Re: [GKD-DOTCOM] Is Profitability Essential for Sustainability?

[Kamwati Wango]

My first reaction is that profit is essential for sustainabibility.
Despite the different approaches taken to development, we have to
recognize that sustainable growth will only come when people are
assimilated into markets, where they can sell their capabilities
(skills) and goods, for profit.

The same applies to ICTs, just as a household has to spend to keep
afloat, the ICT service provider needs to spend on bandwidth, equipment
etc., and therefore as such, profit is the only way.

The large number of subsidized ICT projects in my opinion fail because
they take the implicit assumption that ICTs are a special service, but
they are not and in fact they should be considered another factor of
production such as land or capital. The focus should be in creating a
market for information, which as you note from the case in Nepal, if
properly done can be pretty successful, you just need to market the
right product.

In my opinion, the other option to sustainability, though far more
uncertain, is government funding. Governments should realize ICTs are
becoming more and more important enablers of welfare and the economy,
and should therefore provide them in the same way they provide
agriculture extension services, or business support services. However,
given that most governments in the developing world have cut support to
these traditional areas, which are more accepted as needs, the
possibilities of government funding of ICTs is lower, so I have to
conclude profit is essential.

While you may argue that companies will focus on the middle and upper
markets, profit motive will in the long run force them to move 'down
market'. Here in Kenya, the cell phone providers were initially elitist
with expensive services, but as the elite market was filled up, services
more accessible to poor people have been developed to maintain the high
growth rates experienced at first.

The challenge then is to make the private sector invest in the poor's
access. One way is to channel funds currently used for subsidy in the
development of capital funds tied exclusively to the development of
pro-poor access.


Regards, 

Kamwati




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Re: [GKD-DOTCOM] Is Profitability Essential for Sustainability?

[Cornelio Hopmann]

Initial remarks: the Moderator's question does not contain a definition
of "profit"; it might be a monetary return on invested capital, it might
be an excess over pure operation-costs, it might be equal to the
operation costs but those who use the offered ICT-services do better by
using those services.

Second remark: we made a large comparative study on Telecenters in
Nicaragua and do continous monitoring and -except in very special
settings like schools- we didn't observe any significant difference in
services offered, prices charged and people attending, between
supposedly "for profit" and supposedly "non-profit" Telecenters.

Third remarks:

(1) Unfortunately ICT-services are not free -like air- someone has to
provide them and someone has to pay those who provide them.

(2) Costs to be covered are the use of communication-infrastructure, the
personel involved in bringing the service, the replacement of equipment
and consumables, the place (or the rent for it), the energy used.

(3) It turns out that 1 years full operation-costs (including
depreciation for equipment replacement) in many cases comes already
close to the initial investment-costs or even exceeds them.

(4) The current trend -look at Cellular phones and their business model
or Ink-jet printers- for communication-technology makes that initial
investment become more and more irrelevant compared to operation-costs.

(5) Hence the whole question boils down to "who pays" and "how" (and to
a certain degree "why") and specifically the operation-costs.

Fourth remark: if -as in some cases- philanthropic initial donors also
cover the operation-costs -mostly they don't- still the question is
whether donors should be encouraged to spend on ICT or is the money
better spent on other more important issues. If it is claimed that
Governments -either donors or local- should cover these costs, the
question becomes even more important. The only reason might be that ICT
is more effective than other means to fight poverty (or it's a basic
requirement to achieve those other means). Generalized hard evidence is
missing.

Fifth remark: if there is no substantial gain for "beneficiaries" -i.e.
they are truly better off with ICT than without or ICT provides
essential services at lower costs -then there is no reason to spend on
ICT- neither for them nor for anyone else. This depends on a case by
case analysis -and unfortunately this analysis in many, many instances
is not done, neither before nor after.

Sixth remark: A telecenter -or whatever other type of ICT-service-
without a sound business-model with respect to the above ... shouldn't
even be started.

Seventh remark: We found -and there are other examples in the
literature- that non-benefactor Telecenters (i.e. those either started
"for profit" or by the beneficiaries themselves) had in general more
sound business-models than those mounted "for benefit" (i.e. by any type
of Benefactors, public, private, NGOs).

