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…

How is her business...

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.

...like this business?

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?

  1. I don’t know if there is a term for this strategy, or if it’s ever “intentional” to dive into the market you know if going to lose share soon. If I may apply that on a broader international context, seems like every market that has reached its height of being capitalized will start to slow down, unless the market itself expands. This concept can be applied to the heap about the BRIC and other emerging markets today. Also applying the same question on a very individual level, I wonder if the recent social entrepreneurship needs to be defined beyond just starting an organization/business from scratch. You’re right, once the opportunities become obsolete, how do you know if you have created a business model that is applicable to another market? Sorry this wasn’t much of an answer to your question, but some more questions.


  2. my question is: is there a profit in owning a bathroom scale that gives “favorable” measurements to those who want to weigh themselves?


  3. first time writing to your blog.

    this type of business model is called PSS – or product service system. http://en.wikipedia.org/wiki/Product_service_system

    people don’t always want the actual goods themselves, this trend doesn’t only work in one direction. for example, people used to buy an answering machine for their house, but now most “rent” voicemail from their phone service provider. at a different scale, many (if not most) luxury cars are leased instead of purchased. this puts the onus on the car company to build a product that will last long enough for resale. a final example for you is called software as a service, where you don’t purchase the software, but it runs from “the cloud”. this is increasingly changing people’s views of software.

    PSS has been advocated by many environmentalists who believe that we buy too much junk and can instead purchase the services from a company instead.

    in the case of cell phones and tvs, most people want their own. i’m not sure we can get around that desire.


Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: