What’s the connection between DSTV, Grameen phone ladies, laundromats and bathroom scales? They run on basically the same business model.
I’m not talking about the direct satellite TV that you get in the United States. I’m talking about the guys in Mercy Corps’ Local Empowerment for Peace (LEAP) program who have used seed funding to start DSTV businesses: they buy a TV, satellite dish, etc., and then charge entry fees. This worked especially well during the World Cup in Munyaka, a small community near Eldoret where few people have televisions or even electricity, but where they all love football. When we visited their location two weeks ago, they were showing a replay of one of the semi-final matches. They also had a schedule posted for the movies they’d be showing later in the day. The list included the classic Bruce Campbell horror-comedy film Evil Dead 2. I applaud their taste. But I digress…
Their business reminded me of the much-hyped Grameen Village Phone ladies. The idea is that a Grameen Bank member takes out a loan to buy a phone, and then charges other villagers to use it. When the concept made headlines a few years back, the technophiles, microfinance-philes, and gender-based development community could barely contain their collective excitement. I did a little googling to find out the status of the program, and it sounds like it’s fizzled out. The reason is obvious: as cell phones become more available to more people, fewer of them will want to rent the service. The Grameen Phone page on the program mentions that it has been replicated in Rwanda and Uganda. My own observations in those countries suggest that the market for rented phone service is rapidly shrinking (if not gone entirely). It’s the same reason why pay phones are so rare in the US these days.
Though both examples above are from the developing world, it’s basically the same business model as the laundromat that I used in Manhattan. Buying a washer-dryer for my tiny apartment wouldn’t have been worth the investment, so a local entrepreneur provided the service for the marginal cost of my usage, plus part of the fixed costs, plus some profit. You might say that a fitness club with treadmills, weight machines and other expensive equipment works on a similar model.
So what’s up with bathroom scales? In Eldoret, I’ve noticed at least 3 or 4 people who stand on the sidewalk with ordinary bathroom scales in front of them, and change in their hands. My Kenyan colleague Josiah confirmed that their business is exactly what it looks like: people pay 5 shillings (US$0.06) to weigh themselves. There must be enough demand that this is the best livelihood option for several people in a small city.
Grameen has demonstrated that these sorts of businesses can be successful, but that their success may be fleeting. As a community develops and households become more affluent, they will want access to services like telecommunications and satellite television before they can afford the capital costs. That creates a business opportunity. But as incomes rise further, the opportunity begins to close. You see that with laundromats too: Americans who own their homes or who live in luxury apartments typically have their own washer-dryer. Ditto for internet cafes, which become less relevant in communities with personal computers and home internet connections.
I’m curious if there’s a term for this kind of business strategy, and if there are any analytical frameworks for it. How can entrepreneurs see these opportunities coming, capitalize on them, and then shift to new businesses as the moment passes? Does the idea of planned obsolescence apply to business models as well as products? And what would be the implications of that for the broader development process?