precisely because it can developers receiving up to 40 percent. Nigeria handle micro-payments. Mobile money is not, at follows closely behind with developers getting this point, a viable alternative because it caters 37 percent of revenues. The worst operating only to high-value person-to-person transactions. environments are Ghana and Zambia, where app developers can receive between 5 and 15 percent of revenues. The poor economics of premium SMS Premium SMS in these countries is apparent from the massive numbers of premium SMSs that need to be Premium SMSs are similar to ordinary SMSs. downloaded to make $5,000 per month. The key However, instead of content they contain a payment findings for each of the four countries are: instruction. When a subscriber sends a premium SMS, her/his airtime is reduced by a specified • Nigeria: This country has the most favorable value, usually higher than the cost of a standard conditions to deploy premium SMS due to the SMS. Because these messages involve a premium market size, low VAT, and a revenue share of fee, they incorporate a special number (known as a 60 percent off a massive subscriber base. ‘short code,’ consisting of 4 to 8 digits). • Mozambique: This is the second most favorable In some countries, using premium SMS is country. It has a much smaller subscriber restricted and is therefore controversial. In base, but MNOs have realized that the shift Zambia, the regulator charges developers or to smartphones and data applications is an aggregators $3,000 for the use of a designated opportunity and therefore offer the most short code in an attempt to control content flexible terms among all MNOs covered in the study. Operator revenue shares are 40 percent for Mcel and 50 percent for Vodacom and are 18 While MPESA in Kenya has recently allowed micro- negotiable, based on the business model and payments, mobile money providers in Zambia, Nigeria, nature of the app. Mcel additionally offers or Ghana do not support micro-payments. 29 FIGURE 22: Number of Premium SMSs, at $0.10 per SMS, Required to Raise $5,000 (detailed calculations can be found in the country reports) 4;55PNLYPH  4JLS4VaHTIPX\L  =VKHJVT4VaHTIPX\L   (MYPJVUULJ[AHTIPH^P[OV\[HNNYLNH[VY   (MYPJVUULJ[AHTIPH^P[OHNNYLNH[VY    =VKHWOVULNOHUHIHZLKVU9HUJHYK  =VKHWOVUL.OHUHIHZLKVU:4:./  4;5VY;PNV.OHUHIHZLKVU9HUJHYK  (PY[LS.OHUHIHZLKVU9HUJHYK  4;5VY;PNV.OHUHIHZLKVU:4:./  (PY[LS.OHUHIHZLKVU:4:./   fixed bands rather than revenue shares for Mobile Money SMS services based on interactivity, allowing developers to retain as much as 89 percent of At this stage, mobile money, across all four revenue. countries, is not a viable payment facility. Mobile money rollouts have been weak, the • Zambia: Premium SMS is not an attractive markets fragmented, and, with the exception of payment facility in Zambia. Taxes, such as VAT Mozambique, do not cater for micro-payments and regulator’s fee (short code tax of $3,000), because of high transaction fees. are high and revenue share is not as flexible when compared to the other three countries. In the medium term, Mozambique shows the Also, an exorbitant premium SMS license greatest potential for mobile money as a payment fee ensures that it is attractive only to large facility because it already allows micro-payments corporates (such as banks and large retailers). and is actively growing the merchant network. • Ghana: Premium SMS is a last-resort Nigeria payment facility. Revenue share of Airtel, an MNO, for example, is 70 percent and not IFC rates Nigeria as one of two countries in the negotiable. Premium SMS makes sense only world with high mobile money potential.19 in combination with multi-sided platform business models and where main revenues 19 CGAP, Mobile Money Market Sizing Toolkit, available at come from other sources. http://tinyurl.com/onv8q8c FIGURE 23: Cash-to-Cash Cost for $0.50 from Registered User to Registered User (%)20  4;5.OHUH   ;PNV.OHUH  DO NOT DELETE ME - I AM FOR FOOTNOTE  FOR 47,:(4VaHTIPX\L FIGURE 23 20   7VJRL[4VUP7H`HZ`V\.V5PNLYPH  20 Service provider websites and author calculations. 30 FIGURE 24: Cash-to-Cash Transfer Costs for $10 from Registered User to Registered User (%)21 4;5.OHUH  (PY[LS.OHUH  ;PNV.OHUH  T2LZO4VaHTIPX\L  DO NOT DELETE ME - I AM FOR FOOTNOTE  FOR 47,:(4VaHTIPX\L FIGURE 24 21  AVVUHAHTIPH 7VJRL[4VUP7H`HZ`V\.V5PNLYPH  7HNH5PNLYPH  Unfortunately, mobile money penetration number of active mobile money users is low, in Nigeria is still insignificant. There are around 400,000 in a population of 25.37 million, approximately 1.5 million active mobile money a penetration rate of 1.5 percent. Also, mobile subscribers in a population of 150 million, a money initiatives are not technically structured penetration of 1 percent. Paga, the largest mobile to appeal to app developers. APIs are not publicly money provider in Nigeria with over 1 million available for example. A developer can get subscribers22 has an agent network of 3,500,23 access to an API through negotiations with each which is tiny in comparison to MPESA in Kenya operator, and usually only after the operator with over 65,000 agents for a population of 43 has assessed his business model. Apart from million. The number of mobile money agents in technical obstacles, two of the three mobile money Nigeria is very small because agent networks operators in Ghana are not set up to effectively have to be built from scratch, rather than rely on process micro-payments: both MTN Mobile Money already established MNO networks. and Airtel Money have a minimum charge of Ghanaian cedi 1 ($0.50), representing a transaction This is because MNOs, with large networks of fee of 100 percent for payment of Ghanaian cedi 1. agents, are not allowed to lead mobile money Tigo Cash is a substantially cheaper service with initiatives or brand mobile money. Instead, transaction fees of 3.5 percent on a transfer mobile money is branded by banks and third of Ghanaian cedi 1 and can therefore handle parties. Mobile operators are required to form micro-payments. As mobile money penetration a consortium with a bank or non-bank partner increases, Tigo Cash may represent a significant taking the lead. From the perspective of a mobile opportunity for app developers to integrate mobile money operator, this means the lead partner money as a payment facility. To be appealing to an reaps all the benefits of the MNO’s agent network app developer, all mobile money solutions should without any of the costs associated with setting ideally integrate into the app. it up. As a result, MNOs have very little incentive to participate in mobile money initiatives. Thus, Zambia the primary obstacle in Nigeria is the regulatory Superficially, mobile money in Zambia is very framework. If the Central Bank of Nigeria eases attractive: Airtel Money alone reports more regulatory rules governing mobile money, it than 1.2 million users. But these high numbers may become a viable payment facility for mobile disguise the fact that very few subscribers are applications. Until that happens, however, mobile active users. Airtel Money is a default option for money is not practical in terms of mass adoption. new Airtel subscribers but few go on to use the Ghana service. Airtel Money agents have struggled with liquidity and potential customers have been turned After premium SMS and airtime, mobile money away. Active users are less than 10 percent of the is the most ideal payment facility. However, the 1.2 million subscribers. Similarly, MTN Mobile Money has around 700,000 subscribers but active users constitute 7 percent of that total (49,000 21 Service provider websites and author calculations. subscribers).24 22 Paga, 2013, available at https://www.mypaga.com/ paga-web 23 Author interviews with Paga 24 Author interview with MTN 31 Outside of the MNOs, Zoona is an independent for mKesh. More importantly, merchant and PoS operator, which provides traditional mobile (point of sale) payments are free for consumers. money services. Zoona is also trying to grow the The APIs for MPESA and mKesh are not publicly small business ecosystem by offering working available and have to be requested for from capital financing packages linked to using Zoona operators. mobile money. The more Zoona mobile money is used for a small business, the more working Both mobile money implementations offer capital that business can access. However, at this promising avenues for developers to collect stage Zoona is focused on expanding its mobile revenues. While free apps may be distributed money transactions by integrating Airtel Money’s through global app stores, mobile money can be operations. Zoona is taking over Airtel Money accessed through the app to pay for services (in- operations, including its agent network, and app purchases). addressing the lack of liquidity being experienced at