Corollary: "self interest" -some times expressed in terms of
profit-expectations- is a necessary requirement for sustainability.


Cornelio




This DOT-COM Discussion is funded by USAID's dot-ORG Cooperative
Agreement with AED, in partnership with World Resources Institute's
Digital Dividend Project, and hosted by GKD.
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Re: [GKD-DOTCOM] Is Profitability Essential for Sustainability?

[Jim Forster]

Dear GKD Members,

I'm Jim Forster. I am a Distinguished Engineer at Cisco Systems and have
worked here since close to the beginning.

Bettina Hammerich made some very good points in her recent posting that
also pertain to the current question of the role of profitability,
including:

> * Businesses are more likely to be efficient service providers
> 
> * Governments and NGO's can be corrupt and/or ineffective

and

> * Environmental and human rights are not best served by the free market
> 
> * The level playing field is uneven and everyone is not "free to choose"
> 
> * MNCs are not transparent

Perhaps some of the concerns in the second group can be addressed in
time. I would hope, for instance, that some of the environmental effects
could be reduced by burdening the products with projected environmental
costs and in some way capturing the externalities. This is easier said
than done but simple examples include requiring recycling fees at the
time of purchase. MNCs are not transparent; neither are some NGOs and
some governments. All should be pressured to be more transparent.

To me, a major benefit of a for-profit goal is that the profit (or loss)
is a very convenient metric that indicates whether the goods or services
are useful when compared to alternatives. This metric includes factors
from both the demand side (do people want it enough to pay for it) and
the supply side (is it being done efficiently). I've been very
suspicious of other metrics because I think they're too easily 'gamed'
by insiders. Even the profit system can be cheated with an uneven
playing field or without the rule of law.

Without feedback from the people it's very easy to fall into the trap of
'knowing what is good for others'. I've worked at for-profit company
(Cisco Systems) for a long while, and I have to say that while I think
we've got great employees, we've succeeded because we learned how to
listen when our customers have voted with their wallets. I trust our
customer's judgment of what they want more than our expertise.


-- Jim




This DOT-COM Discussion is funded by USAID's dot-ORG Cooperative
Agreement with AED, in partnership with World Resources Institute's
Digital Dividend Project, and hosted by GKD.
http://www.dot-com-alliance.org and http://www.digitaldividend.org
provide more information.
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[GKD-DOTCOM] ICT and a Business Approach: A Case Study from Macedonia

[Kevin Newman]

Dear GKD List Members,

My name is Kevin Newman. Recently, I worked on a project in Macedonia
that aimed to do exactly what this discussion is examining: Reduce
poverty and increase job opportunities by employing a "business
approach"; specifically to strengthen the ability of local businesses to
compete in the global market. One area of my work in Macedonia involved
creating an IT Cluster focused on digital media, such as 3D Animation
(e.g., Shrek, Toy Story) and digital postproduction. The piece below
describes this activity and the outcomes, which I think have
implications -- and can provide a model for -- efforts to grow economies
and reduce poverty through a "technology and business approach" in other
developing countries. Just by way of an introduction, my previous
experience in the ICT & Development space includes: creating USAID
sponsored IT Consortiums in the Balkans; wireless infrastructure for
Bill & Melinda Gates' research projects in Africa; IT Policy work in the
Asia-Pacific region with APDIP - UNDP; and establishing a Financial
sector portal for Banks in the COMESA region of Africa. My interests
include broadband wireless applications for infrastructure
leap-frogging, ICT & trade integration (esp. supply chain management),
and IT-focused foreign direct investment (FDI) in emerging markets. I
look forward to contributing and learning from this group.

All the best,
Kevin Newman

**

"The Balkanization of Animation!" - Balkan FX Cluster enters Hollywood

For the last 18 months in Macedonia (FYROM), USAID has sponsored a
Cluster focused project  to increase the global
competitiveness of the Macedonian economy. While the term
"competitiveness" has been a donor buzzword for some time, there remains
confusion in these types of projects regarding the the definition of
"success", the expected outcomes (aside from simply increasing exports,
irregardless of value-added), and the necessary sequencing of Cluster
development. Realizing that Cluster success comes only from tight,
targeted cooperation among related firms, we decided to focus our
initial intervention on the emerging 3D Animation / Digital Media
technology firms.

