INFORMATION TECHNOLOGY Archives

12/11/2020by EOS Intelligence EOS Intelligence No Comments

EdTech’s Growth Fueled by Coronavirus

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For years, tech adoption has been relatively slower in the education sector than in many other sectors. This considerably changed when COVID-19 hit in early 2020 and triggered the closure of educational institutions all over the world. With classroom doors closed and conventional methods of education taking a setback, e-learning gained momentum like never before. From virtual classes to tutoring and conducting meetings online to learning new skills, the pandemic propelled EdTech into the spotlight, putting it on a growth trajectory.

Changing face of the EdTech market

To control the spread of coronavirus, nearly 190 countries had implemented temporary school closures by the end of March 2020, disrupting education of more than 1.5 billion students. Over the coming days, as the count of people affected by the virus multiplied hourly, all educational institutions (including schools, colleges, universities, vocational training centers, and skill development institutions) were directed to remain shut until the situation improved, driving students to shift to online learning. This sudden change away from classroom learning has led to the adoption of online learning on a large scale.

Before the coronavirus pandemic, the EdTech sector was estimated to reach a value of US$ 342 billion, growing at a CAGR of 13.1% between 2019 and 2025. The forecast revisions accounting for the impact of the COVID-19 pandemic predict the global EdTech market to reach US$ 404 billion, with a CAGR of 16.3% by 2025. The sudden adoption of e-learning across educational institutions, as well as an increasing need for upskilling courses by working-class individuals, are driving the tech embracement in the COVID-19 pandemic scenario.

Moreover, with uncertainty still looming on the reopening of educational establishments, technology will need to play a critical role across all aspects of education – content generation, knowledge consumption, and assessments. This is expected to intensify the pace at which digitization happens in the education sector.

Investment at an all-time high

Over the last decade (from 2010 to mid-2020), global EdTech venture capital funding stood at US$ 36.8 billion, of which more than 50% occurred since 2018. Investment in EdTech has sky-rocketed over the last few years – the sector witnessed investment of merely US$ 0.5 billion in 2010 but reached a striking figure of US$ 7 billion in 2019, 14 times more in a span of nine years. Even during the COVID-19 pandemic, companies globally attracted US$ 4.5 billion in funding between January and July 2020, which is the highest ever funding raised during a comparable period in the last decade. It is expected that the trend will follow, and the investments will grow further, anticipated at US$ 87 billion over the next decade.

During the coronavirus outbreak, the demand for e-learning increased manifold, accelerating the investment spree in EdTech. While the USA is home to nearly 43% of the world’s EdTech companies (followed by India – 10%, Brazil – 9%, the UK – 8%, and China – 3%), as of 2020, the companies that received the high-value funding deals during COVID-19 period were situated elsewhere.

India-based online tutoring firm Byju’s raised more than US$ 1 billion from January through September 2020 (US$ 200 million in January from Tiger Global Management, USA-based investment firm; US$ 200 million in February from General Atlantic, USA-based equity firm; US$ 23 million in June from Bond Capital, USA-based investment firm; US$ 122 million in August from DST Global, Hong Kong-based investment firm; US$ 500 million in September from Silver Lake, USA-based equity firm) to become the first company in the EdTech domain to reach a valuation of US$ 10.8 billion.

The second company was China-based Yuanfudao, an online live course platform, which raised US$ 1 billion in March 2020 from Hillhouse Capital (a China-based private equity firm) and Tencent Holdings (a China-based technology conglomerate).

Another noteworthy deal was also scored by China-based Zuoyebang, an online education tutoring provider, which received US$ 750 million in funding from FountainVest Partners (a private equity firm based in Hong Kong) and Tiger Global Management.

Moreover, mergers and acquisitions are also likely to grow in the near future, considering many small players will not have the necessary finances and expertise to revamp their business model to the changing market needs and are likely to merge with or acquired by larger players.

Increased adoption of advanced technology

The short-term rush in additional demand for EdTech solutions brought by COVID-19 is also expected to give headway to increased adoption of advanced digital technologies in the future. Solutions based on technologies such as artificial intelligence (AI), augmented and virtual reality (AR/VR), and blockchain (we wrote about the role of blockchain in virtual education in our article Blockchain Scores Well in the Education Sector) are likely to gain more momentum and be integrated into core education delivery.

It is expected that by 2025 AR/VR market in EdTech will reach US$ 12.6 billion from US$ 1.8 billion in 2019, growing at a CAGR of 38.3%. AI is expected to observe a CAGR of 40.29% between 2019 (from US$ 0.8 billion) and 2025 (to US$ 6.1 billion). Other technologies that will see a spike include robotics (expected to grow from US$ 1.3 billion to US$ 3.1 billion during the six-year period) and blockchain being increasingly incorporated into learning processes (expected to grow at a CAGR of 34.8% from US$ 0.1 billion to US$ 0.6 billion).

EOS Perspective

COVID-19 has proved to be a turning point for the EdTech industry and acted as a push for change that was already underway in the education sector. The pandemic downrightly disrupted the education system, making online learning an essential part of the way we learn; however, it is unlikely that digital learning will become the new norm. Now, whether e-learning becomes the sole mode of education or blends with physical classes, the EdTech market has growth potential, and the investment angle also looks bright.

Whilst a large number of players in the EdTech sector were able to capitalize on the need for education during the pandemic, not all digital learning platform providers will stick around. In the long term, players with a clear-product concept and a well-defined monetization policy will emerge winners. They must also be thoughtful of the fact that the unforeseen growth the sector witnessed during the pandemic is only transient and once educational institutes reopen, the demand for online learning is likely to shrink (even if by a small percentage).

In terms of user adoption, EdTech companies saw significant growth by offering free access to their platforms. However, this is not a sustainable strategy that firms can adopt in the long run. Once things get back to normal and the free trials end, companies will need to attune their product pricing and come up with more affordable plans. Nevertheless, emerging on the winning side of the pandemic will not be easy for the players as they walk a very thin line between offering innovative learning models and meeting market demands while still being able to generate revenue and remain profitable.

Moreover, while the new users multiplied quickly, retaining them is easier said than done. Emphasis on service quality and overall delivery experience would be crucial to convert current free subscribers into paying customers.

Bearing in mind that the current momentary spike in demand for online tools is not directly proportional to increased business, EdTech companies need to revisit their business strategies to achieve long-term growth. As the competition increases, companies must tweak their commercial business model to adapt to changing customer requirements and fulfill the need for on-demand educational lessons.

Additionally, the importance of collaborative partnerships with educational institutions (for their need for customized curricula, creating teaching modules and courses to train teachers) and corporations (the need for upskilling employees on technical competencies) cannot be underestimated. Business models based on such partnerships are likely to open new avenues of revenue generation. This will also negate the per-student acquisition cost for EdTech players.

Nevertheless, though the growth path for the EdTech sector may have a few roadblocks, in hindsight, the overall outlook towards the sector’s growth in the near future appears to be optimistic.

Read our other Perspectives on coronavirus here

14/10/2020by EOS Intelligence EOS Intelligence No Comments

Agritech in Africa: How Blockchain Can Help Revolutionize Agriculture

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In the first part of our series on agritech in Africa, we took a look into how IT and other technology investments are helping small farmers in Africa. In the second part, we are exploring the impact that potential application of advanced technologies such as blockchain can have on the African agriculture sector.

Blockchain, or distributed ledger technology, is already finding utility across several business sectors including financial, banking, retail, automotive, and aviation industries (click here to read our previous Perspectives on blockchain technology). The technology is finding its way in agriculture too, and has the potential to revolutionize the way farming is done.

This article is the second part of a two-piece coverage focusing on technological advancements in agriculture across the African continent.

Read part one here: Agritech in Africa: Cultivating Opportunities for ICT in Agriculture

State of blockchain implementation in agriculture in Africa

Agricultural sector in Africa has already witnessed the onset of blockchain based solutions being introduced in the market. Existing tech players and emerging start-ups have developed blockchain solutions, such as eMarketplaces, agricultural credit/financing platforms, and crop insurance services. Companies, globally as well as within Africa, are harnessing applications of blockchain to develop innovative solutions targeted at key stakeholders across the food value chain.

Blockchain to promote transparency across agriculture sector

The most common application of blockchain in any industry sector (and not only agriculture) is creating an immutable record of transactions or events, which is particularly helpful in creating a trusted record of land ownership for farmers, who are traditionally dependent on senior village officials to prove their ownership of land.

Since 2017, a Kenyan start-up, Land LayBy has been using an Ethereum-based shared ledger to keep records of land transactions. This offers farmers a trusted and transparent medium to establish land ownership, which can then further be used to obtain credit from banks or alternative financing companies. BanQu and BitLand are other examples of blockchain being used as a proof of land ownership.

This feature of blockchain also enables creation of a transparent environment where companies can trace the production and journey of agricultural products across their supply chain. Transparency across the supply chain helps create trust between farmers and buyers, and the improved visibility of prices further down the value chain also enables farmers to get better value for their produce.

In 2017, US-based Bext360 started a pilot project with US-based Coda Coffee and its Uganda-based coffee export partner, Great Lakes Coffee. The company developed a machine to grade and weigh coffee beans deposited to Great Lakes by individual farmers in East Uganda. The device uploads the data on a blockchain-based SaaS solution, which enables users to trace the coffee from its origin to end consumer. The blockchain solution is also used to make payments to the farmers based on the grade of their produce in form of tokens.

In 2017, Amsterdam-based Moyee Coffee also partnered with KrypC, a global blockchain, to create a fully blockchain-traceable coffee. The coffee beans are sourced from individual farmers in Ethiopia, and then roasted within the country, before being exported to the Netherlands.

This transparency can help food companies to isolate the cause of any disease outbreak impacting the food value chain. This also allows consumers can be aware of the source of the ingredients used in their food products.

Blockchain-based platforms to improve farmer and buyer collaboration

Blockchain can also act as a platform to connect farmers with vendors, food processing, and packaging companies, providing a secure and trusted environment to both buyers and suppliers to transact without the need of a middleman. This also results in elimination of margins that need to be paid to these intermediaries, and helps improve the margins for buyers.

Farmshine, a Kenyan start-up, created a blockchain-based platform to auger trade collaboration among farmers, buyers, and service providers in Kenya. In January 2020, the company also raised USD$250,000 from Gray Matters Capital, to finance its planned future expansion to Malawi.

These blockchain platforms can also be used to connect farmers to other farmers, for activities such as asset or land sharing, resulting in more efficiency in economical farming operations. Blockchain platform can also enable small farmers to lease idle farms from their peers, thereby providing them with access to additional revenue sources, which they would not be able to do traditionally.

