Hitting near market saturation in the U.S. and Europe, tech companies, like Google, Facebook and Apple, are turning their gaze to the developing world. Google launched Project Loon, which would send Internet-providing balloons into the atmosphere above rural areas. Facebook recently announced a lower cost data project, Internet.org effort. And there are rumors of a cheaper iPhone in development at Apple. We explore how tech companies are competing to reach the last untapped market of digital consumers, and what challenges they may face in bringing their services to emerging markets.

Guests

  • Kevin Werbach professor of legal studies and business ethics, University of Pennsylvania
  • Tom Jackson Managing editor, HumanIPO
  • Emma Llanso Policy Counsel, Center for Democracy and Technology

Transcript

  • 13:28:40

    MR. KOJO NNAMDITech companies like Facebook, Google and Apple have been leading the biggest tech boom in more than a decade, but recently their growth has started to sputter. In the U.S. and Europe where they have long dominated the tech scene, they're nearing market saturation, reaching just about all possible consumers. So as they look for room to grow, American tech giants are shifting their gaze beyond the grid to places in Sub-Saharan Africa, Southeast Asia and parts of Latin America where it's estimated that 5 billion people remain disconnected from the web due to poverty and insufficient infrastructure.

  • 13:29:14

    MR. KOJO NNAMDIThey represent the last untapped market of future digital consumers. And bringing them online could mean millions of more users. But in poverty-stricken and hard-to-reach areas, the investment will be costly. Here to discuss how connecting the developing world fits into the bottom line of major American tech companies is Emma Llanso, policy counselor at the Center for Democracy and Technology. She joins us in studio. Emma Llanso, thank you for joining us.

  • 13:29:41

    MS. EMMA LLANSOThanks for having me on the show.

  • 13:29:42

    NNAMDIJoining us by phone from Philadelphia is Kevin Werbach. He is a professor of legal studies and business ethics at the University of Pennsylvania. Kevin Werbach, thank, you for joining us.

  • 13:29:53

    MR. KEVIN WERBACHMy pleasure.

  • 13:29:53

    NNAMDIJoining us by phone from Cape Town, South Africa is Tom Jackson, managing editor of HumanIPO, an African technology news site. Tom Jackson, thank you for joining us.

  • 13:30:06

    MR. TOM JACKSONPleasure to be here, Kojo.

  • 13:30:07

    NNAMDIYou too can join this conversation. Call us at 800-433-8850. Do you think internet connectivity should be a top priority for developing nations, 800-433--8850? Send email to kojo@wamu.org or send us a Tweet at kojoshow. Emma Llanso, Google has engineers toiling away on a project to get internet-enabling balloons into the skies above developing nations Facebook has rolled out its highly publicized internet.org effort aimed at making data more affordable. And meanwhile, Microsoft began a pilot project to send Wi-Fi over low-signal frequencies to rural communities. What's driving all of this interest in the developing world?

  • 13:30:52

    LLANSOWell, I think part of what's driving this is seeing that the next billion internet users are not going to come from North America and Western Europe. In those countries and on those continents we already have internet penetration rates that are very high, whereas you look at the continent of Africa, over a billion people, only 15.6 percent of them are online. So if you're going to look for the next kind of -- the next generation or the next wave of people coming online you've really got to look to developing countries where internet penetration is still very low.

  • 13:31:23

    NNAMDIKevin Werbach, once people in the developing world have access to the internet, there's no guarantee that they'll sign up for Facebook or that they'll search with Google. What do you think is driving these companies to focus resources on connecting these parts of the world when they can't be sure if consumer there will end up using their services?

  • 13:31:42

    WERBACHI think it's more than just looking for customers. These are companies that appreciate that growth of the internet is ultimately good for them. They already have, in cases of companies like Facebook, over a billion users. So anything that expands the scope of the internet expands the number of people online. And the overall richness and diversity of the internet economy globally will ultimately lead to them getting more customers and more benefits on their systems.