In Macedonia, given their long academic tradition in innovative IT
research, we anticipated there would be many savvy entrepreneurs to
establish an FX-focused Cluster. However, despite the promise of this
sector, we were most concerned about developing a working "model" with
the IT Cluster, one that demonstrates by example the need for meeting
end-customer demands, focusing on target market research and leveraging
global networks, which could then be adapted to other industries.

In our "model" for achieving Cluster success, we focused on several key
components:

1) Developed a "pay-as-you-go" model of interaction. We invested time
and technical assistance only where a commercial return could be
properly forecast, demand estimated, and ROI articulated. To break the
donor dependency path, the Cluster had to focus on delivering results
and reinvesting profits in business development before reinvestment
continues.

2) Targeted technical assistance in formulating business models that
sequence Cluster development from initial "outsourcing" contracts (low
margin, good revenue, high visibility), to developing indigenous,
full-length animated features originating in the Balkans.

3) Developing scale economies through advanced training. Leveraging
resources across other IT-focused donor projects, we created a new
public-private initiative "[EMAIL PROTECTED]" in order to train over 600 high
school students, with a majority being female, with the goal of
extending this training to all secondary schools in Macedonia. This
initiative reached across the entire nation to create the 100+ animators
necessary for economies of scale to compete with Hollywood competitors.


4) Importance of Point-of-Contact Sales Training - including technical
assistance focused on international trade show participation & training
to "fill-the-pipeline". We also worked with the IESC consultant, Julia
Frey, to help FX3X develop a virtual office presence in Los Angeles,
which is crucial to client relationship development.

5) Professionalizing the Cluster through legally-binding subcontracts
with local competitors, a global marketing strategy, and the
professional and timely delivery of services. The Cluster utilized the
web for introducing the product and services, with short video segments
to attract attention. 

6) Intensive short-term & long-term business planning sessions with
Cluster leaders to ensure each firm incorporates collaborative shared
costs (esp. financing, marketing and project management), and profit
sharing.

This type of initiative has enormous promise as a means to offer young
people throughout the country new, high-value-adde

Re: [GKD-DOTCOM] Is Profitability Essential for Sustainability?

[Meddie Mayanja]

Dear Colleagues,

Whether profit is essential on not for successful ICT for Development
activities depends on the nature and over all mission of the activity
under question. Profits are certainly necessary for financial
sustainability.

As far as I know, however, the "profit" is not the problem/issue at all
-- the issue should be probably what is the price mark-up on the ICT for
Development activities -- which activities/services are charged for
profit?

We may recall that one of the reasons why rural communities can not use
ICT to improve livelihood is cost and availability of ICT resources.
It's not an either or situation; once ICT tools are made available
(e.g., Telecenters) they should be affordable. You also notice that
affordability is relative to community economics.

On the other hand, it's OK for an ICT for Devlopment initiative to seek
profits to ensure that services are available the next day. Detailed
planning would have to be made to decide upon which services to charge
for and which will be essential for fostering development - where
profit-motivated charges could kill interest for the service.

A strategy that I have found useful is to identify a few core services
that businesses would charge less for (e.g., cost recovery fees) for
their community development impact, and leave others on a full cost
basis to support sustainability. This would ensure that poor people are
not neglected for services in pursuit of profits. The rush for profit
(in the extreme) is an engine for promoting the digital divide and
growing the gap between the rich and poor. I understand it is the
bedrock of the growth of civil society organisations to balance up
effects of private sector led development around the world.

There is also such a thing as cost-recovery which can be applied to
critical services selectively.


Regards, 

Meddie Mayanja




This DOT-COM Discussion is funded by USAID's dot-ORG Cooperative
Agreement with AED, in partnership with World Resources Institute's
Digital Dividend Project, and hosted by GKD.
http://www.dot-com-alliance.org and http://www.digitaldividend.org
provide more information.
To post a message, send it to: <[EMAIL PROTECTED]>
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