AgUnity, an Australian-start-up established in 2016, developed a mobile application which enables farmers to record their produce and transactions over a distributed ledger, offering a trusted and transparent platform to work with co-operatives and third-party buyers. The platform also enables farmers to share farming equipment as per a set schedule to improve overall operational and cost efficiency. In Africa, AgUnity has launched pilot projects in Kenya and Ethiopia, targeted at helping farmers achieve better income for their produce.

A Nigerian start-up, Hello Tractor uses IBM’s blockchain technology to help small farmers in Nigeria, which cannot afford tractors on their own, to lease idle tractors from owners and contractors at affordable prices through a mobile application.

Smart contracts to transform agriculture finance and insurance

Less than 3% of small farmers in sub-Saharan Africa have adequate access to agricultural insurance coverage, which leaves them vulnerable to adverse climatic situations such as droughts.

Smart contracts based on blockchain can also be used to provide crop-insurance, which can be triggered given certain set conditions are met, enabling farmers to secure their farms and family livelihood in case of extreme climatic events such as floods or droughts.

SmartCrop, an Android-based mobile platform, provides affordable crop insurance to more than 20,000 small farms in Ghana, Kenya, and Uganda through blockchain-based smart contracts, which are triggered based on intelligent weather predictions.

Netherlands-based ICS, parent company of Agrics East Africa (which provides farm inputs on credit to small farmers in Kenya and Tanzania) is also exploring a blockchain-wallet based saving product, “drought coins”, which can be encashed by farmers depending on the weather conditions and forecasts.

Tracking of assets (such as land registries) and transactions on the blockchain can also be used to verify the farmers’ history, which can be used by alternative financing companies to offer loans or credits to farmers – e.g. in cases when farmers are not able to get such financing from traditional banks – transforming the banking and financial services available to farmers.

Several African start-ups such as Twiga Foods and Cellulant have tried to explore the use of blockchain technology to offer agriculture financing solutions to small farmers in Africa.

In late 2018, Africa’s leading mobile wallet company, Cellulant, launched Agrikore, a blockchain-based digital-payment, contracting, and marketplace system that connects small farmers with large commercial customers. The company started its operations in Nigeria and is exploring expansion of its business to Kenya.

In 2018, Kenya-based Twiga Foods (that connects farmers to urban retailers in an informal market) partnered with IBM to launch a blockchain-based lending platform which offered loans to small retailers in Kenya to purchase food products from suppliers listed on Twiga platform.

Read our previous Perspective Africa’s Fintech Market Striding into New Product Segments to find out more about innovative fintech products for agriculture and other sectors financing in Africa

And last, but not the least, blockchain or cryptocurrencies can simply be used as a mode of payment with a much lower transaction fee offered by traditional banking institutions.

Improving mobile internet access to boost blockchain implementation

While blockchain has shown potential to transform agriculture in Africa, its implementation is limited by the lack of mobile/internet access and technical know-how among small farmers. As of 2018, mobile internet had penetrated only 23% of the total population in Sub-Saharan Africa.

However, the GSM Association predicts mobile internet penetration to improve significantly over the next five years, to ~39% by 2025. Improved access to internet services is expected to boost the farmers’ ability to interact with the blockchain solutions, thereby increasing development and deployment of more blockchain-based solutions for farmers.

EOS Perspective

Agritech offers an immense opportunity in Africa, and blockchain is likely to be an integral part of this opportunity. Blockchain has already started witnessing implementation in systems providing proof of ownership, platforms for farmer cooperation, and agricultural financing tools.

Unlike Asian and Latin American countries, African markets have shown a relatively positive attitude towards adoption of blockchain, a fact that promises positive environment for development of such solutions.

At the moment, most development in blockchain agritech space is concentrated in Kenya, Nigeria, Uganda, and Ghana. However, there is potential to scale up operations in other countries across Africa as well, and some start-ups have already proved this (e.g. Farmshine was able to secure the necessary financing to expand its presence in Malawi). Other companies can follow suit, however, that would only be possible with the help of further private sector investments.

Still in the nascent stages of development, blockchain solutions face an uncertain future, at least in the short term, and are dependent on external influences to pick up growth they need to impact the agriculture sector significantly. However, once such solutions achieve certain scalability, and become increasingly integrated with other technologies, such as Internet of Things and artificial intelligence, blockchain has the capability of completely transform the way farming is done in Africa.

17/09/2020by EOS Intelligence EOS Intelligence No Comments

Agritech in Africa: Cultivating Opportunities for ICT in Agriculture

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Agriculture technologies in Africa have been undergoing significant development over the years, with many tech start-ups innovating information and communications technologies to support agriculture at all levels. While some technologies have been successfully launched, some are in initial stages of becoming a success. Private sector investments have been the key driving factor supporting the development of agriculture technologies in Africa. In the first part of our series on agritech in Africa, we are examine what impact and opportunities arise from the use of these technologies in Africa.

Agriculture plays a significant role in Africa’s economy, contributing 32% to the continent’s GDP and employing 65% of the total work force (as per the World Bank estimates). Nearly 70% of the continent’s population directly depends on agribusiness. Vast majority of farmers work on small scale farms that produce nearly 90% of all agricultural output.

This article is the first part of a two-piece coverage focusing on technological advancements in agriculture across the African continent.

Read part two here: Agritech in Africa: How Blockchain Can Help Revolutionize Agriculture

Agriculture in Africa has been under the pressure of many challenges such as low productivity, lack of knowledge and exposure to new farming techniques, and lack of access to financial support, especially for the small-scale farmers. These challenges are prompting investments in newer technologies to enhance the productivity through smart agriculture techniques.

Lately, there have been an increased use of various technologies in agriculture in Africa, such as Internet of Things (IoT), Open Source Software, Cloud Computing, Artificial Intelligence, Drones/Unmanned Aerial Vehicles (UAVs), and Big Data Analytics. Many tech start-ups have developed solutions targeting various aspects of agriculture, including finance, supply chain, retailing, and even delivering information related to crops and weeds. These solutions are accessible to farmers through front-end devices such as smart phones and tablets, or even SMS.

Start-ups lead agritech development in Africa

Many agritech start-ups in Africa have come up with solutions that have led to a rise in productivity of the farms. Drones have been a breakthrough technology, helping farmers oversee their crops, and manage their farms effectively. Drones use highly focused cameras to capture picture of crops, soil or weeds. This, coupled with big data analytics and Artificial Intelligence (AI), provides insights to farmers, saving their time and effort, while also helping them find potential issues which could impact the productivity of their farms.

There are various agritech start-ups that are developing such drones, and providing them to farmers for rent or lease to analyse their crops and farms. A South African agritech start-up, Aerobotics, offers an end-to-end solution to help farmers manage their farms using drones, through early detection of any crop-related problems, and offering curative measures for the problems using an AI-based analytics platform. The company partners with drone manufacturing companies such as DJI and Micasense to deliver these solutions.

Acquahmeyer, another start-up based in Ghana, also provides drones to its farming customers to help them use a comprehensive approach to apply crop pest control and plant nutrition management for their farms.

Advent of advanced technologies such as IoT is also helping farmers to adopt smart farm management through the use of smart sensors connected in a network. This helps every farmer to get granular details of the crops, soil, farming equipment, or livestock, enabling the farmers to devise appropriate farming approaches.

Kenya-based UjuziKilimo provides solution for analyzing soil characteristics using electronic sensor placed in the ground. This helps farmers with useful real-time insights into soil conditions. The solution further utilizes big data analytics to guide the farmers, by offering insights through SMS on their connected mobile phones or tablets.

Hello Tractor, a Kenyan start-up, provides an IoT solution, through which farmers can have access to affordable tractors which are monitored virtually through a remote asset tracking device on the tractor, sharing data over the Hello Tractor Cloud. Farmers, booking agents, dealers, and tractor owners are connected via IoT. The company is also collaborating with IBM to incorporate artificial intelligence and blockchain to their solutions.

AI has also witnessed a rapid growth in adoption across agriculture sector in Africa. Agrix Tech, based in Cameroon, has developed a mobile application that requires the farmers to capture the picture of diseased crop, which is then analyzed via AI to detect crop diseases, and helps the farmers with treatment solution to save their crops.

AI is also helping Kenyan farmers with the knowledge on planting the right crops at the right time. Tech giant, Capgemini, has teamed up with a Kenyan social enterprise in Kakamega region in Western Kenya to use artificial intelligence to analyze farming data, and then send insights about right time and technique of planting crops to the farmers’ cell phones.

There are other agritech solutions that include mobile applications which use digital platforms such as cloud computing to reach out to farmers, and provide them with apt agriculture solutions. Ghana-based CowTribe offers a mobile USSD-based subscription service which enables livestock farmers to connect with veterinarians for animal vaccines and other livestock healthcare services using cloud-based logistics management system. The company focuses on managing the schedules, and delivering the right service to the livestock farmers, to help them safeguard their animals from any health-related problems.

Several agritech investments are also impacting the financial side of agriculture. Kenya-based Apollo Agriculture provides solutions related to financing, farm inputs, advice insurance and market access through the use of agronomic machine learning, remote sensing, and mobile technology using satellite data and cloud computing.

Another Nigerian start-up Farmcrowdy has developed Nigeria’s first digital agriculture platform that provides financial support to the farmers by allowing those outside the agriculture industry to sponsor individual farms.

Several other agritech start-ups across the continent, such as Ghana-based Farmerline and AgroCenta, and Nigeria-based Kitovu have also launched data-driven mobile application for farmers. These technology solutions are proving to be a boon for agriculture sector in Africa, helping improve the overall efficiency and productivity.

Agritech development is concentrated in Kenya and Nigeria

But, when it comes to first adopting the newest technologies and starting an agritech business in agriculture, Kenya and Nigeria have been leading in the adoption of new agritech solutions, accounting for a significant share of agritech start-up across Africa. Kenya has played a pioneering role in bringing agritech in Africa since 2010-2011, when the first wave of agritech start-ups began to bring new niche innovations. Currently, Kenya accounts for 25% of all the agritech start-ups in Africa, and the development is progressing rapidly, thanks to the country’s advancement in technology, high smartphone penetration, and relatively widespread internet access.

Similarly, Nigeria too has sailed the boat of success in agritech start-ups since 2015, and now it accounts for 23.2% of total agritech start-ups in Africa, with include major players such as Twiga Foods, Apollo Agriculture, Agrikore, and Tulaa. The growing inclination amongst Nigerian farmers towards using digital tools in agriculture sector has further pushed the rapid development in agritech sector in the country.

Other countries have also shown potential for agritech development, though it is still in the initial stages of becoming mainstream in their agriculture sectors. Ghana has encouraged several start-ups to launch different technology innovations for making agriculture more sustainable, while South Africa, Uganda, and Zimbabwe have also witnessed the rise in agritech start-ups over the years with newer technologies for agriculture sector.