Airtel Money agent locations. A major obstacle to wider use is the high cost of a cash-to-cash Airtime transaction. Airtime is, theoretically, an alternative to premium Mozambique SMS as a payment facility. It has the same attractive features: a potential subscriber base MPESA was launched by Vodacom Mozambique of all mobile subscribers and a payment method on May 16, 2013.25 Vodacom said that it had about with which subscribers are familiar. However, 250,000 activated (registered and then activated) there are two challenges: first, it cannot be easily users in November 2013 and mKesh had about integrated into an app but requires a separate 157,000 active users. Mobile money use is thus transaction where the buyer has to send airtime very limited as a means of collecting revenues, but to the seller and assume that the seller will honor that may change within a short period of time. The the transaction. Second, mobile operators oppose total cost of cash-to-cash payments with mKesh the use of airtime as a payment mechanism27 and ranges from 50 percent for micro payments of very few developers have integrated airtime as a Mozambican metical 20 ($0.67)26 to 0.22 percent payment facility in any of the four countries.28 Also, for the maximum amount of Mozambican metical airtime as a payment facility involves the challenge 25,000 ($839). The actual costs for mobile money of cashing out: the accumulated airtime has to be users could be considerably lower when, for resold for cash. example, paying merchants. The merchant payment fee for mKesh is Mozambican metical 1 ($0.03) per transaction. Mobile app developers may register as merchants and thus allow users Direct Carrier Billing to only pay Mozambican metical 1 ($0.03) instead Direct carrier billing (DCB) is the direct deduction of the Mozambican metical 5 ($0.17) transfer fee. of mobile airtime when a consumer buys an app. Developers can convert mKesh to money once When compared to premium SMS, DCB offers the maximum amount of Mozambican metical greater flexibility—payment can be deducted 25,000 ($839) is reached for a fee of Mozambican in-app rather than by sending or receiving an metical 50 ($1.67). This translates to a 0.2 percent SMS. Also, DCB is integrated directly into the transaction fee. MNO’s billing platform. However, DCB is not yet available on all networks in the four countries. In Transfers of Mozambican metical 20 ($0.67) to terms of revenue share, DCB is far more attractive 100 ($3.35) is free on MPESA for a promotional than premium SMS as operators typically receive period. New prices were yet to be announced at the time of this survey. The free micro-transfer for registered users and Mozambican metical 3 ($0.1) 27 One of the reasons mobile operators oppose using fee for non-registered users makes micro cash- airtime as a payment method is that central banks to-cash transactions affordable with only a 15 tend to discourage it as it can potentially become an alternative currency and can hide money laundering. percent transaction fees, compared to 50 percent 28 Greenspek, developer of apps such as Exam Success Points, My Abuja and First Aid, initially started using 25 AllAfrica.com. Mozambique: Vodacom Launches MPESA airtime as a payment facility, but reported that users Service, accessed in December 2013, available at were reluctant to pay because they were concerned 26 Exchange rate is based on average exchange rate for the that their airtime payment would disappear and the app year 2013, source Oabda.com. download would not take place. 32 between 10 percent and 20 percent of revenues to these subscribers, though this advantage rather than the 60 percent to 70 percent, which is is being eroded as smartphone penetration typical of premium SMS. increases. Experimental payment facilities, such as ChopUp Coins, are worth investigating if an app developer is unable to negotiate fair terms with an Platform Currency MNO. Virtual currencies can be reloaded through various payment options including mobile money, The only platform currency available in an which provides greater flexibility compared to app is ChopUp in Nigeria. ChopUp is a social premium SMS. Direct carrier billing is an exciting platform, created by Pledge51, the company possibility, but is yet to be implemented in any of that launched the games Danfo and Danfo the four countries. The mobile user survey showed Reloaded II. ChopUp allows players to