  • 13:32:08

    WERBACHIt's similar to what Intel realized about a decade ago when it realized that it had such a dominant position in microprocessors for computers, that anything that sold more computers would help Intel's business. I think companies like Google and Microsoft and Facebook are at that point where they realize it's in their interest to grow the internet globally, even if they don't see a direct immediate benefit in terms of their customer revenues.

  • 13:32:35

    NNAMDITom Jackson, while internet access would be nice, some countries in Africa still struggle with providing reliable electricity in Tanzania and East Africa for example. Only 14 percent of people have access to any electricity at all. So what kind of a priority would internet access be in a country like Tanzania?

  • 13:32:56

    JACKSONWell, I think you've hit the nail on the head there really. I mean, obviously basic services are lacking. Electricity in rural area is lacking also. Obviously I think things have to go hand in hand. I mean, obviously we need to roll out electricity into these areas that don't have them. But the areas that do already have it and do already have those services, connectivity is important to increase mobile and internet penetration. Because, I mean, the study of research suggests that GDP growth goes hand in hand with that. That better communication, you know, creates small businesses. There's more startups that spring out of it.

  • 13:33:26

    JACKSONAnd I think the whole of Africa, Africa as a whole, will progress and will advance with internet connectivity. And yeah, that is a problem the likes of Google, Facebook and, you know, Apple and Microsoft will face. Those basic services are missing. But I don't think that's the reason not to (unintelligible) internet connectivity. I just think growth has to go hand in hand across the board.

  • 13:33:46

    NNAMDIBut, Kevin Werbach, Google's talking about balloons in the sky and Facebook's proposing more efficient data. Ultimately, how realistic are those programs?

  • 13:33:56

    WERBACHIt's hard to know about any of the specific programs but these companies appreciate that we're talking now about going beyond the low-hanging fruit. These are not the customers, as Tom said, who already have access to the panoply of traditional services and in places where it's easy to get connected the normal way. But that points up another point of these initiatives. Part of what these companies are trying to do is be aspirational for their employees, for their customers to say that we are on the side of exploring novel and transformative ways to provide connectivity.

  • 13:34:34

    WERBACHAnd even if all those aren't successful, it's similar to other programs that Google has, for example, with things like self-driving cars, where the process of doing what the Google people call these moon shots, it promotes the innovation within the company. It promotes the sense of them as being innovative around the world. And it orients them towards trying to do the impossible. And if you try to do the impossible you don't always succeed but you get all sorts of benefits in having those kinds of aspirations.

  • 13:35:04

    NNAMDIEmma, to what extent are parts of Africa already connecting to the web and/or relying on digital services?

  • 13:35:10

    LLANSOSo we've seen increasing uptake of internet services including through -- particularly through mobile phones throughout Africa. A lot of this has been spurred by basic infrastructure investment into internet infrastructure such as internet exchange points which are hubs where local networks can connect to each other and keep traffic that's being generated in Africa and sent to other places in Africa in the continent so it doesn't have to be routed throughout Western Europe or routed across the globe to get to someone who's, you know, just a few hundred miles away.

  • 13:35:45

    LLANSOSo we've seen some real work by organizations like the Internet Society and Packet Clearing House in putting this kind of essential internet infrastructure into place in Africa. Then you also see some creative programs by Google and Facebook looking to work with what are some of the existing resources, be they feature phones -- I think there are something like 4 billion feature phones on the planet -- which are not as high powered as Smartphones, not really -- not the kind of device that the sorts of online sites and applications that we use in the U.S. are really tailored for.

  • 13:36:20

    LLANSOSo part of what Facebook is looking at is how to make their service more accessible to people on the devices they actually have. So I think what you are really going to start seeing is creative efforts in all of these different kinds of venues so that more people can come online, be it with new infrastructure or using existing infrastructure.

  • 13:36:41

    NNAMDIWe're talking about U.S. tech companies looking at emerging markets with Emma Llanso, policy counselor at the Center for Democracy and Technology. Kevin Werbach is a professor of legal studies and business ethics at the University of Pennsylvania. And Tom Jackson is managing editor of HumanIPO, an African technology news site. If you'd like to join the conversation, call us at 800-433-8850. Is more internet access in the developing world a positive step regardless of who is providing it? We will go now to Morgan in Sterling, Va. Morgan, you're on the air. Go ahead, please. Morgan, you're on the air. Go ahead, please.

  • 13:37:22

    MORGANYeah, hi, Kojo. Love the show. I just wanted to make a comment. You know, I'm from a rural place in Colorado where the only internet you can get is at the library. And I just wondered why, you know, the focus is on bringing internet to a place like Africa for example when -- I mean, I know that's what you're talking about today but I would say that of the 15 percent of Africans that are online, about 90 percent of them are sending these scams about how I can win a million dollars or something like that every ten seconds. I don't know, I just wanted to -- I'll take my comment off the air. Thanks.

  • 13:37:57

    NNAMDIThank you very much for your call. I do have to say that your characterization of Africans on the basis of one scam that has been widely publicized over the past couple of decades around the world is way too broad a characterization. That is not why most people in any country in the world want to get internet access. But that being said, Kevin Werbach, our caller seems to feel that these companies should be concentrating first on getting internet access in rural America.

  • 13:38:27

    WERBACHSo, I mean, I would agree with your point, Kojo, about the characterization. But on the first point, they're not mutually exclusive. So we do have gaps in internet access here in the United States. And that's why the Federal Communications Commission, which is the government agency where I used to work, has a universal service program. And it recently made a wholesale transformation of that program into something called the Connect America Fund to, instead of just promoting telephone service in rural and other high-cost areas, promoting broadband internet access.

  • 13:39:00

    WERBACHNow there's a lot of issues about how to do that effectively and lots of challenges but it's definitely something that the government and private companies are focused on. As I said, I think what these companies are doing in promoting access in the developing world is broader. It's not a choice of doing one or the other. These are places where the market could truly expand. In the United States it's a matter of providing access to a relatively small but important group of people who don't yet have connectivity.

  • 13:39:31

    WERBACHIn places like Africa, we're talking about wholesale absence of connectivity where the potential is there to really totally transform the marketplace.

  • 13:39:40

    NNAMDITom Jackson, Facebook's internet.org project focuses on reducing the cost of data. How would something like cheaper data make the internet more accessible?

  • 13:39:52

    JACKSONI mean, yeah, the cost of data is the most crucial aspect of the question really. I mean, we're talking about obviously much lower earning potential in Africa, much lower average incomes. I mean, and Facebook is exactly spot on. I mean, when they first announced the idea of internet.org, I asked the question of, you know, how are they going to do that, what's the -- how are they going to make this idea become a reality. And finally, they released the white paper, and they've come out and actually listed reason as to, you know, how they're going to go about making data cheaper, how they're going to go about rolling out new (unintelligible) as well as talking about rolling out more (unintelligible) and more spectrum.

  • 13:40:32

    JACKSONI mean, I just think -- a one gigabyte plan, for example, in Africa costs around 50 percent of GNI. In Europe it's two percent. I mean, that just gives an indication of just how expensive it is to the average African, and it's crucial -- absolutely crucial that those costs come down in order to roll it out, and that's the problem that people have been grappling with. It's not just Facebook, it's not just Google, it's not just Apple. It's operated in Africa as well, and (unintelligible) they haven't yet figured out how to make data cheaper for the average African, and they're exactly right to focus on that.

  • 13:41:02

    JACKSONThe question is, you know, can we actually do that within the time frame they've specified?

  • 13:41:06

    NNAMDIAnd Emma Llanso, there's this. Laying down the infrastructure for widespread Internet access in some of the areas will expensive. Some governments find it -- well, impossible. Do you think that any of these tech companies are willing to bear the brunt of these costs to fill in these gaps?

  • 13:41:23

    LLANSOI think what you see the tech companies doing is figuring out how to find synergies between their business interest and increasing access. So, you know, there have been proposals from various telecom companies. The European Telecom Network Association last year made a proposal that basically amounted to why don't we charge large content producers like Google and Facebook to send the large amounts of data that they send through their services to developing worlds.