Recent investments highlight the agritech potential

The agriculture technologies in Africa got the boost from the increased private funding. According to a report by Disrupt-Africa released in 2018, there has been a total investment of US$19 million in agritech sector since 2016. These investments have largely focused on funding agritech start-ups working on bringing innovative agriculture technologies. Also, according to the same report, the number of agritech start-ups rose by 110% from 2016 to 2018.

Some of the recent investments in the agritech sector include Kenya’s Twiga Foods, a B2B food distribution company, which raised US$30 million from investors led by Goldman Sachs in October 2019. The company aims to set-up a distribution centre in Nairobi to offer better supply chain services, while also expanding to more cities in Kenya, including Mombasa.

In December 2019, Kenya-based agritech start-up Farmshine, also raised US$25 million in funding from US-based Gray Matter’s Capital coLabs (GMC coLabs), to expand its operations in Malawi. GMC coLabs also invested US$1 million in another Kenyan B2B agritech start-up Taimba in July 2019. Taimba provides a mobile-based cashless platform connecting smallholder farmers to urban retailers. The investment was focused on strengthening Taimba’s infrastructure and increase the delivery logistics to cater to new markets.

Cellulant, a leading pan-African digital payments service provider that offers a real-time payment platform to farmers, also raised US$47.5 million from a consortium of investors in May 2018, which is the largest investment in the African tech industry till date. Cellulant also plans to channel a significant portion of funds into its Agrikore subsidiary, an agritech start-up dealing with blockchain based smart-contracting, payments, and marketplace system.

EOS Perspective

African agritech is expected to witness high growth in future. According to a CTA report on Digitalization for Agriculture (D4Ag) published in 2018, digital agriculture solutions are likely to reach 60-100 million smallholder famers, while generating annual revenues of nearly US$320- US$470 million by the end of 2020.

Adoption and use of innovative technologies such as remote sensing, diagnostics, IoT sensors for digitalization of agriculture is steadily moving from experimental stage to full-scale deployment, contributing to the data revolution in agriculture, while also unlocking new business models and opportunities.

Apart from these, blockchain is gaining prominence, and finding applications in the agriculture sector in Africa. This technology has the potential to significantly impact the agriculture sector, which we will discuss in the second part of our series on Agritech in Africa.

However, lack of affordability and knowledge to access such technologies, especially by small-scale farmers, has restricted the growth and reachability of these solutions. With the need to educate farmers and make such technology affordable and viable, it is likely that it may take at least 5-7 years before these technologies become truly mainstream in the continent.

A disparity of investments has been observed among the countries in the region. Over the years, countries such as Kenya, Nigeria, and Ghana have experienced a strong growth in terms of private investments, while other countries are left wanting. Investors have prioritized easy-to-reach markets in Africa, leaving behind the lower-income markets, resulting in agritech becoming less sustainable and scalable in these markets. However, several other African countries have shown the appetite to adopt agritech solutions, and offer significant potential.

This requires an intervention and participation from both governments and private investors, which can help improve scalability of agriculture technologies in the region. Implementation of farming digital literacy, public-private partnerships, and increased private sector investments in agritech enterprises can help the agritech industry experience a consistent and higher success rate, thus bringing the agriculture technology to a mainstream at faster pace.

06/04/2020by EOS Intelligence EOS Intelligence No Comments

Moving Towards 5G – Slowly but Surely

5G technology started to become a buzzword around 2017, when it was still in a nascent stage of development, to say the least. Over the past two years, 5G has evolved from pilot testing phase to small-scale implementation. However, 5G full-scale deployment is yet to be seen and there are still many challenges to overcome. 5G is here, but it is still a long way before it becomes mainstream.

Developing 5G infrastructure is a costly affair

5G uses high frequencies and short wavelength to deliver faster speed and lower latency. Short wavelength requires shorter distance between the tower and the device, since the signal cannot penetrate buildings, trees, or other such obstacles. Therefore, telecom operators need to build 5G small-cell towers very close to the end-users, which is time consuming and expensive.

The high cost of investment is seen as a major pain point by majority of the telecom operators. A report released by a UK-based capital finance firm Greensill in February 2019 indicated that the investment in global 5G telecom infrastructure will reach US$1 trillion by 2020.

Network sharing is increasingly seen as a rational approach to reduce the individual cost of investment. In February 2018, McKinsey estimated that if three players share the 5G network, the individual costs can be reduced by 50%. However, setting up a collaboration with other telecom operators to share networks is a complex and time-consuming process. On an average, it takes about six to nine months to finalize a network sharing agreement. Each telecom operator will need to ink many such network sharing contracts to achieve wide-spread coverage of their services.

Despite the hype, demand for 5G is currently rather moderate

Despite all the promises of high-speed and uninterrupted internet connectivity, 5G is not seen as an immediate necessity. This is because the existing technology, 4G LTE, is able to fulfill most of the current consumer needs. The average 4G LTE data speed globally is estimated at around 17Mbps. Thus, 4G LTE provides sufficient speed for some of the most common mobile applications such as music streaming (~1Mbps), 1080p HD video (~5Mbps), and even online games such as Fortnite (~3Mbps).

As per a study conducted by PWC in September 2018, only about a third of 1,000 home and mobile internet users surveyed in the USA were willing to pay a premium for 5G, provided 5G delivers speed and low latency as claimed by the telecom operators. Moreover, survey finds that, for 5G internet service, home internet users were willing to pay a marginal amount of US$5.06 on average as monthly premium in addition to their current spending on 4G. Mobile internet users were willing to spend even less, a monthly premium of US$4.40 on average. To compare, a US-based telecom operator Verizon offers unlimited 4G data and calls for US$65 per month.

Moreover, most of the 4G devices do not support 5G networks, thus require consumers to spend additionally on 5G-compatible devices. This additional cost factor is also expected to act as a deterrent for mass adoption of 5G in the near term. Another survey (conducted by PWC in May 2019) of 800 internet users in the USA found that if a new device was required to access 5G, 70% of the respondents would not be willing to buy a new 5G-compatible device as soon as it was available, rather wait until they were eligible for an upgrade.

Thus, the marketing hype created around 5G have got consumers intrigued about the technology, however, they are not open to spending generously on the 5G experience.

Net neutrality law dampens motivation to invest in 5G

5G would enable network slicing allowing telecom operators to dedicate a portion or slice of their 5G network with certain functionality such as connectivity, speed, or capacity. In other words, network slicing creates various networks that share the same physical infrastructure without impacting other network functionalities.

For instance, in automated cars, one slice could be used for watching Netflix and other could be used for exchanging reliable information with other cars to avoid any road accidents. Network slicing is a real opportunity for telecom operators to optimize their 5G networks to address different needs of specific application areas.

Furthermore, differentiated services provided with each network slice using the same physical infrastructure are likely to increase revenue potential for telecom operators. A research study conducted by Ericsson in 2018 concluded that telecom operators can generate up to 35% more in revenue using network slicing (the study assumed a 5G mobile broadband had 25 million subscribers with 40 unique services launched per year over the period of five years).

However, the net neutrality regulation adopted by many countries across the world does not permit the use of network slicing technique. Net neutrality laws are in effect in the EU since 2016. In North America, Canada has net neutrality regulation in place, but in the USA the status of the law is under review. Most countries in South America have national laws to protect net neutrality. In Asia, Japan, South Korea, and India are among the few countries with net neutrality regulation. Africa, in particular, is lagging behind other regions in developing concrete framework to protect net neutrality.

The net neutrality law dictates telecom operators to treat all internet communications equally and prohibits them to charge differently for different internet services. Net neutrality law does not allow the telecom operators to use network slicing technique to create distinguished service offerings by blocking any part of bandwidth for a particular application or user group.

Telecom operators argue that this impacts the roll out of mission-critical and emergency services such as remote surgery which needs to be given priority over other applications. With net neutrality in the picture, telecom operators would not be able to benefit from the key feature of 5G technology, network slicing. This may hinder the overall 5G development.

As telecom operators voice their concerns, regulators across the world are reviewing net neutrality laws. EU opened consultations with industry stakeholders as telecom operators in the region propose 5G to be classified as a specialized service which is exempted from net neutrality laws.

In the USA, the status of net neutrality law (introduced in 2015) remains unclear. In June 2018, the Federal Communications Commission (FCC) repealed net neutrality regulation, however the decision was opposed by 22 states. State legislators have challenged the FCC decision in the US Court of Appeals and proposed to authorize the state-level legislations to re-instate net neutrality laws. In the 2019 legislative session, 29 states introduced laws to protect net neutrality at state level.

5G to multiply data privacy and security risks

5G does not drastically change the risk factors similar to those in the existing communication technologies (i.e. 2G, 3G, and 4G), however, it is going to dramatically increase the potential points of cyberattacks. This is due to the fact that the advent of 5G is expected to result in exponential increase in the number of connected devices and associated network data traffic, which will significantly expand the number and scale of cyber vulnerabilities.

A study (released in May 2019 by Business Performance Innovation (BPI) Network, a professional networking organization) based on a global survey of 145 telecom industry professionals, indicated that 94% of respondents believed that 5G will increase security and reliability concerns.

Another survey conducted in June 2019 by Cradlepoint, a cloud-based networking solutions provider, indicated that 73% of the 200 respondents (working with telecom operators) acknowledged that security concerns might delay the 5G adoption.

Explore our other Perspectives on 5G

Industry is turning to standardization and regulatory bodies for guidance on minimizing security threats associated with 5G. But existing standards do not fully address the data privacy and security concerns.

For instance, the existing 5G standard employs Authentication and Key Agreement (AKA) protocol which is a mutually authenticating system between the user device and 5G network. However, in late 2018, it was discovered that the 5G AKA has at least two vulnerabilities that could compromise users’ data privacy and security. Firstly, it allows interception of the communication between two users, enabling cyber spies to steal personal information or corrupt data. Further, the vulnerability in 5G AKA protocol could allow cyber criminals to bill the phone call or other charges to legitimate users.

5G standards are still under development and will take some time to come into effect. Since 5G is a new technology, many data privacy and security threats still remain unidentified. In anticipation of potential security flaws, telecom operators may adopt a wait-and-see approach before moving to wide-scale commercial deployment of 5G.

5G draws criticism over possible health concerns

It is believed that prolonged exposure to electromagnetic radiation from 5G networks can be harmful to human health. In 2011, cellular radiation was classified as a possible carcinogen by World Health Organization. 5G radiation is also claimed to be linked to premature aging, disruption of cell metabolism, as well as neurological disorders. However, there is little evidence to understand the actual extent of the harm caused, and therefore many countries are not giving this issue due attention.

However, rising health concerns are not going unnoticed. In September 2017, 180 medical professionals and scientists from 36 countries recommended the European Commission to postpone the deployment of the 5G network until the potential risks for human health and environment are thoroughly investigated and proven. In response, the European Commission indicated that the member states are responsible for protecting their citizens from harmful effect of electromagnetic radiation and they can introduce choice of measures based on the demographics. This means that, in the future, if the presumed adverse effect of 5G radiation on human health is proven to be true, countries can impose protectionary measures which would limit the development of 5G.

Some countries have already taken a cautious approach to 5G deployment in view of potential health risks. An example of this could be Belgium stopping a 5G test in Brussels in April 2019 due to difficulty in measuring electromagnetic radiation emissions. Around the same time, Swiss government also announced plans to introduce radiation monitoring systems to continually assess health risks posed by 5G radiation. Earlier in September 2018, Mill Valley, a city in San Francisco, USA, banned deployment of small-cell 5G towers in the city’s residential areas.

Thus, growing concerns over impact of 5G on human health is expected to further delay the 5G development and adoption.

1) According to McKinsey estimates (February 2018) based on the assumption that three players share the 5G network

2) Based on survey of 1,000 home and mobile internet users in the USA conducted in September 2018 by PWC

3) Based on survey of 800 home and mobile internet users in the USA conducted in May 2019 by PWC

4) As per Ericsson 2018 study, assuming a 5G mobile broadband having 25 million subscribers with 40 unique services launched per year over the period of five years

5) According to May 2019 study by Business Performance Innovation (BPI) Network

6) Based on a survey conducted by Cradlepoint in June 2019

EOS Perspective

While the 5G technology era has arrived, wide-scale commercial deployment is moving slowly amidst challenges it is facing. Cradlepoint study indicated that 46% of the 200 telecom industry professionals surveyed in June 2019 had made little or no preparations for 5G deployment.

4G (introduced in 2009) accounted for 43% of the total mobile subscriptions globally by the end of 2018. Even after a decade, there are still many regions where people do not have access to 4G.

Transitioning from existing communication technologies to 5G is more complex, costly, and time-consuming. Hence, 5G is years away from full-scale commercial deployment. GSMA, an industry association with over 750 telecom operators as members, predicts that while 4G will continue to grow to reach 60% of the global mobile subscriptions in 2025, 5G will account for just 15% of the market by then.

5G has been in the news for some time now and it is marketed as the future of communication and internet technology. 5G has gone through many upgrades and is deemed ready for commercial deployment, at least on a small scale. Many leading telecom operators today are preparing for the rollout of 5G networks while uncovering new challenges in the process.

The road to 5G might be longer than expected, given the challenges on the way. TBR, a technology research firm, expects that only few trailblazers would have attempted to deploy 5G by the end of 2019. Majority of telecom operators will deploy 5G between 2020 and 2026. Laggards will follow them and continue with 5G deployment till 2030.

30/10/2019by EOS Intelligence EOS Intelligence No Comments

Monetizing 5G: The Road Ahead for Telecom Operators

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A new era of mobile communication and data services is set to begin as telecom operators across the world are priming for roll out of 5G. As per the estimates by Hadden Telecoms, a UK-based consultancy firm, as of August 2019, 287 telecom operators have invested in 5G deployment across 105 countries. Investments span across various facets of 5G technology including ongoing 5G base-station deployment and other infrastructure development, commercial service launches, future commitments or contracts to deploy 5G networks, pilot testing and trials, and research studies. As 5G seems to be an inevitable leap to the future of internet technology, the pressing question for telecom operators is how they can monetize the 5G opportunities.

5G mobile broadband is expected to become the key driver of revenue growth in consumer segment

Telecom operators will be primarily banking on 5G-enabled high-speed mobile broadband which is a natural progression from 4G mobile broadband internet services. An annual industry survey (2018), conducted by Telecom.com Intelligence – an information source for global telecom industry, indicated that 45% of the respondents (i.e. 1,500 telecom industry professionals across the world) recognized mobile broadband as the 5G service with greatest commercial potential. Based on 35,000 online interviews conducted with people across 22 countries in May 2019, Ericsson estimated that, with 5G, the average monthly mobile data consumption will increase 10 -14 times. Rising demand for data-intensive applications offering high quality video viewing and immersive gaming experience will be the key impetus for 5G mobile broadband.

5G to make dream of high-quality video streaming come true

Video accounts for the lion’s share of telecom operator’s network traffic today and it is likely to become the key driver of 5G mobile broadband service. Based on survey of 30 telecom operators across the world, Openwave Mobility (a mobile data traffic management solution provider) indicated that video on mobile broadband has registered average growth of 50%-60% year-on-year during 2014-2018. In many developing countries, this growth was over 100%. As per Ericsson’s estimates, video’s share in global mobile data traffic is forecasted to rise from 60% in 2018 to 74% in 2024, witnessing a 35% growth annually.

The growth in mobile video from 2010 to 2015 was attributed mainly to increased watch times. Interestingly, since 2015, growth in mobile video was mainly driven by consumer’s move towards high definition (HD) content. Further, video is expected to evolve from HD to higher display resolution such as 2k, 4K, and even 8K in the future. HD video consumes about 0.9GB per hour, while 2k and 4k would consume about 3GB and 7GB, respectively, thereby demanding higher bandwidth capacity and speed – which only 5G will be able to fulfil. This is because 5G is expected to be 100 times faster and have 1,000 times more capacity than 4G, thus enabling smooth streaming of 4k or 8k video without any buffering or lag. 5G will also become backbone for emerging technologies such as 360-degree video, virtual reality, and augmented reality.

5G will push for convergence of communications and media, opening up new avenues for telecom operators by integration of video content and media into their offerings. For instance, in May 2019, US-based telecom operator Verizon hinted that partnerships with content providers such as NFL, The New York Times, and YouTube TV, are part of the company’s 5G video strategy.

Anytime, anywhere gaming gets closer to reality with 5G

Just as 4G enabled video streaming services to go mainstream, 5G is expected to do the same for game streaming (also known as cloud gaming, meaning the game runs on a cloud platform instead of consumer’s devices). As per estimates of Newzoo, a gaming research company, the global gaming market is expected to reach US$152.1 billion in 2019, out of which 45% i.e. US$68.5 billion will be generated from mobile gaming (games on smartphones and tablets). This indicates that smartphones and tablets have already become most commonly used devices for gaming. 5G is expected to push mobile gaming to a next level by enabling game streaming. This is because 5G’s low latency (i.e. time taken to upload data from consumer’s device to target network) will allow consumers to stream games with virtually no lag. Currently, with 4G technology, the average latency is about 50 milliseconds (ms) because of which the response time between player-cloud server-player is too long. But latency could be reduced to 1ms with 5G, thus providing uninterrupted gaming experience to the players.

With advent of 5G, majority of the leading game developers, including Nvidia, Sony, Microsoft, EA, and Google, have already launched or plan to include game streaming as a part of their service offerings. The game streaming market is expected to grow at CAGR of 41.9% during 2019-2025, to reach US$740 million in 2025 from US$45 million in 2018. Telecom operators could tap into this growing demand for game streaming by partnering with game developers. For instance, in March 2019, Nvidia’s CEO indicated that the company will cash in on delivering game streaming service via telecom operators’ 5G offering and in return, telecom operators will get to keep more than half of the gaming subscription fee collected from the players (i.e. consumers). Such partnerships are already seen to be materializing; for instance, in September 2019, SK Telecom (South Korea’s largest telecom operator) paired up with Microsoft to deliver xCloud (Microsoft’s game streaming service) in South Korea over its 5G network.

5G Fixed Wireless Access (FWA) provides telecom operators with scope of market expansion

While 5G mobile broadband provides internet connectivity to smartphones, 5G FWA offers wireless broadband to homes and businesses through 5G networks. 5G FWA is expected to be a better alternative to fixed wired broadband including DSL (Digital Subscriber Line – internet delivered through existing copper telephone lines), cable (internet provided by cable operators through coaxial cables), and FTTH (Fibre-to-the-Home – the latest broadband technology using fibre optic cables). In January 2019, CEO of a US-based telecom operator AT&T emphasized that 5G FWA will evolve as a replacement product for existing fixed broadband over next three to five years.

5G FWA will be able to compete head on with fixed broadband. 5G FWA can provide faster speed and higher bandwidth, while also remaining more cost-effective compared to fixed wired broadband. To be specific, an article published in October 2018 on Inside Tower, an information source for wireless infrastructure industry, indicated that total capex per subscriber to deploy FTTH was about US$2,000-US$2,500, while 5G FWA capex could be estimated at US$1,000-US$1,500 per subscriber (representing nearly 50%-60% cost reduction over FTTH). Earlier, in August 2017, a Dubai-based research firm SNS Telecom estimated that 5G FWA can reduce the initial cost of installing last-mile connectivity by 40% when compared to FTTH.

Explore our other Perspectives on 5G

5G FWA is expected to become one of the first commercial use cases of 5G technology. SNS Telecom estimates 5G FWA revenues to reach US$1 billion globally by the end of 2019, and the market is forecast to grow at a CAGR of over 84% between 2019 and 2025, to reach US$40 billion in 2025. Another research firm MarketsandMarkets predicts that the global 5G FWA market will grow from US$396 million in 2019 to US$46,366 million by 2026, at a CAGR of 97.5% between 2019 and 2026.

Push for industry digitization by leveraging 5G-IoT technology opens up new market opportunities for telecom operators in business-to-business (B2B) segment

Digital transformation driven by 5G-enabled IoT applications is the key focus for most industries including automotive, healthcare, media and entertainment, retail, energy and utilities, manufacturing, agriculture, public transport, public safety, and financial services. Based on analysis of 400 digitization use cases from ten industries (mentioned above), Ericsson in association with Arthur D. Little (a management consultancy firm) released a report in October 2017 suggesting that the connectivity and infrastructure provisioning to enable industry digitization is expected to generate US$230 billion in 2026. Telecom operators, in their traditional role of operating network infrastructure, have the potential to address 89% of connectivity and infrastructure provisioning opportunity, representing US$204 billion in revenues. As per the Ericsson report, the telecom operators’ potential business from connectivity and infrastructure provisioning is anticipated from number of use cases including real-time automation, enhanced video services, monitoring and tracking, connected vehicle, hazard and maintenance sensing, smart surveillance, autonomous robotics, remote operations, and augmented reality, among others.

Further, many telecom operators are expected to evolve from being network developers to service enablers providing digital platforms catering to industry-specific digitization requirements. Service enablement to address industry digitization is forecast to generate US$646 in revenues in 2026, of which telecom-operator-addressable share is estimated at 52%, translating to US$337 billion.