interact that as users transition towards smartphones, based on in-game achievements. ChopUp captures DCB will become an important part of the app the various conversations players have while ecosystem. playing games such as Danfo Reloaded II and is available across multiple platforms, including Mobile money as a payment facility is still Android, iOS, and Java. Features include real- developing and penetration will continue to be time online leaderboards, recognition of in-game slow until regulatory obstacles can be addressed. achievements online, and a virtual currency called Outside of regulatory obstacles,29 mobile money ChopUp Coins that can be used across and within providers do not cater to micro-payments because games. Given the challenges involved in creating transaction fees are extremely high for small customer awareness and that a viable alternative transfer amounts. The focus of mobile money is available in the form of premium SMS, a remains on person-to-person transfers and platform currency is unlikely to become a feasible basic bill payments. Small value payments for payment facility. apps using mobile money will depend on both commercial and regulatory obstacles being addressed, unlikely in the short term. Mozambique Conclusions is an exception in that its micro-merchant payments are affordable. The main challenge in Premium SMS is the most viable payment facility Mozambique is to grow the agent and merchant across all four countries. This conclusion is based networks. on market sizes in general, and that a large number of subscribers still use basic and feature phones. Revenue share can be negotiated with 29 With the exception of Mozambique, which is pioneering the use of micro-payments in mobile money. operators, depending on subscriber volumes. MNO stores have the unique advantage of having access 33 Distribution Channels Distribution is driven by the size of the consumer market and estimates of its potential growth. For example, BlackBerry is still a viable platform in Africa because of the large number of consumers The availability of mobile applications depends that have BlackBerry phones, while In North on distribution networks. Distribution can take America and Europe, developers are moving away place through app stores, mobile operators from BlackBerry. (through USSD services, for example), through Android and iOS dominate with nearly two-thirds local distribution networks, or viral marketing. market share. Mobile web (especially HTML5) has WhatsApp is an example of a mobile application a significant market share of around 17 percent. with an exploding subscriber base because it addresses a clear problem, especially in Africa: expensive SMS messages. Operator App Stores Using USSD or SMS-based services to deliver MTN Ghana and MTN Nigeria were the only content has the advantage of having the operators with app stores in the four countries distribution channel already in place through surveyed. In both countries, the stores have mobile networks. This is the main justification been operational for only a few months. MTN is given by operators for their high revenue shares. attempting to increase the range and relevance In addition, operators actively market VAS content of apps by hosting the MTN App Developer on their platforms. App developers also have the Challenge, an app competition. MTN splits choice of operator app stores, operating system revenues 60/40, with MTN receiving the larger (OS) app stores, independent app stores, or local share. In comparison, the Google Play store splits app stores. There are several options for global revenues 70/30, with the app developer receiving stores. The basic features of each global OS store the larger share. MTN’s justification for the larger are summarized below: revenue share is that it promotes local apps via its TABLE 5: OS App Store Features Total number of Apps Name Established Revenue Share (approximate) Apple App Store 2008 70/30 Ͼ1 million BlackBerry World 2009 70/30 235,000 GetJar 2004 Free 750,000 Nokia Ovi Store 2009 70/30 120,000 Samsung App Store 2009 70/30 Unknown Windows Phone Store 2010 70/30 125,000 (Source: App store websites) 34 for premium SMS. It ignores the fact that the app TABLE 6: Platforms Used among Mobile App ecosystem is characterized by different mechanics Developers and the value chain is no longer fully controlled by MNOs. MTN will need to align its revenue share to