  • 13:41:53

    LLANSOIf we charge the big companies to send their data to developing countries, then those countries will have the money they need to roll into infrastructure development. But the problem with that kind of model is that there's nothing really requiring any of the big companies to send their content to developing countries. So if you end up having it be very expensive for, say, YouTube to serve videos to users in Bangladesh because the Bangladesh Telecom Company wants to get some money to help fund infrastructure roll out, you may run into the situation where the company just decides it's not worth it.

  • 13:42:34

    LLANSOIt's not financially in its best interest to share the content with that country, and then instead of increased access to information for people in Bangladesh you actually end up having them much more limited in what they can get access to. So there have been some ideas about ways to transfer money from the big companies to fund roll out. I don't think that kind of direct charging mechanism really has much of a future at all.

  • 13:42:59

    LLANSOSo that's why seeing different projects like Google's Project Loon with sending the balloons up into the stratosphere, or Facebook's internet.org, it's interesting to see those proposals coming from the companies as other ways beyond the straight charging idea to really try to start working on the issue.

  • 13:43:18

    NNAMDIIf you've got questions or comments, call us at 800-433-8850. Do you think Internet connectivity should be a top priority for developing nations? How do you think the needs of digital consumers might change across cultural boundaries? 800-433-8850, or you can send email to kojo@wamu.org. I'm Kojo Nnamdi.

  • 13:45:31

    NNAMDIWelcome back to our conversation about U.S. tech companies in emerging markets. We're talking with Emma Llanso, policy counselor at the Center for Democracy and Technology. Tom Jackson is managing editor of HumanIPO, and African technology news site, and Kevin Werbach is a professor of legal studies and business ethics at the University of Pennsylvania. You can call us at 800-433-8850.

  • 13:45:55

    NNAMDIKevin Werbach, Facebook and Google can provide mostly free services because they generate revenue from advertising. What advertising value would consumers in the developing world represent for these companies?

  • 13:46:08

    WERBACHThere's a couple ways to answer that. One is, in general, as I said before, there doesn't necessarily have to be. It's not that the costs increase that much for these companies to expand their market. But the first answer is if you look in aggregate at these developing economies, especially as they're growing, potentially there's a great deal of money there. C.K. Prahalad was a famous business scholar who passed away a few years ago, wrote a whole book called "The Fortune at the Bottom of Pyramid."

  • 13:46:37

    WERBACHAnd what he pointed out is that companies tend to make the mistake of looking at the developing world and thinking that they're all impoverished and there's no business opportunity there. But because there's such large populations, and the ability to aggregate them, and the ability to provide services more cheaply are there, in total there's actually potentially very substantial revenues to be gained.

  • 13:47:00

    WERBACHThe other point is these are ecosystem companies. So Google benefits on having more people in the network. They benefit in having more people searching and people searching for more things. Facebook benefits by having more of your friends on Facebook. Even if they're not getting revenue from them, it's increasing your own usage and allowing them to advertise to you. So for a lot of these companies, expanding the scale of the market actually does expand the pyre of their revenues, even if they're not directly monetizing from people in the developing world at first, but down the road the opportunity is there.

  • 13:47:37

    NNAMDITom Jackson, considering that users in developing countries will have different needs than those in western nations, how do you think these companies are going to have to tailor their products to meet what consumers in emerging markets want?

  • 13:47:51

    JACKSONYeah. It's very obviously what the African consumer wants is different to what the American consumer wants or the European consumer wants. I think the main thing that is required from my point of view is collaboration. I don't think Facebook coming in and saying, you know, this is how we're going to do it, or Google coming and saying this is how we're going to do it is actually going to help the situation. I think a collaboration is needed between governments, between companies on the ground, and between the companies coming in from abroad to actually make sure there isn't a duplication of infrastructure and a duplication of network roll out.

  • 13:48:25

    JACKSONAnd I just think once we actually get the Internet access going through and reaching people that currently aren't reached by it, these people will need applications. I mean, we can talk all we like about actually getting networks and getting the infrastructure to people in rural Africa, but once you've got all that bandwidth, and you have all that connectivity, what are you going to do with it. And so I think, you know, people will use Google, people will use Facebook, and I think by that point in much the same way as we do in American or in Europe.