Moreover, telecom operators also have the opportunity to take on the role of a service creator by developing new digital service and setting up new digital value systems. In this role, telecom operators have the potential to earn US$79 billion in 2026 (representing 18% of the total revenue generated through application and service provisioning).

Thus, if telecom operators partake in every step of industry digitization value chain by adapting the role of a network developer, service enabler, as well as service creator, the total addressable revenue opportunity from industry digitization could reach US$619 billion in 2026.

EOS Perspective

Traditionally, telecom operators’ business model revolved mainly around providing voice and data services to consumers. Advent of 5G will not only allow telecom operators to unlock new revenue streams in consumer side of business but also expand the addressable market to B2B space.

The onset of 5G will enable telecom operators to explore new use cases and develop corresponding service offerings. For this, telecom operators will need support and cooperation from different players across the ecosystem.

Telecom operators will need to collaborate with application developers, device manufacturers, as well as third-party technology solution providers to co-create services as per the requirement of specific industries. Ericsson research report (based on survey of 50 executives working with 37 telecom operators globally), released in 2017, pointed out that 77% of the respondents believed that third-party collaboration would be vital in monetizing 5G. Realizing the importance of industry collaboration to cultivate commercially viable 5G use cases, most of the leading telecom operators have started building their partnership network. For instance, Japanese telecom operator NTT Docomo indicated that total number of partners in its 5G Open Partner Program (launched in 2018) reached 2,700 by June 2019.

Further, telecom operators will need to modify and tailor their offerings to address the evolving consumer demands and expectations. To be successful, telecom operators will need to strive to develop and offer a complete solution to the consumers. For instance, 74% of the 35,000 respondents (that participated in Ericsson survey in May 2019), indicated that they find the idea of moving away from cable TV and shifting to 5G FWA bundled with 5G TV services very appealing. In view of this, most telecom operators are experimenting with bundling strategy, starting with inclusion of streaming services as a part of their package. Ovum estimates that streaming services (including, video, live sports, music, and game) billed through 5G network bundles offered by telecom operators will grow from US$6 million in 2019 to US$4.87 billion in 2024.

Moreover, telecom operators will need to develop completely new revenue models for enterprises. Telecom operators may adopt a business model widely used by consultants, wherein they can collaborate with enterprises for specific projects and receive a one-time fixed fee or share of project-associated profits or cost savings. Or, like application developers, telecom operators can develop standard solutions for specific industries and adapt licensing model permitting enterprises to integrate the solution into their end-product or subscription-based model allowing the enterprises to use the solution for a specific period of time.

5G’s functionalities and characteristics entice telecom operators to develop new use cases and capitalize on corresponding revenue opportunities. However, the use cases, particularly in enterprise segment, still need to stand the test of practicality and commercial viability. Though 5G offers plethora of opportunities for the telecom operators, it is advisable to focus on a few business cases that best fit to their capabilities and develop the ecosystem (including application developers, device manufacturers, and third-party solution providers) required to take the final solution to prospective consumers.

19/09/2019by EOS Intelligence EOS Intelligence No Comments

Decoding the USA-China 5G War

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The USA perceives Huawei, world’s largest telecom network equipment supplier and second largest smartphone manufacturer, as a potential threat capable of using its telecom products for hacking and cyber attacks. The US government suspects that China could exploit Huawei for cyber espionage against the USA and other countries. Amidst national security concerns, the US government has called for global boycott of Huawei, including of its 5G product range. The USA’s efforts to clamp down Huawei have rippling effect across the 5G ecosystem.

The USA and China have been trading rivals since 2012, particularly on the technology grounds. This resulted in a ban on China-based telecom equipment provider Huawei preventing it from trading with the US firms, over the accusation of espionage of critical information to the Chinese government. As a result, Huawei was barred from selling any type of equipment to be used in the US communication networks. This ban pertained to the 5G network equipment as well, and thus, Huawei’s 5G network equipment was ruled out from deployment in all parts of the USA. Few other countries, which agreed with the USA’s accusations on Huawei, also imposed a ban on the company’s 5G network equipment. The move severely affected Huawei’s exposure to some of the potential 5G markets, but it came as sigh of relief for its global competitors wary of Huawei’s growing dominance in 5G space.

Further, on May 16, 2019, the US government decided to put Huawei on the Security Entity List which restricted the company from buying any US-based technology (key hardware and software) for their 5G network equipment without approval and license from the US government, thus aggravating the 5G war. This not only brought new set of challenges for Huawei, but also created a rough path for the USA’s own technology firms involved in supplying components to Huawei. Considering impact on the US technology firms having Huawei as a key customer, on June 29, 2019, the US government announced relaxation on the Huawei ban, thereby allowing these US firms to continue their supply to Huawei for a 90-day period which got over in mid-August. The relaxation period was further extended till November 18, 2019, giving temporary relief to Huawei and its US-based business partners.

Huawei bears the brunt of USA-China 5G clash

The USA has initiated a global campaign to block Huawei from next-generation wireless communication technology over security concerns and it is pressuring other countries to keep out Huawei from 5G rollout. This invited quite a few repercussions for the company. One of the major and obvious consequences involved a major loss of potential market opportunity in the US territory as well as in other countries which are under strong influence of the USA.

After prolonged persuasion by the US government, in July 2018, Australia banned Huawei from 5G rollout in its territory. Japan also joined the league in December 2018 by imposing a ban on Huawei’s network equipment for 5G deployment, amid the security concerns to avoid hacks and intelligence leaks. Further, New Zealand and Taiwan also followed the suit in shutting out Huawei from 5G deployment.

In June 2019, the founder and CEO of Huawei, Ren Zhengfei, indicated that the company is likely to experience a drop in its revenue by US$30 billion over the next two years, which can be seen as a knock-on effect of growing US sanctions on Huawei. Also, Huawei expects its smartphone shipments to decline by 40% to 60% by the end of 2019 as compared to the total shipments in the previous year.

Despite repeated warnings from the USA, some countries have come out in support of Huawei by rejecting the USA’s claims. The regulatory bodies of countries such as Russia, Germany, Brazil, South Korea, Finland, and Switzerland have taken their decisions in favor of Huawei and allowed the company to deploy its 5G network equipment in their territories, affirming that they do not see any technical grounds to ban the company from their telecom networks.

Moreover, the US government has been persistently urging many European countries, especially the UK, to join its decision of barring 5G trade with Huawei. In March 2019, the EU recommended its member countries not to impose outright ban on Huawei, but instead assess and evaluate the risks involved in using the company’s 5G network equipment. Already earlier, in February 2019, the UK government concluded that any risks from the use of Huawei equipment in its 5G network can be mitigated through certain improvements and checks which the company will be asked to make and hence the decision of completely banning the company’s equipment from UK’s 5G network was not taken.

Among Asian countries, India, the second-largest telecom market in the region, has not decided whether to allow Huawei to sell its 5G network equipment in the country. China has warned the Indian government that the repercussions of banning Huawei equipment would include challenges in catering to the demand for low-priced 5G devices, thus causing a hindrance in rapid development of India’s telecom sector. In June 2019, the Department of Technology of India indicated that, since the matter of Huawei concerns the security of the country, they will scrutinize the company’s 5G equipment for presence of any spyware components. India will see how other countries are dealing with the potential security risks before giving a green light to the company.

The USA’s allegations against Huawei have made all the countries cautious over dealing with the company. Despite having proven technological supremacy in 5G network equipment market, Huawei has come under strong scrutiny for its 5G network equipment across the globe.

Huawei ban: Boon for some, bane for others

Huawei’s troubles are turning into major opportunity for its competitors in the 5G network equipment and smartphones market space. However, suppliers to Huawei, particularly US-based companies providing hardware and software for 5G devices and network equipment, took a hard hit as they lost one of their key customers because of the trade ban.

Huawei ban presents increased opportunities for its global competitors in 5G network equipment market

Major competitors of Huawei in 5G network equipment manufacturing business – Samsung (South Korea), Nokia (Finland), and Ericsson (Sweden) – are positioned to get the inadvertent benefit of expanded market opportunities with one competitor less. With Huawei losing potential market in countries where it is facing backlash, its competitors managed to grab a few contracts.

For instance, in March 2019, Denmark’s leading telecom operator TDC, which had worked with Huawei since 2013, chose Ericsson for the 5G rollout. Further, in May 2019, Softbank Group Corp’s Japanese telecom unit, which had partnered with Huawei for 4G networks deployment in the past, replaced Huawei with Nokia for its end-to-end 5G solutions including 5G RAN (i.e. radio access network equipment including base stations and antennas which establish connection between individual smart devices and other parts of the network). In the USA, Samsung is gaining significant traction as it has started supplying 5G network equipment to some of the leading US telecom operators including AT&T, Verizon, and Sprint.

A report released in May 2019 by Dell’Oro (a market research firm specializing in telecom) indicated that Samsung surpassed Huawei for the first time by acquiring 37% of the share of total 5G RAN revenue in the first quarter of 2019. In the same period, Huawei stood second with 28% share, followed by Ericsson and Nokia with 27% and 8% share, respectively. Earlier, Huawei led the 5G RAN market in 2018, accounting for 31% share of total 5G RAN revenue that year. Huawei was followed by Ericsson, Nokia, ZTE (China), and Samsung with 29.2%, 23.3%, 7.4%, and 6.6% share, respectively. Due to widespread skepticism about Huawei over espionage accusations, a shift in 5G network equipment market can be expected by the end of 2019, since competitors are likely to gain more growth momentum over Huawei.

Demand for Samsung smartphones gets a boost as Google blocks Android support to Huawei

In the smartphones sector, Samsung, which is the world’s largest smartphones manufacturer, may turn out to be the winner in the Huawei ban situation. Huawei, through its low-priced Android smartphones with features similar to Samsung’s smartphones, is emerging as the largest rival of Samsung in the smartphone market.

As per IDC data, Samsung’s market share (by total smartphone shipments volume) declined from 21.7% in 2017 to 20.8% in 2018, whereas Huawei recorded 33.6% year-on-year growth as market share increased from 10.5% in 2017 to 14.7% in 2018. But since Huawei was placed on US trade blacklist, Samsung is likely to benefit from the situation because of the broken deal between Google and Huawei which led Huawei to lose access to Google’s Android operating system (OS) for its next-generation 5G smartphones.

While Google managed to get a temporary license to continue to provide update and support for existing Huawei smartphones, it prevented Google from providing Android support for Huawei’s new products including soon to be released 5G smartphones. Huawei indicated that its latest 5G smartphones Mate 30 series, which will be launched on September 19, 2019, will run on open-source version of Android 10 and it will not have any of the flagship Google apps such as Google Maps, Google Drive, Google Assistant, etc.