global standards in the medium term or lose this Platform Percentage of Developers business altogether. Android 34.4 Other mobile operators have not yet launched app iOS 32.7 stores. In Nigeria, the volumes of MTN App Store downloads are small, indicative of the challenges HTML5 mobile 17.3 facing operator app stores. Windows Phone 4.5 While competitions, such as the App Developer BlackBerry 4.2 Challenge, offer avenues to increase the supply of apps, one-off competitions are unlikely to initiate Others 7 a dramatic change in availability of apps and (Source: Visionmobile, 2013) number of downloads. The challenge is that too few apps use available payment facilities, such as premium SMS, because of the perceived inequity in network, something that Google Play is unable to revenue share. The universal complaint from app do. However, there are hardly any apps that have developers was that revenue share was unfair and payment facilities, so revenue share is a moot that payment, when it did take place, was often point. The 60/40 split is likely to be motivated by delayed by months. the high revenue shares that the operator takes TABLE 7: MTN App Store Top 10 Downloads Platforms Date of Submission Chat with Annabel Android, Java, BB August 6, 2013 Akpos Jokes Android, Java, BB August 5, 2013 Nearest Locator Android, Java, Symbian July 2, 2013 ATM LOCATOR Android August 2, 2013 TRACKMYCASH Android July 2, 2013 HEALTH TIPS Android August 12, 2013 1999 Constitution Amended Android, Java, BB September 3, 2013 HNICS’s Maths Table Android September 24, 2013 MTN Info App Android August 11, 2013 AndroTUBE - YouTube Downloader Android June 9, 2013 (Source: MTN Nigeria) 35 Operator app stores suffer from the archetypal Handset App Stores causality dilemma: if app developers have a viable business model, then MNOs will offer good terms. The Nokia Ovi Store is one of the largest app From a developer perspective, if MNOs offer good stores because it is targeted at Nokia feature terms, then app developers will develop apps. phones only. Nokia has a separate app store MNOs are preoccupied with the app business targeted at its range of smartphones, Asha and model and require app developers to submit Lumia. For paid apps, revenue share is 70/30, business plans to even get the API. App developers with 70 percent going to the app developer. In-app distrust MNOs and feel they are not being payment is made primarily through premium SMS. treated fairly. The net result is inaction. However, So MNOs play a critical role in payments. Nokia MNOs are prepared to negotiate and there is has rapidly expanded operator billing but this is a chance that all parties can profit with better not yet available in any of the four countries. The communication and commitment from both Nokia Ovi Store can be accessed from any of the sides. four countries, but it has a local presence only in Nigeria. This gives Nigerian app developers a The MNO approach fails to acknowledge that crucial advantage because Nokia can negotiate app success cannot be determined by reading better terms with MNOs, particularly for premium business model reports behind a desk. The app SMS. In Nigeria, Nokia started with a 40/60 needs to be available for download and be modified revenue share with MTN (MTN taking 60 percent) according to user demands. Apple and Google, but has since negotiated the split down to 50/50. for example, do not vet business models of apps For new app developers, without a significant submitted to their stores. As long as the technical number of downloads, going via the Nokia Ovi requirements—and in Apple’s case, some content Store is more attractive than going directly to requirements—are met, the app is free to launch. MNOs or SMS aggregators. OS App Stores Third-Party App Stores International stores such as Google Play and GetJar is a major third-party OS store in Nigeria. BlackBerry World are the primary distribution It is independent of handset operators (such as platforms for the smartphone market. Uploading Nokia) and OS stores (such as iTunes, Google on Google Play is free and revenues are split 70/30. Play, and BlackBerry World). Uploading apps on Payment facilities are not available on the African to GetJar is free and there are no revenue share continent for Google Play, so apps that target requirements. This is an attractive option for Africans are generally free. However, developers developers from