  • 13:48:51

    JACKSONI just think the point -- the initial point is to make sure that we get that connectivity, and then Google and Facebook will grow in Africa the same way they've grown elsewhere. And they're not stupid, they know that.

  • 13:48:59

    NNAMDIWell, Emma Llanso, I raised that question because Silicon Valley companies have often been accused of operating in a cultural bubble, not always understanding the needs and interests of average users. How can tech companies make more than just guesses about what consumers in different cultures want?

  • 13:49:15

    LLANSOWell, they've really got to be working with people in the countries that they're trying to serve. They're going to need to work with the governments to settle regulatory issues with existing telecom and infrastructure providers, and with the users on the ground who know best what it is that they're really looking for. I mean, I think it's important to keep in mind that the major social and economic gains that we've seen from the Internet in countries where there's a high amount of adoption has come from the access to the full and open Internet.

  • 13:49:47

    LLANSOIt's never been about just one or two services, but it's been about having this open network where any user can connect a device, develop their own application, develop their own content, speak their own mind, and that's really, I think what we've got to keep in mind as the goal for increasing access in the developing world. It's not just to one or two platforms, but it's to the ability for people there to make their own platforms, to make their own innovations, share their own ideas with a global audience.

  • 13:50:15

    NNAMDIAccess is only the beginning. Here is Andrew in Alexandria, Va. Andrew, you're on the air. Go ahead, please.

  • 13:50:23

    ANDREWYeah. Hi Kojo. A larger discussion is bringing any technology into any area that maybe doesn't have that technology, and what kind of changes you might bring to the culture. Brief example is a Danish group some years ago went into a -- you know, like a foundation, went in to maybe dig a well, whatever it was. Well, unfortunately on the way out they left a transistor radio. They came back a year later to continue their project and everybody in the village had a transistor radio, and some of the things that were going on in that particular village weren't going on anymore.

  • 13:50:52

    ANDREWPeople were walking off into their own little areas and listening to their radios. You know, definitely they saw an effect of leaving a piece of technology there that they wish they hadn't. Anyway, FYI. It's a larger discussion about how you change a culture and what kind of changes and who could have control over those changes and so forth. So that's something to think about when you bring something huge like the Internet into anywhere I supposed.

  • 13:51:15

    NNAMDIWell, thank you very much for your call, Andrew. And it, I guess, underscores the point that both Emma and Tom Jackson have been making about these tech companies having to work with people on the ground in those areas. But Kevin Werbach, there have been rumors that Apple was developing a cheaper iPhone, but in Apple's latest iPhone release, the company surprised many tech analysts by rolling out an iPhone that was just about as expensive as their past smart phones. Is a company like Apple really willing to modify its product to reach new consumers such as those in emerging markets?

  • 13:51:54

    WERBACHWell, you have to think about different kinds of emerging markets. So China is an emerging market, but a very different kind of market from some of the countries in sub-Saharan Africa. And it's different building an iPhone for the masses in America and Western Europe and building an iPhone for the emerging middle class in China, but both of those are fairly different from the kinds of things that we're talking about in the truly developing world. The other thing to keep in mind is that companies have different business models.

  • 13:52:24

    WERBACHSo Apple makes a very, very large amount of money selling a relatively small number of very high margin products. Companies like Google make a great deal of money by getting a teeny little bit of money from a whole lot of people through a lot of activities and from advertising. So I don't know whether, you know, it's the right strategy for Apple to not go further down market than it has been, but it makes sense in the context of Apple's business that there's simply too much opportunity for them in making a slightly cheaper Smartphone that still has a very significant profit margin versus going to the kind of model that Facebook and Google are doing.

  • 13:53:05

    NNAMDIOnto Hannah in Silver Spring, Md. Hannah, you're on the air. Go ahead, please.

  • 13:53:10

    HANNAHHi, Kojo. I'm kind of skeptical about the entire project. If you want to help people, just help people, and I feel like Apple, Google, Window, they all have so much money. I wonder also about the environmental implications if they try that. How they'll affect sensitive rural communities that are already struggling in Africa. And I'll take my answer off the air.