Huawei unveiled its own operating system named HarmonyOS on August 9, 2019, but it still seeks support of Google’s Android OS for its upcoming 5G smartphones along with access to widely popular apps such as Facebook and WhatsApp which all belong to American firms. Android OS, controlling over three-fourths of the mobile OS market as of August 2019, is widely adopted by both the app developers as well as the users. As of second quarter of 2019, Android allowed its users to choose from 2.46 million apps. Encouraging app developers to rewrite their apps as per platform-specific requirements of a new OS with low user base is challenging. Conversely, consumers prefer OS which allows them to use all the apps they like. If HarmanyOS needs to be used as Android replacement, Huawei will need considerable time and financial resources to work with app developers to add similar apps to Huawei’s HarmonyOS.

Explore our other Perspectives on 5G

The future scenario for global 5G smartphones market will depend on the pending decision of the US government over allowing US technology firms to trade with Huawei. If the US government allows the trade, Huawei will have high chances of leading in the 5G smartphones sector owing to its competitive pricing and innovative solutions. On the other hand, if the ban still persists in future, the market of Huawei’s global competitors, Samsung in particular, is likely to swell, owing to their trusted brand name and reliability along with the support of Android OS.

US-based hardware suppliers for telecom devices face revenue loss as they lose their key customer, Huawei

The US government’s executive order issued in May 2019 blocking US exports to Huawei led to adverse effect on the revenue of the US-based companies that used to supply key hardware to Huawei for its 5G network equipment and devices.

For example, Qualcomm which was one of the largest sellers of modem chips, mobile processors, and licenses for 3G, 4G, as well as 5G technology in the Chinese market, has experienced a decline in revenue by 13% year-on-year in the third quarter of 2019 along with decline of approximately 36% in shipments of chipsets and processors. Similarly, Broadcom, which supplies switching chips used in network equipment, is also facing challenges with loss of its highest revenue-generating customer, Huawei, accounting for US$900 million of company’s revenue in 2018. Considering the Huawei blacklisting’s impact on financial results in the first two quarters of 2019, Broadcom has even cut its revenue outlook of the fiscal year 2019 from US$24.5 billion to US$22.5 billion.

In view of financial implications of Huawei blacklisting on the businesses of US-based technology firms, the US government, in June 2019, reprieved the trade ban on Huawei till November 18, 2019. Post the relaxation period, the US government may again ban Huawei from doing business with US technology firms. In case the US government puts the ban in effect owing to the security concerns, the repercussions are likely to deepen further for the US firms over losing considerable revenue coming from China’s telecom hardware industry.

Ban on Huawei means telecom operators will have to pay a higher price for 5G network equipment

Huawei ban is also seen to be impacting the US telecom operators as they face a particular challenge of increasing outlay to build the 5G networks. This is because the 5G network equipment provided by Nokia and Ericsson is more expensive than Huawei’s. In March 2019, Huawei claimed that allowing the company to compete in the telecom market in North America would reduce the total cost of wireless communication infrastructure development in the region by 15%-40% and provide an opportunity for telecom operators to save US$20 billion over the next four years.

The cost factor has also made some European countries sway their decision in favor of Huawei. In June 2019, GSMA, an industry association with over 750 telecom operators as members, indicated that shunning Chinese equipment from 5G network deployment in Europe would add EUR 55 billion (~US$61 billion) to the costs of telecom operators and will also cause the delay of about 18 months in 5G network deployment. In fact, to avoid such repercussions, many European countries have already decided to continue buying telecom equipment (including 5G network equipment) from Huawei and other Chinese firms, Greece being the latest one to join the group of countries including Switzerland, Finland, Sweden, and few more.

India, which is a huge market for low-priced smartphones and telecom network equipment, still remains undecided on the proposed ban on Huawei. The 5G network equipment supplied by Nokia and Ericsson in India is expected to be 10%-15% more expensive as compared to Huawei’s. Also, Huawei claims that imposing a ban on the company will push back 5G deployment in India by two to three years. Moreover, the prolonged decision-taking has also affected the 5G network deployment timeline of the country and thus slowing down the overall development of its telecom industry. Dilemma whether to work with Huawei is seen to have wide-reaching implications on overall development of 5G technology in some countries.

EOS Perspective

The USA-China 5G war has taken many unpredictable turns over the last year, resulting in adverse implications for Huawei and its US-based business partners. The current status of the 5G war indicates a relaxation over the Huawei ban till November 18, 2019. This allows the US companies to continue supply of their technology products including key software and hardware required by Huawei for 5G equipment manufacturing. However, the relaxation of the ban is not intended to remove Huawei from the US Department of Commerce’s Entity List and the US companies still have to apply for temporary license for exporting products to Huawei.

The USA has been targeting Huawei since 2012, and there seems to be no stopping. Considering the implications of the US sanctions, Huawei has been making notable efforts to end the ongoing discord with the US government. Huawei has always denied all the accusations and maintained that the company is willing to work with the US government to alleviate their concerns over cybersecurity. In May 2019, Huawei proposed implementation of risk mitigation programs to address potential security threats. To further appease the US government, on September 10, 2019, Huawei proposed selling its 5G technology (including licenses, codes, technical blueprints, patents, as well as production know-how) to an American firm. This is seen as one of the boldest peace-offering deals by Huawei to win back the trust of the US government. Huawei claimed that the buyer will be allowed to alter the software code and thereby eliminate any potential security threats.

Currently, there is no US company manufacturing 5G network equipment. Acceptance of Huawei’s proposal would enable the USA to gain footing in the 5G network equipment market and mitigate the fears over rising dominance of Huawei in global 5G space. While the move risks to create a competitor for Huawei in the 5G network equipment market, the company could also use this as an opportunity to evolve from core manufacturing business to providing technical expertise to other companies for manufacturing 5G equipment. The proposal is still subject to approval from the USA and Chinese governments.

While Huawei is ramping up its efforts to break the deadlock with the US government, at the same time, the company is also devising a parallel strategy presuming the worst possible outcome of USA-China trade tensions over 5G, i.e. the USA eventually cutting off ties with Huawei. The company is working towards a contingency plan with an ambition to take control of its supply chain and reduce its dependency on the US technologies and supplies.

One of the major actions of its plan B includes developing its own operating system HarmonyOS as a substitute to Google’s Android OS. While Huawei wants to continue with Android OS for its future 5G smartphones, in case the US government blocks Huawei’s access to Google’s services, Huawei will have to switch to own HarmonyOS.

China, Huawei’s home market, is more receptive to the company’s products, and switching to own operating system is expected to work in favor of the company. In July 2019, Canalys, a Singapore-based technology market research firm, estimated that China would account for over one-third of 5G smartphones globally by 2023. Huawei could use this opportunity to develop its proprietary OS based on the learnings in China before expanding globally to compete with more established and mature OS such as Android OS and iOS (which respectively controlled 76.23% and 22.17% of the smartphone OS market as of August 2019).

On the other hand, in anticipation of loss of partnerships with key suppliers such as Qualcomm and Broadcom, Huawei had stockpiled critical components between May 2018 and May 2019, according to a research report by Canalys. This move was aimed at ensuring the continuity of production of 5G products that rely on core technology from US-based firms for three to twelve months.

Further, Huawei has been developing proprietary chipsets for its 5G smartphones and networking products, which are being considered as alternatives for products offered by Qualcomm and Broadcom. On September 6, 2019, Huawei launched Kirin 990, a new 5G processor for smart devices, which will power Huawei’s upcoming 5G smartphone including Mate 30 series. Further, in January 2019, Huawei launched a 5G multi-mode chipset, Balong 5000 that supports a broad range of 5G products including smartphones, home broadband devices, vehicle-mounted devices, and 5G modules. The company claims this chipset to be the first to perform to industry benchmark for peak 5G download speeds.

Seeing such developments at the Huawei’s end, it is clear that the company is striving hard to remain on the top of 5G network equipment and device manufacturing sector. The USA’s efforts to derail Huawei from its path to dominance in 5G are certainly going to impact the overall growth of the company in short term, but, with its plan B, things are expected to smooth out for Huawei in future. Even if Huawei is not be able to retain its current global leading position in 5G network equipment and device manufacturing, it will certainly remain one of the strong contenders. The US sanctions are further encouraging Huawei to evolve as an all-round player in the 5G ecosystem.

On the contrary, the USA’s aggression against Huawei is expected to hit its own technology industry in the long term. For instance, the blacklisting of Huawei will not only cost the US technology firms to lose one of its largest customers, but will also result in intensified competition as Huawei ramps up its in-house capabilities to fulfill the demand of the entire 5G ecosystem. An example of this could be Huawei’s announcement in April 2019 that the company was open to selling the 5G chips to rival smartphone companies, including Apple. Moreover, if Huawei’s HarmonyOS is able to succeed in gaining significant user base, it would challenge the dominance of Android and iOS. Hence, it would be in best interest of the USA and its technology industry, if the country could take a different approach and try to control and minimize security risks related to Huawei’s engagements, rather than placing an outright ban on the company. Similar to what Germany did in December 2018, the USA could encourage telecom operators to establish verification centers and hire third-party experts to identify and resolve vulnerabilities in Huawei’s 5G network equipment and devices.

01/07/2019by EOS Intelligence EOS Intelligence No Comments

The Rapid Rise of India’s Food Tech: Yet Another Tech Bubble?

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In the past few years, food tech (online food delivery) industry in India has seen substantial growth in terms of daily order volumes (DOVs), revenue, and funding. While the business is growing for all players, they are still posting losses. A closer look into their financials and business models reveals that the current operating margins are very thin, and much of the recent rapid growth has been on the back of heavy discounting offered by players to attract customers. At present, the growth strategy is loud and clear: to acquire new customers, enter new markets, and expand current market share at any cost. This has raised a question whether such a model is sustainable in the long run or is it another tech bubble just waiting to burst?

Less than five years ago, the way Indians consumed food was completely different. Eating out was predominantly occasion-driven, while ordering food was limited to calling local restaurants or ordering a pizza from Dominos or Pizza Hut through their own websites. Online food ordering through apps was not at all a part of consumers’ culinary vocabulary.

However, this has been transforming over the past few years. There is a growing trend among Indians to order their food online via food aggregation apps. Today, Indian consumers, especially in metro and larger cities, are ordering food online more often than before. As a result of this, food tech has become one of the fastest growing internet sectors in India with an astonishing triple-digit growth rate in gross merchandize value (GMV) and DOVs in 2017 and 2018.