a revenue sharing perspective. can enter into agreements to work through GetJar and wireless application protocol (WAP) partners registered as Google Play merchants on sites (such as sefan.ru) are more popular among other continents. BoP consumers than Google Play and BlackBerry World since most use feature phones.31 BlackBerry World (formerly BlackBerry App World) is the app store for BlackBerry devices. There are also websites that act as content BlackBerry World has 120,000 apps and payment aggregation platforms and users can log on to can be made by credit card and PayPal. In some get apps, music, and videos. Examples include countries, payment can be made through carrier www.waptrick.com and www.sefan.ru. billing, but this is not available in any of the four countries surveyed. BlackBerry World is the third largest app platform in the world, after iOS and Conclusions Google Play.30 Due to its efficient compression technology—resulting in lower bandwidth use— MTN is the only operator that has launched BlackBerry is a popular smartphone in Africa an app store, which is available in Nigeria and and is still seen as a viable development platform Ghana. Since the MTN App Store was only recently despite its declining user base in Europe and launched, consumer visibility is low but this will North America. change as MTN continues to market it. While MNO 30 VisionMobile. Developer Economics 2013. Developer 31 Comments from Zubair Alhaji Abubakar, co-founder of Tools: The Foundations of the App Economy. Pledge51 36 FIGURE 25: Waptrick Website app stores, because of their local presence, are audiences, but suffer from lack of payment the most logical channels from which to distribute facilities and local information. apps, MNOs are still trying to understand the app • Independent distribution can be a viable environment and gaining access to the app store strategy but is dependent on well-established API for a developer is cumbersome. New app social networks. developers need to consider the following: • The Nokia Ovi Store in Nigeria is worth • Operator app stores have potential but require considering if the target market is Nokia investment from both app developers and feature phone customers and the payment MNOs. facility is premium SMS. • Global stores such as BlackBerry World and Google Play offer the highest traction with local 37 Conclusions and Recommendations • Premium SMS: In Ghana, few app developers use premium SMS as a payment facility due to unfavorable revenue-sharing. The picture is more positive in the other three countries, The objective of the case studies in four countries where premium SMS volumes needed to make is to identify and explore scalable business models $5,000 per month are significantly lower. and present concrete solutions to challenges However, there are two important points faced by app entrepreneurs. Because business with regard to premium SMS: first, rates models vary substantially across industries and are generally negotiable despite operators countries, the research focused on three key insisting that premium SMS rates are fixed, areas: revenue streams, payment facilities, and so developers should not be discouraged; and distribution channels. Key business models second, premium SMS provides more reach in identified by this study can be grouped into content terms of subscribers than any other payment providers and multi-sided platforms. The specific facility. recommendations for these are: • Mobile money: Mobile money, across all four countries, is not widely used at this stage. • Content provider: Content can be delivered as Mobile money rollouts have been weak, downloadable apps and SMS or USSD-delivered markets fragmented and, with the exception of information. Payment for the content is usually Mozambique, do not cater for micro-payments through premium SMS. The advantage of this as transaction fees are high. In the medium approach is its simplicity. Content is pushed term however, mobile money in Mozambique out to subscribers via MNOs. However, while shows the greatest potential. Mobile money the content provider model is successful, providers in that country have created a its simplicity is also a disadvantage. This is platform with extremely low transaction fees because MNOs dominate the value chain and for micro-payments, ideally suited to app keep the majority of revenue. developers. • Multi-sided platforms: There are three