iHub By Editor / February 11, 2013
In Praise of the ICT Middleman
By Chris Foster
How many times have you heard it said in ICT business discussions “we need to get rid of the middleman” or “too many intermediaries are making our operations inefficient”? Some might even say that the whole point of ICTs is to bring innovation directly to citizens and remove those actors in the middle that make things inefficient.
So, what is surprising is that in Kenya (and throughout the developing world) ICT middlemen/intermediaries are present, and growing in number. In this entry, I will look at these ICT middlemen/intermediaries in more detail (I prefer the term ICT intermediaries), and what their presence means for ICT firms who look towards low income customers.
Who are they? What they do?
As illustrated in my previous post, there are signs of the growing numbers of ICT intermediaries in Kenya. This is also shown in the ICT statistics. For instance a recent GSM association analysis of employment in the mobile phone sector in Kenya calculated that out of 205,000 jobs in the mobile sector, likely around 157,000 are in intermediary ICT roles (in ‘Airtime commission and payphone commission’).
The existence of ICT intermediaries is no accident. Large ICT firms use them as a way to better distribute their goods and services. As can be seen from the examples below, intermediaries are particularly important in how firms look to connect with, and reach lower income customers in Kenya:
- When M-Pesa rolled out its’ service nationally in Kenya, it didn’t do it by directly building new stores, it worked with agents, ever smaller entrepreneurs to run the service in low income areas.
- When business website Mocality wanted to build a comprehensive directory of Kenyan business, including less formal ones, it recruited agents to go out, gather and upload data about these businesses.
- When Chinese mobile phone firms, with very small budgets wanted to distribute their phones nationally, they turned to informal retailers and wholesale intermediaries to distribute their goods efficiently.
Why do ICT intermediaries exist?
Ted London, an academic and expert in business models for low income markets has talked about the problems that firms face when they want to sell to low income customers. Firms face a problem of a lack of ‘capabilities’. First of all, firms often have little knowledge about the market needs of low income users, whose lives are so different. Second, firms often do not have the internal skills to innovate, market and distribute such products.
ICT firms are no different and as they look to reach low income users, this lack of ‘capabilities’ needs to be overcome. Partnering with ICT intermediaries is one way to do this. ICT intermediaries often have in-depth operational knowledge, understanding of local markets, and can help push better distribution. So, intermediary skills and knowledge makes up for a lack of firm capabilities.
Our research on ICT innovation and low income groups suggests that firms use ICT intermediaries in two different ways in Kenya.
- Designed networks of ICT intermediaries, where firms like M-Pesa and Mocality recruit intermediaries directly. Often the tasks required are quite specific to a firms needs, and so networks need to be designed by the ICT firm.
- Existing intermediaries may be present, and ICT firms might use them for their own needs. Such middlemen are often more independent, so their tasks may be more simple. This can be seen in the case of the Chinese mobile phone firms who used informal retailers as an important part of their distribution.
If ICT intermediaries are important for reaching low income customers, then how can ICT firms, both large and small, look to use them to their advantage?
Looking at the examples in Kenya, actively managing and motivating ICT intermediaries is a difficult, but rewarding task for an ICT firm. ICT intermediaries should not be taken for granted or left to chance*.
Intermediary business models – ICT firms need to make sure that they select the appropriate type of intermediary network (above), and provide intermediaries with workable and profitable business models. At the same time, an intermediary in a rural area is likely to have very different limitations to one in a slum area, so providing some freedom to tweak services and models might also make growth more viable.
Motivated by growth – In low income markets, ICT intermediaries are likely to be the customer facing part of a service. So, it is crucial that these ICT intermediaries are motivated. In the early days of M-Pesa, agents were strongly motivated by the fact that in building trust with customers they might grow their operations and become successful dealers, and this was an important motivation to provide high quality service.
Nurture and support in hard times – ICT intermediaries are likely to come from similar low income groups as their customers. So, ICT intermediaries tend to be marginal, and often hit unexpected problems and hard times. For ICT firms, a quick turnover of such intermediaries can be a risk, so ICT firms should nurture and support intermediaries. For instance, ICT intermediaries often come up against cash-flow problems, where provision of small credit might retain loyalty during hard times.
A source of feedback – The way that ICTs and services are used and adapted by intermediaries provides insight to they can be improved. After all it will be the intermediaries who most interacting and understanding low income users. Therefore, firms should look to ICT intermediaries not only to ‘diffuse’ ICT innovations but as a source of feedback for new innovation in ICT products
In sum, it may be that in the future, ICT intermediaries will become less necessary as ICT knowledge and skills of low income customers grow. But, at present intermediaries are vital in how ICT reach low income users, and they are an important element of how ICT firms decision making who want to reach such groups.
Chris is a PhD researcher at the University of Manchester, UK. His research work has been looking at Kenya’s ICT sector, particularly focussing on the role of entrepreneurs and innovation in driving ICTs to less affluent users.
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patrick at 16:07:45PM Tuesday, February 19, 2013
thanks for sharing this insightful article…how can one reach ChrisReply
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