Huge potential waiting to materialize

After an initial hype among entrepreneurs and investors in 2015, the food tech industry saw a slump and market consolidation in 2016 and 2017. Yet in 2018, India’s food tech industry rekindled investors’ appetite for the sector with huge spending spree. Driven primarily by rising disposable income, rapidly growing internet and smart-phone penetration, urbanization, and a young and working-class consumer base, India’s food tech industry stood at around US$700 million in 2017 and is expected to reach US$4 billion by 2020. In 2018, DOVs went up to 1.7 million orders from 0.2 million in 2016. The current market consists of four key players. Leaders Swiggy and Zomato currently hold a combined market share of ~70%.

The market still in its infancy

While order volumes have gone up significantly in the last 12-18 months, the industry is still in its infancy considering its outreach and adoption rates across the nation. At present, online food ordering is available in just over 200 cities across India and contributes to merely around 5% of the total food delivery business.

Further, India’s US$1.7 billion food tech market is pretty small compared to US$10.5 billion in the USA and US$36 billion in neighboring China. Out of the 90 meals consumed each month, Indians eat out or get their food delivered less than five times a month as compared to around 40-50 meals in countries such as Singapore, China, and the USA. In a nutshell, food aggregators have just begun to scratch the surface in India and there is a long road ahead for the industry to develop and grow further.

Growth driven by deep discounts

While the recent growth numbers draw a compelling picture of the industry, it should be noted that much of the current growth is driven primarily by deep discounts that are offered by the players to attract customers onto their platforms. With the recent funding boom, all players are deep-pocketed. In a fierce battle for market share, companies are spending heavily on advertising, low-cost and complimentary deliveries, and discounts as their primary growth strategy. Given the huge potential of the internet economy, even investors are willing to throw in money and keep the incentives going. However, recent history in India as well as similar experiences from other internet companies globally reveal that while this can be a good strategy to attract customers and penetrate markets, it is unlikely to be sustainable.

The recent growth is not entirely organic. A significant part of it is inorganic, pushed by discounts and offers, as players focus more towards acquiring new customers, increasing their order frequency, and entering new geographies.
– Satish Meena, Senior Analyst, Forrester

Again, customer loyalty is very hard to come by in the food tech industry. With India being a price-sensitive market, consumers will often flock to the platform that offers the best deal. Just like in India’s cab aggregation industry, it will be interesting to see how the food aggregators find their revenue and DOVs impacted once these offers will start to disappear.

Penetration beyond tier-II cities

Till 2018, orders were highly concentrated among top ten cities of India. These markets accounted for around three-fourths of the total business for all players. In order to move away from these gradually saturating markets, and to scale up their outreach across India, food tech players are pushing to capture the untapped potential in tier-III cities and smaller towns with first-mover advantage. While they consider these markets to be lucrative with improving demand appetite, rising spending power, and profitability, these cities are very different from metros in terms of size and customer preferences. E-commerce adoption rates as well as user base in these cities are relatively small, and therefore it will be challenging for food aggregators to create demand here, as consumers are not acquainted to online food ordering.

On the demand side, it will be difficult for aggregators to generate order volumes from smaller cities in India. Considering that Indians are very price sensitive, once these offers are gone, the drop-out rates will be much higher in these markets as compared to metros. –
Satish Meena, Senior Analyst, Forrester

Back in 2016, Zomato tested the potential in smaller cities and had to shut down its business in four cities including Lucknow, Coimbatore, and Indore due to poor demand. Similarly, Grofers, an online grocery delivery platform expanded into several tier-II and tier-III cities. But they also had to suspend operations in nine cities, citing the same reason. While the advent of Jio (an Indian mobile network operator) and its cheap internet data packages are proving to be a boon for e-commerce players, the question still remains how food aggregators will be able to create a sustainable demand in cities where population prefers to cook its food every day.

In addition, unorganized players dominate food delivery in these markets. It will be tough for aggregators to compete with them, especially in terms of pricing, since the local players operate with very low overhead costs without the need to worry too much about hygiene, safety, and other quality standards.

Weaker financials and unit economics

With the ongoing discounts and offers, the cost of customer acquisition is very high at present. A closer look at the financials of Zomato and Swiggy reveals that their monthly cash burn has increased five times within 2018, as they resort to aggressive discounting to grow further across the country. At present, all players are posting losses. This is very common even in the global food tech industry where most players are still operating with losses. For example, China’s Meituan-Dianping and ele.me are still far from reaching the break-even point, even after 10 years in the business. The story is the same even in developed markets such as USA and the UK. The aggressive cash burn model requires food aggregators to keep raising funds at regular intervals in order to further scale up and grow. This is a major concern raised by many industry experts.

Look at China! The top two players have still not managed to turn profitable even with far superior market penetration and order volume rates as compared to India. – Former Executive, Swiggy

Another major challenge faced by all the players are the inefficiencies in their operations, a fact that has a direct impact on their unit economics and thereby profitability. Although food delivery logistics is slowly getting better, it still constitutes a major chunk of the overall cost. Players are in a dire need to leverage innovative technologies and processes to streamline their logistics operations and make the most out of their logistics infrastructure and assets.

In order to improve their unit economics and operational margins, everyone is trying to streamline their logistics operations and to make the most out of their current infrastructure and assets. –
Vaibhav Arora, Former Associate General Manager,
RedSeer Consulting

Playing by the same playbook?

For the Indian market, food tech industry’s current growth story may seem to be a flashback from the ride-hailing industry, which really took off in the early days. On the back of heavy discounts and attractive offers, it looked like a win-win situation for all. In recent years, when cab aggregators slowly started to move away from discounts, at the same time increased fares for customers on one hand, while reducing incentives for drivers on the other, they started to witness challenges on both demand and supply sides of their business.

Strategies such as surge pricing, hike in fares, cutting-down driver salaries and incentives, etc., have impacted their businesses and resulted in unhappy customers and driver partners, unreliability in services, and a tussle with local associations. Cab aggregators in India have still not found the right balance to continue to grow without leaking money.

Many industry experts believe that food aggregators will also face the same set of challenges in the coming years, as players will start moving away from discounts along with hike in delivery charges and restaurant commission in order to improve their operating margins. This is already becoming evident as delivery partners from Swiggy in Chennai went on a strike for wage-related demands in December 2018, while UberEats faced a similar situation in April 2019 in Ahmedabad.

You can connect the dots with cab aggregation business and foresee similar challenges coming up for the food tech sector. In the long run, they will start charging higher delivery fees from customers and higher commissions from partner restaurants. –
Vaibhav Arora, Former Associate General Manager,
RedSeer Consulting

EOS Perspective

In recent years, food aggregators in India have definitely created a market for themselves by inculcating consumers with online food ordering concept. There is no doubt that the Indian food tech market is still developing and has a huge potential. But it is also a difficult one to crack. As seen in the past few years, many start-ups folded up early on. Similarly to India’s cab aggregators and e-tailers, food tech companies have started to believe that discounts are the way to a customer’s heart and eventually increasing their market shares.

None of the major players within the Indian internet sector is profitable yet. Even for Indian food tech players, profitability looks elusive, at least in the short to medium term. They will require massive funding injected regularly to finance their aggressive growth strategies. Uber in its recent initial public offering (IPO) prospectus made a bold statement admitting that if may never be profitable. This is one of the deepest concerns across the industry, and many industry experts are not sure whether sustainable growth can be achieved with the present business models.

In India, it looks like a certainty that both Swiggy and Zomato will be still posting losses for at least the next two to three years. –
Former Executive, Swiggy

There are many areas which are not streamlined enough, and therefore a significant amount of money is lost there. In order to grow, players will have to address the fundamental issues around unit economics and operational efficiencies. Companies will have to find multiple ways to improve their operational efficiencies such as looking at alternative revenue streams, monetizing their fleets, building other businesses, etc. Therefore, Swiggy has ventured into hyperlocal business by starting deliveries of groceries and medicines to further optimize its current delivery fleet. Similarly, Zomato has started Hyperpure, a service wherein they deliver food products to restaurant partners in order to grow further.

On the one hand, the above mentioned strategies seem to be logical for food aggregators and the way forward to scale up their businesses. On the other hand, this approach also raises concerns whether they are trying to juggle too many balls with just one pair of hands. Are players diversifying too early and rapidly, considering that they have not yet mastered the trade of online food delivery? Will these diversifications shift their focus away from the core business? Do they have the bandwidth as well as the expertise to manage these new businesses?

Furthermore, it will be also difficult for players to continue their current growth momentum beyond 2019, since they have penetrated all metros as well as tier-I and tier-II cities in India. Growing in smaller cities with low e-commerce penetration will be a daunting task, especially without the discounts. All these challenges are likely to cause the industry growth to slow down. To continue the growth momentum, food aggregators will also have to customize their strategies for smaller towns in India. Since availability of cuisines and quality of food is the biggest pain-point in these markets, players will have to compete by offering more choices with higher quality standards. Variety and quality of food will be one of the key differentiators for them to succeed in these markets.

In order to succeed in the long run, players will have to leverage the vast consumption pattern data at their disposal, and convert them into insights. By harnessing technologies, they can smartly identify the demand-supply gaps in each market, and address them by launching relevant products and services. For example, aggregators can assess and identify particular cuisines, dishes, order time-slots, etc. that are trending in each market, based on which they can either collaborate with restaurants and push them to expand their offerings and outreach to meet the increasing demand, or themselves start to move up the value chain by setting up own cloud kitchens (delivery-only kitchens) to fill such gaps, and thus further improve their profitability.

Additionally, players will have to further innovate their offerings. For instance, since migrant workers and students are the prime target, introducing subscription based meals in this segment could allow players to gain customer loyalty as well as earn steady stream of revenue. Similarly in the B2B (business-to-business) space, they can forge partnerships with small and medium enterprises (e.g. Indian Railways) to supply meals to their employees and customers. This is another market segment with huge latent demand where variety and quality of food is the need of the hour.

While these are early days to comment on the long-term growth potential of the industry, we can expect the market and current players evolve over the next few years. Considering that no one in the Indian aggregation space is profitable yet, and the fact that the path followed by food aggregators closely resembles to the one followed by cab aggregators in India, who have found it to be bumpy, unless players can build a solid business model with a clear path to profitability, for now, the rapid rise of food tech sector looks like another tech buzz that will eventually slowly down over the years to come.

03/04/2019by EOS Intelligence EOS Intelligence No Comments

Connecting Africa – Global Tech Players Gaining Foothold in the Market

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While in the past, most global tech companies have focused their attention on emerging Asian markets, such as India, Indonesia, Vietnam, etc., they have now understood the potential also offered by African markets. Africa currently stands at the brink of technical renaissance, with tech giants from the USA and China competing to establish here a strong foothold. That being said, Africa’s technological landscape is extremely complex owing to major connectivity and logistical issues, along with a limited Internet user base. Companies that wish to enter the African markets by replicating their entry and operating models from other regions cannot be assured of success. In addition to global tech firms building their ground in Africa, a host of African start-ups are increasingly finding funding from local as well as global VC and tech players.