In terms of distribution channels, global app configurations of successful multi-sided stores, such as Google Play, do not specifically platforms that tap revenue streams and are cater to local conditions or populations. By virtue partially independent of MNOs. Content can of its subscriber base, an MNO store has an be provided for free or at low cost to end users advantage over global stores and is able to market by charging the party that is either interested apps with local content more easily. in the content delivery or benefits from the interaction. In-app advertisement is one of the • Operator app stores: Operator app stores suffer most potent revenue streams for smartphone from the archetypal causality dilemma: if app app developers. Free apps can grow user bases developers have a viable business model, then more quickly than paid apps and hence are MNOs will offer good terms. From a developer more attractive to advertisers. perspective, if MNOs offer good terms, then The most viable payment facility for apps targeting app developers will develop apps. The net BoP customers is premium SMS. Mobile money result is a dearth of local, commercial apps. is currently not widely used and so does not However, the ability to target local populations feature as an alternative. However, this is likely provides MNO stores with a unique advantage— to change over the next few years, particularly in just one that is not yet fully exploited. Mozambique. • Google Play via merchants: The alternative distribution platform is a global app store such 38 as Google Play. While access to Google Play is cultivating apps and conducting advocacy on their far easier than access to an MNO app store, behalf. The final recommendation refers to the role Google Play suffers from two disadvantages: that incubator hubs can play in app development. access to the local population and lack of payment facilities, both in-app and for the app Incubator hubs, such as MEST, can positively purchase. There is an advocacy role here for impact the app environment. There are three roles app stakeholders. to play: first, as an education and training space; second, as an advocate for policies that support In addition to business model aspects, the industry stakeholders; and third, as a place for environment for apps has a direct impact on the potential investors to meet entrepreneurs. The level of application development in each country. more structured the hub’s environment, the more Because development capacity in each country is easily will it meet these objectives. limited, incubators or hubs play a crucial role in 39 References AllAfrica.com. Mozambique: Vodacom Launches MPESA Service, accessed in December 2013, available at http:// allafrica.com/stories/201305280313.html. BuzzCity, 2013. The BuzzCity Report: A Quarterly briefing on the mobile Internet. Vol. 3 Issue 4: October 2013, available at http://www.buzzcity.com/l/reports/The-BuzzCity-Report-Vol-3-Issue-4.pdf. CGAP. Mobile Money Market Sizing Toolkit. Accessed in November 2013, available at http://tinyurl.com/ onv8q8c. Google, 2013. In-App Billing Availability and Policies. Accessed in November 2013, available at https://support .google.com/googleplay/android-developer/answer/1153481. Google Play, 2013. Supported locations for merchants. Accessed in November 2013, available at https://support .google.com/googleplay/android-developer/answer/150324?hl=en&ref_topic=15867. infoDev. Mobiles at the Base of the Pyramid. InfoDev Project Concept Note, August 2011, available at http://www.infodev.org/infodev-files/resource/InfodevDocuments_1114.pdf. Margaux, 2013. What a $70 smartphone means for mobile in Africa. Available at https://medium.com/ what-i-learned-today/99674f8d4f6f. Mobile Payments Today. October 15, 2013. Direct Carrier Billing: The world’s most popular mobile payment. Available at http://www.mobilepaymentstoday.com/blog/11377/Direct-Carrier-Billing-The-world-s-most- popular-mobile-payment-Infographic?rb=false. Osterwalder, A. & Pigneur, Y. 2010. Business Model Generation. John Wiley & Sons. Paga website. Accessed in November 2013, available at https://www.mypaga.com/paga-web. Research ICT Africa, 2010. Household and Small Business Survey. Confidential Report. Research ICT Africa, 2012. Household and Small Business Survey. Available at www.researchictafrica.net Visionmobile, 2013. Developer Economics Q3 2013: State of the Developer Nation. Available at http://www.developereconomics.com/reports/q3-2013/. 