  • 13:53:38

    NNAMDIThank you very much for your call, Hannah. You know, Emma, when Facebook first announced the internet.org, that pitch could have come off to some people as -- well, idealistic. Nevertheless, many commentators on line took a more cynical point of view calling it a self-interested effort to get more users and advertising revenue for the site. Why do you think that seemed to be a common reaction?

  • 13:54:01

    LLANSOWell, I think if you're talking about a for-profit company like Facebook, there's, of course, going to be a profit motive underlying a lot of what they do. Now, I don't think that there is -- I mean, you'd have to ask somebody at Facebook what their full motivations are for doing this sort of thing, but I think what we've seen from the various tech companies is that there is a way to try to increase the business of information and communication technologies while also supporting and promoting fundamental human rights of Internet users.

  • 13:54:32

    LLANSOTrying to increase users' access to information, increase their ability to express themselves freely and do so in a way that protects their privacy. These are the key considerations that companies really need to be taking into account when they do these kinds of projects. I don't think we -- any of us should really expect companies to be operating in a purely altruistic motive, and I think it's very important to keep a close eye on what companies are doing when they roll out into new markets to ensure that the way they're going about increasing their business is done in a way that protects and promotes the human rights of their users.

  • 13:55:11

    NNAMDITom Jackson, Facebook is the world's largest social media network, yet several local Chinese social media sites factor among the top 10 biggest. Is it possible, likely, that Internet users in new markets will prefer local service providers for things like email and social media?

  • 13:55:31

    JACKSONWell, it's interesting that you raise the Chinese question, because obviously in Africa, we're talking about foreign direct investment and China has got massively ahead of the game. In terms of actually using local applications, there is an argument for that. There's a chapter up in South Africa called Mix It, which shortly after launch went through a period of massive, massive growth, and people were coming out and saying, yeah, this is South African (unintelligible) this is the African social network.

  • 13:55:57

    JACKSONAnd (unintelligible) covered the story last month, which showed for the first time in a couple of years Facebook has actually re-overtaken Mix It as the most popular social network in South Africa. So, I mean, what people are interested in is quality. I mean, yes, if the local applications and the local platforms are good, then people will use them, and Facebook -- companies like Facebook and Google coming into Africa have a natural advantage in that their products are already honed.

  • 13:56:23

    JACKSONThey have the functionality. They know what they're doing. I just think people will use the best products, and if the best product is South African they'll use it, if it's Kenyan they'll use it. But if the best product is Facebook or Twitter, they'll use that, and I think that's the bottom line.

  • 13:56:35

    NNAMDIEmma, we're running out of time, but Facebook and Google are talking about Internet access as a basic human right, while here in the U.S. many of us pay a hefty price for data plans for our smart phones or an expensive bill for broadband connection. If tech companies can lower the cost of connecting for the developing world, what will that mean for Internet uses here in the U.S. and in Europe?

  • 13:56:57

    LLANSOWell, I think all of the kinds of efficiencies and efforts at lowering the cost of data, and particularly mobile data, that these companies are looking at, certainly have application in the developing world, but could easily be applied here as well. So if this is the start of an industry wide effort to make apps more efficient, to lower data usage, and make sure that our own networks are operating more efficiently in the U.S., so much the better.

  • 13:57:24

    NNAMDIWell, we've been able to do it for prescription drugs in much of the emerging world that are much lower priced than they are here, so we'll have to see how that works out with tech hardware and software products. Emma Llanso is a policy counselor at the Center for Democracy and Technology. Emma Llanso, thank you for joining us.

  • 13:57:42

    LLANSOThank you.

  • 13:57:43

    NNAMDIKevin Werbach is a professor of legal studies and business ethics at the University of Pennsylvania. Kevin Werbach, thank you for joining us.

  • 13:57:51

    WERBACHThanks, Kojo.

  • 13:57:53

    NNAMDITom Jackson is managing editor of HumanIPO, an African technology news site. He's based in Cape Town, South Africa. Tom Jackson, thank you for joining us.

  • 13:58:03

    JACKSONThank you very much.

  • 13:58:04

    NNAMDIAnd thank you all for listening. I'm Kojo Nnamdi.

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