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During the last 2 years approximately 180 million people in Sub-Saharan Africa have started using the internet. At the same time the desire to spend more time online is massive. A recent study from Kenya shows that 53% would like to increase their internet usage.

Despite the impressive adoption rate, there remain great variations for adoption among countries. During a four week period 39% have accessed the internet via a mobile phone, across Sub-Saharan Africa, compared to an impressive 60% in Kenya.

The rapid speed of adoption is the most interesting aspect about digitalisation of low-income markets.

The structural barriers for digitalisation are increasingly breaking down as infrastructure and purchasing power is improving while the cost of data and handsets is going down. In markets as Kenya, where infrastructure has been developed, people primarily access the internet through mobile phones. The availability of content is also a critical factor driving digitalisation and internet usage. When e.g. Denmark was connected to the internet in the 80s, there was no content on the internet to attract the interest of users, which contributed to a slow adoption rate. Since then, the world has created and shared incredible amounts of content, e.g. YouTube, which is readily available for English speaking countries.

People in low-income markets are eager to access the internet because great content as Facebook, Google, Youtube, Gmail & Wikipedia is available, which is also reflected in the fact that 95% of the consumed content is created in the West. However, it is rapidly becoming profitable to develop local content because the users, and thereby the market, is demanding content that takes its vantage point in local preferences.

There are an increasing number of companies who are starting to use ICT to drive business innovation. Bridge International Academies is an ultra low-cost primary school concept started in Kenya. All payments, incoming and outgoing, including payrolls for workers (teachers, managers, construction workers), money for construction materials and school materials, and receipts of school fees are made through M-Pesa mobile-phone payments. Further, the schools are administrated through SMS messages, eliminating the need for paper and the handling of documents. Digitisation is a key element in the model that allows Bridge International Academies to offer quality education at $4/month and effectively deal with corruption.

However, not all companies have understood the competitive advantage which digitalisation provide, as Michael Pedersen, founder of PlusPeople Kenya explains:

“The banking sector is a great example that demonstrates the low maturity but also opportunities available in the market. At the moment there is a significant fee for the customer to activate online banking (if the bank offers online banking). If you choose to pay the fee to activate online banking, you will be charged 500 Kenya Shilling ($5) per transfer. On the other hand it only cost 17 Kenya Shilling to write a check. Instead of using an automised online service where the customer does most of the work, the current pricing implies that all people write checks and all of these checks needs to be manually handled, transferred and confirmed back and forth.”

“Companies haven’t yet fully understood the idea and competitive advantage that digitalisation provides.”

One of the major questions companies face is the question of timing. When to enter a market?

Michael Pedersen, moved to Nairobi in the summer of 2010 with the aim of developing an IT start-up. In September 2011 he launched Uhasibu, an online accounting system designed for the legislation and workflows of Kenya. Speaking of Kenya, Michael Pedersen says, “It is preferable to build a new market because the internet in Kenya is maturing so much faster than what we saw in western markets.”

“It might be early, but if you enter the market now, you are able to build and own the market in 5 years when it is matured. The question is whether you want to go early and build the market or you want to come and compete against all the others in 5 years.”

Despite the potential, it is important to note that markets vary from country to country, e.g. Kenya and Tanzania despite the many similarities, have completely different levels of market and industry maturity.

Based on his experience Michael Pedersen believes that local companies are making the mistakes that his company was doing 5 years ago in Denmark, because the whole industry in Kenya lacks experience and maturity.

“A Danish company which enters the market and understands how to use the digital opportunities is able to leap jump the competition because all the local companies mess around in the first generation errors, which we faced and solved years ago. We are able to add professional experience, which enable delivery of products and services matching international standards, as expected by the local users,” says Michael Pedersen.

The markets in developing countries are far from mature and thus particularly difficult to forecast, but current trends indicate that:

1. Structural barriers for digitalisation are increasingly breaking down, as availability is improving and costs decreasing
2. It is rapidly becoming profitable to develop content specifically for low-income markets because the users are there, and thereby the potential market is established
3. The competitive advantage that digitalisation provides is not fully understood and exploited in low-income markets allowing pioneers to build markets