Great potential challenged by insufficient connectivity

Boasting of a population exceeding 1.2 billion (spread across 50 countries) and being home to six of the world’s ten fastest-growing economies, Africa is increasingly seen as the final frontier by large global technology firms.

However, the African landscape presents its own set of challenges, which makes increasing tech penetration extremely complex in the market. To begin with, only about 35% of the continent’s population has access to the Internet, as compared with the global rate of 54%. Thus, Africa’s future in the technology space greatly depends on its ability to improve digital connectivity. This also stands in the way of large tech-based players that wish to gain foothold in the market.

Large players try to lay the necessary foundations

Due to this fundamental challenge, companies such as Google, Facebook, and IBM have initiated long-pronged strategies focusing on connectivity and building infrastructure across Africa. Facebook’s Free Basics program (which provides access to a few websites, including Facebook and Whatsapp, without the need to pay for mobile data) has been greatly focused on Africa, and is available in 27 African countries. With Facebook’s partnership with Airtel Africa, the company has started to strengthen its position in the continent.

Similarly, Google has launched Project Link, under which it rolled out a metro fiber network in Kampala, Uganda, with Ghana being in the pipeline. Through such efforts and investments, Google is aimed at bringing about faster and more reliable internet to the Africans.

Microsoft, which has been one of the first players to enter the African turf, is also undertaking projects to improve connectivity in Africa. The company has invested in white spaces technology, which uses unused radio spectrum to provide Wi-Fi connectivity at comparatively lower costs.

However, managing to get people online is only the first step in the long journey to develop a growing market. Companies need to understand the specific dynamics of the local markets and develop new business models that will fit well in the African market.

For instance, globally, the revenue model for several leading tech companies, such as Google and Facebook, largely depend on online advertising. However, the same model may not thrive in most African markets due to a limited digital footprint of the consumers as well as the fact that the business community in the continent continues to draw most transactions offline, using cash.

Players employ a range of strategies to penetrate the market

These tech giants must work closely with local businesses and achieve an in-depth understanding of the unique challenges and opportunities that the African continent presents. Therefore, these companies are increasingly focusing on looking for collaborations that will help in the development of successful and sustainable businesses in the continent.

Leading players, such as Google and Microsoft have been investing heavily in training local enterprises in digital skills to encourage businesses to go online, so that they will become potential customers for them in the future.

While this strategy has been used somewhat extensively by US-based and European companies, a few Chinese players have recently joined the bandwagon. For instance, Alibaba’s founder, Jack Ma announced a US$10 million African Young Entrepreneurs Fund on his first visit to Africa in July 2017. The scheme will help 200 budding entrepreneurs learn and develop their tech business with support from Alibaba.

The company has also been focusing on partnerships and collaborations to strengthen its position in the African market. Understanding the logistical challenges in the African continent, Alibaba has signed a wide-ranging agreement with French conglomerate, Bollore Group, which covers cloud services, digital transformation, clean energy, mobility, and logistics. The logistics part of the agreement will help Alibaba leverage on Bollore’s strong logistics network in Africa’s French-speaking nations.

Considering the importance of mobile wallets and m-payments in Africa, Alibaba has expanded its payment system, Alipay, to South Africa (through a partnership with Zapper, a South Africa-based mobile payment system) as well as Kenya (through a partnership with Equitel, a Kenya-based mobile virtual network operator). In many ways, it is applying its lessons learnt in the Chinese market with regards to payments and logistics, to better serve the African continent.

While Chinese players (such as Alibaba and Baidu) have been comparatively late in entering the African turf, they are expected to pose a tough competition to their Western counterparts as they have the advantage of coming from an emerging market themselves, with a somewhat better understanding of the challenges and complexities of a digitally backward market.

For instance, messaging app WeChat brought in by Tencent, China-based telecom player, has provided stiff competition to Whatsapp, which is owned by Facebook and is a leading player in this space. WeChat has used its experience in the Chinese market (where mobile banking is also popular just as it is across Africa) and has collaborated with Standard Chartered Bank to launch WeChat wallet. In addition, WeChat has collaborated with South Africa’s largest media company, Naspers, which has provided several value added services to its consumers (such as voting services to viewers of reality shows, which are very popular in Africa). Thus, by aligning the app to the needs and preferences of the African consumers, it has made the app into something more than just a messaging service.

While collaboration has been the go-to strategy for a majority of tech companies, a few players have preferred to enter the market by themselves. Uber, a leading peer-to-peer ridesharing company entered Africa without collaborations and is currently present in 16 countries.

While entering without forging partnerships with local entities helps a company maintain full control over its operations in the market, in some cases it may result in slower adoption of its services by the local population (as they may not be completely aligned with their preferences and needs). This can be seen in the case of Netflix, a leading player in the video streaming service, which extended its services to all 54 countries in Africa in January 2016 (the company has, however, largely focused on South Africa). Despite being a global leader, Netflix has witnessed conservative growth in the continent and expects only 500,000 subscribers across the continent by 2020.

On the other hand, Africa’s local players ShowMax and iROKO TV have gained more traction, due to better pricing, being more mobile friendly (downloading option) and having more relatable and local content, which made their offer more attractive to local populations.

Netflix, slowly understanding the complexities of the market, has now started developing local content for the South African market and working on offering Netflix in local currency. The company has also decided to collaborate with a few local and Middle-Eastern players to find a stronger foothold in the market. In November 2018, the company signed a partnership with Telkom, a South African telecommunication company, wherein Netflix will be available on Telkom’s LIT TV Box. Similarly, it partnered with Dubai-based pay-TV player, OSN, wherein OSN subscribers in North Africa and Middle East will gain access to Netflix’s content available across the region. However, while Netflix may manage to develop a broader subscriber base in South Africa and a few other more developed countries, there is a long road ahead for the company to capture the African continent as a whole, especially since its focus has been on TV-based partnerships rather than mobile (which is a more popular medium for the Internet in Africa).

On the other hand, Chinese pay-TV player, StarTimes has had a decade-long run in Africa and has more than 20 million subscribers across 30 African countries. While operating by itself, the company has strongly focused on local content and sports. It also deploys a significant marketing budget in the African market. For instance, it signed a 10-year broadcast and sponsorship deal with Uganda’s Football Association for US$7 million. To further its reach, the company also announced a project to provide 10,000 African villages with access to television.

US-based e-commerce leader, Amazon, is following a different strategy to penetrate the African markets. Following an inorganic approach, in 2017, Amazon acquired a Dubai-based e-retailer, Souq.com, which has presence in North Africa. However, the e-commerce giant is moving very slowly on the African front and is expected to invest heavily in building subsidiaries for providing logistics and warehousing as it has done in other markets, such as India. This approach to enter and operate in the African market is not widely popular, as it will require huge investment and a long gestation period.

Local tech start-ups are on the rise

While leading tech giants across the globe are spearheading the technology boom in Africa, developments are also fueled by local start-ups. As per the Disrupt Africa Tech Startups Funding Report 2017, 159 African tech start-ups received investments of about US$195 million in 2017, marking a more than 50% increase when compared to the investments received in 2016.

While South Africa, Nigeria, and Kenya remained the top three investment destinations, there is an increasing investor interest in less developed markets, such as Ghana, Egypt, and Uganda. Start-ups in the fintech space received maximum interest and investments. Moreover, international VC such as Amadeus and EchoVC as well as local African funds appear keen to invest in African start-ups. The African governments are also supporting start-up players in the tech space – a prime example being the Egyptian government launching its own fund dedicated to this objective.

African fintech start-ups, Branch and Cellulant, have been two of the most successful players in the field, raising US$70 million and US$47.5 million, respectively, in 2018. While Branch is an online micro-lending start-up, Cellulant is a digital payments solution provider. Both companies have significant presence across Africa.

EOS Perspective

Although US-based players were largely the first to enter and develop Africa’s technology market, Chinese players have also increasingly taken a deeper interest in the continent and have the advantage of coming from an emerging market themselves, therefore putting themselves in a better position to understand the challenges faced by tech players in the continent.

Most leading tech players are looking to build their presence in the African markets. Their success depends on how well they can mold their business models to tackle the local market complexities in addition to aligning their product/service offerings with the diverse needs of the local population. While partnering with a local player may enable companies to gain a better understanding of the market potential and limitations, it is equally imperative to identify and partner with the right player, who is in line with the company’s vision and has the required expertise in the field – a task challenging at times in the African markets.

While global tech companies are stirring up the African markets with the technologies and solutions they bring along, a lot is also happening in the local African tech-based start-ups scene, which is receiving an increasing amount of investment from VCs across the world. In the future, these start-ups may become potential acquisition targets for large global players or pose stiff competition to them, either across the continent or in smaller, regional markets.

It is clear that the technological wave has hit Africa, changing the continent’s face. Most African countries, being emerging economies in their formative period, offer a great potential of embracing the new technologies without the struggle of resisting to adopt the new solutions or the problem of fit with legacy systems. It is too early to announce Africa the upcoming leader in emerging technologies, considering the groundwork and investments the continent requires for that to happen, however, Africa has emerged as the next frontier for tech companies, which are causing a digital revolution in the continent as we speak.

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The recent growth is not entirely organic. A significant part of it is inorganic, pushed by discounts and offers, as players focus more towards acquiring new customers, increasing their order frequency, and entering new geographies. – Satish Meena, Senior Analyst, Forrester

Penetration beyond tier-II cities

Weaker financials and unit economics

Look at China! The top two players have still not managed to turn profitable even with far superior market penetration and order volume rates as compared to India. – Former Executive, Swiggy

In order to improve their unit economics and operational margins, everyone is trying to streamline their logistics operations and to make the most out of their current infrastructure and assets. – Vaibhav Arora, Former Associate General Manager, RedSeer Consulting

Playing by the same playbook?

EOS Perspective

In India, it looks like a certainty that both Swiggy and Zomato will be still posting losses for at least the next two to three years. – Former Executive, Swiggy

Great potential challenged by insufficient connectivity

Large players try to lay the necessary foundations

Players employ a range of strategies to penetrate the market

Local tech start-ups are on the rise

EOS Perspective

The recent growth is not entirely organic. A significant part of it is inorganic, pushed by discounts and offers, as players focus more towards acquiring new customers, increasing their order frequency, and entering new geographies.
– Satish Meena, Senior Analyst, Forrester

In order to improve their unit economics and operational margins, everyone is trying to streamline their logistics operations and to make the most out of their current infrastructure and assets. –
Vaibhav Arora, Former Associate General Manager,
RedSeer Consulting

In India, it looks like a certainty that both Swiggy and Zomato will be still posting losses for at least the next two to three years. –
Former Executive, Swiggy