Today Caribou Digital releases a report, in partnership with the Mozilla Foundation, into what we consider a much neglected area. We have seen phenomenal progress in the adoption of feature phones, smartphones and eventually internet services in emerging markets, and this has long been heralded as a boon to social and economic progress. As adoption has grown and internet access reaches ever further to the unconnected, we have also seen a lot of innovation in new models of internet access delivery – the drones, balloons, white-space spectrum and satellite projects we profiled in our recent research into these innovations. Fundamentally, though, the assumptions around what business models will support emerging market digital businesses have remained largely the same, and these markets have looked to the global giants of Silicon Valley for their underlying revenue streams.
This assumption that Silicon Valley business models will transfer seamlessly to emerging markets in Africa and South Asia has concerned us for some time. These models often require vast scale to achieve the network effects and economies they require to turn a profit, and an audience at a certain level of income. Our concern has been that we know that market scale exists in emerging markets, but we’ve not been sure that income levels support that scale. Equally, we’re concerned that the global platforms these revenue models require are based in developed markets and are not fit for purpose in emerging markets–and if they are, will only be viable if provided by the global giants who can offset losses in developing markets with profits from developed countries, tilting the balance of power even more further in their favour and preventing local innovators from competing against them.
Our analysis highlights tremendous challenges facing digital businesses relying on advertising. First and most fundamentally, populations with low amounts of spending power are less valuable to advertisers, who simply won’t pay as much to reach them. We demonstrate this via a small study using Facebook’s advertising tool, where we showed the disparity of cost-per-click (CPC) rates between developed markets such as the U.S. ($0.77) and markets such as Nigeria ($0.04). At a macro-economic level, overall advertising spend is closely tied to a country’s economic activity (e.g., GDP), so while digital advertising is growing almost everywhere, it’s doing so by taking share from traditional media such as print. For many of the smaller economies, there’s simply not enough money flowing into advertising of any kind to support a thriving digital ad industry.
Just as importantly, digital advertising faces additional challenges due to the limits of how people experience the internet. Much of the population in emerging markets must contend with low-end devices, expensive data, and unreliable networks, which limit their ability to engage with digital content and services. These constraints make it more difficult for publishers and advertisers to reach audiences with cohesive and scalable digital campaigns.