40 Visionmobile, 2013. Developer Economics 2013. Developer Tools: The Foundations of the App Economy. http://www.visionmobile.com/product/developer-economics-2013-the-tools-report/. World Bank, 2012. Global Financial Development Database (GFDD). Available at http://econ.worldbank.org/ WBSITE/EXTERNAL/EXTDEC/EXTGLOBALFINREPORT/0,,contentMDK:23492070~pagePK:64168182~piPK: 64168060~theSitePK:8816097,00.html. 41 Annex: List of Mobile Applications stores are a major distribution platform, 18 of the 30 apps highlighted bypass formal app stores and are distributed independently. For 18 of the 30 apps, formal banking facilities are used, in This section lists each mobile application with its other words, payment does not occur in-app but distribution channel, payment facility, platform, separately. The revenue model for 14 of the 30 is and revenue model. While the various OS app SMS-based content or services. TABLE A: App Summary Mobile Business Payment # Application Model Facilities Platform Revenue Model 1 Saya Multi-sided: Mobile money iOS Advertising advertising Formal banking Android In-app advertisement facilities Feature phones 2 iWarrior App store Formal banking OS App purchase (Leti Arts) facilities Android Other Feature phones 3 Jumpfon VAS provider Premium SMS SMS/USSD SMS-based content or services USSD/SMS-based content or services 4 BoxBuzz VAS provider Formal banking SMS/USSD SMS-based content or services facilities USSD/SMS-based content or services 5 Infoline VAS provider Premium SMS SMS/USSD SMS-based content or services (Nandimobile) Content provider Formal banking Subscriptions services facilities USSD/SMS-based content or services 7 Farmerline Content provider Formal banking SMS/USSD Subscription Multi-sided: facilities SMS-based content or services customers pay Premium SMS USSD/SMS-based content or IVR services 8 Esoko Freemium Premium SMS SMS/USSD SMS-based content or services USSD/SMS-based content or services Freemium 9 mPawa Multi-sided: Formal banking Feature phones Non-app related revenue customers pay facilities SMS/USSD Other 10 mNotify VAS provider Formal banking Android Subscription facilities SMS/USSD USSD/SMS-based content or services 42 Mobile Business Payment # Application Model Facilities Platform Revenue Model 11 Trokxi App store None Android In-app advertisement 12 mPedigree Multi-sided: Formal banking SMS/USSD USSD/SMS-based content or customers pay facilities services 13 PharmaSecure Multi-sided: Formal banking SMS/USSD SMS-based content or services customers pay facilities USSD/SMS-based content or services 14 VConnect VAS provider Formal banking iOS Subscription facilities Android In-app advertisement Feature phones 15 Saya Multi-sided: Mobile money iOS In-app advertisement advertising Formal banking Android facilities Feature phones 16 Wecyclers VAS provider Vouchers or SMS/USSD Non-app related revenue scratch cards Other 17 Jobs in Nigeria VAS provider Formal banking Feature phones Subscription facilities Android Other BlackBerry 18 Nigerian App store None Feature phones Advertising Constitution Android In-app advertisement App BlackBerry 19 Efiko Multi-sided: None Android Other customers pay Feature phones 21 Exam Success Content provider Premium SMS SMS/USSD USSD/SMS-based content or Points services 22 My Abuja Content provider Premium SMS SMS/USSD USSD/SMS-based content or services 23 Mobiashara App store Formal banking SMS/USSD Other facilities Mobile money 24 Danfo Freemium Premium SMS BlackBerry In-app purchase Reloaded Feature phones 25 First Aid Content provider Premium SMS SMS/USSD USSD/SMS-based content or services 26 Lagos Island Content provider Premium SMS SMS/USSD USSD/SMS-based content or Street Map services (continued) 43 Mobile Business Payment # Application Model Facilities Platform Revenue Model 27 1999 Content provider Premium SMS SMS/USSD USSD/SMS-based content or Constitution services of the Federal Republic of Nigeria 28 iSchools Content provider Formal banking Android Other Zambia Multi-sided: facilities customers pay 29 Farm Prices VAS provider Premium SMS SMS/USSD Premium SMS 30 Zhappening & Multi-sided: Formal banking Android & iOS Subscription Zaplaces advertising facilities 44 ©2014 infoDev / The World Bank | 1818 H Street, NW | Washington DC, 20433 Email: info@infoDev.org | Tel + 1 202 458 8831 | Twitter: @infoDev www.infodev.org Mobile