The Case for a New Business Model

Using a first world problem to solve third world problems

At the end of 2015, I signed up for the Hult Prize competition with a couple of mates. Spoiler alert: we didn’t win on pitch night — but we got some positive feedback on a key part of our idea and were encouraged by the judges to pursue it further. Over the following months, my mind kept coming back to it, so I’ve decided to write this white paper to flesh out the idea more clearly.

If you’re reading this and have any opinions on — or better yet, would like to contribute to or join — this little venture, please let me know. I’d really like to get this off the ground.

Opening Thought

According to the 2011 UNICEF working paper “Global Inequality: Beyond the Bottom Billion” by Ortiz and Cummins, the bottom 40% of the income pyramid live on less than $2 USD per day. (Henceforth, all amounts are in USD.) As per the majority of low-income populations, most of this is spent on food, but it must also cover housing, energy, transportation, health, and other expenses.

In contrast, people in rich, developed economies have salaries of around $40,000 on average, equivalent to roughly $100 per day. To these folks, especially those in the upper quintile, $2 is generally considered as loose change.

What if there was a way to transfer this difference in perceived value to those who truly value it the most?

Mobile Gaming as a Vehicle for Change

The rise of smartphone technology has changed the spending habits of millions. Nowadays, many people in developed economies drop several hundred dollars on a new handset every couple of years, then spend more cash on associated items such as cases and apps. This derived demand shows no signs of abating.

In 2015, the app economy generated some $40 billion in revenue for the two dominant players, with Apple’s iOS App Store taking the lion’s share despite fewer downloads than Google Play. Apple customers spent over $1.1 billion on apps and in-app purchases over the Christmas period alone. On both platforms, the vast majority of revenue came from games — 75% for Apple and 90% for Google. I believe there are a few reasons for this:

  1. Prices for mobile games tend to be lower than for other apps. They are also much cheaper than games on other platforms.
  2. Most people working in big cities inevitably have to commute to work. Those on public transport seek to relieve their boredom via their smartphones, and mobile games are a common solution.
  3. Parents are using smartphones and tablets to entertain their children from an early age, and games appeal directly to this demographic. This precedent then establishes a steady demand for subsequent years.

Although the mean app price is approximately $1, in-app purchases average closer to $4.50. This probably arises from the freemium model pursued by many app developers. Game developers are particularly fond of this model, with many games being marketed as free to download and play, but in-game progress is difficult to make without buying in-app items. This is a great strategy for the developers because it minimises barriers to adoption, forces them to create higher quality and addictive games to retain users, and provides incentives for premium content that naturally follow price discrimination principles.

On the flip side, gamers also buy items for their cosmetic appeal. Some, such as armour, contribute to character attributes; others, like skins or clothing, simply provide a distinguishing visual. This phenomenon has been around for years, with Valve’s Team Fortress 2 coming to mind as an early pioneer.

Although we could produce an entire game with the same objectives, the market is crowded and there is no guarantee of success, which is needed for scale. (See, for example, Sustainaville by Save the Children.) Also, games are generally fads — we want something that is more reliable. Therefore, partnering with games that are in vogue via an in-app mechanism should be a more appropriate and less risky proposition than developing a game from scratch. The appeal from my perspective stems from the existing infrastructure network, mass appeal, and relatively low marginal cost of development.

Considering the arguably minimal value gaming has on the real world (the value it delivers is mostly limited to the individual consumer), I can’t help but think that these funds could be better utilised. The dichotomy between the real and virtual worlds leads many to think of them as separate entities, but I believe there is a huge — and mostly untapped — potential to use the advantages of virtual goods (namely low distribution costs and the ability to use arbitrary values in code) to effect real-world changes that are truly meaningful.


Core Proposal

As is customary for start-up ideas, the summary catchphrase is:

Vevo for mobile gaming

i.e. A brand working in affiliation with partners (in this case, mobile gaming developers) to promote official content and, additionally here, direct support for humanitarian development.

How it would work

We would create a curated games app for each platform as well as a web portal, showcasing the best original games and live information (aligning with the contemporary world of instant gratification) about the projects being supported (detailed further below), such as total funding raised for each cause, how the funding is used, and the remaining amount required to deliver the next milestone. Transparent communication is key here for all involved.

DEVELOPERS

Incentives to join

  1. Both of the major app stores now house over 1.5 million apps. That’s a lot of noise to contend with, both for gamers who are seeking good games and developers looking to stand out. Amongst the noise are a lot of copycats that closely mimic a trending game and rely on intrusive advertising that ruins the user experience. This is especially true for Android (e.g. Flappy Bird, Piano Tiles, Threes/2048), reducing the revenue going to original concept developers. A properly curated marketplace would help both parties connect with each other.
  2. Devs would be encouraged to sign on using a ramped joining fee, for example: first five free, then an additional $50 per dev so that the 10th partner would pay $250 to be included. Spots could be limited to create a scarcity incentive.
  3. Additional exposure not just via the app, but from media interest and other marketing opportunities for supporting a humanitarian cause. The unusual method for demonstrating corporate social responsibility would also form another point of distinction for the company.

Requirements

To qualify, each game would simply need to include a relevant in-app purchase, such as:

  • Lives/health potions — Goes towards health funding (medicines, doctors, equipment, etc.)
  • New spells, knowledge tomes, abilities, skins/clothing — Goes towards education (books, teachers, uniforms, etc.)
  • Game currency/resources — Goes towards a funding pool (seed capital for local start-ups, microfinance for struggling individuals); see below.

It would be up to the dev to determine how potent (e.g. how many hit points a health potion restores) and therefore desirable these items would be in their game, but we could work with them on design and branding to maintain some consistency between different games (e.g. a particular colour palette), which would help to reinforce the idea of a shared objective.

HUMANITARIAN PARTNERS

The focus would initially be on health and education. Both are causes that I believe in strongly. We would pick perhaps three humanitarian partners for each, in line with the in-app purchase categories. These organisations should be practical in operations, as opposed to research or coordination types. Current thoughts are:

  • Health — Médecins Sans Frontières (Doctors Without Borders), the Fred Hollows Foundation, HERO Condoms
  • Education — The Global Partnership for Education, local schools (one project, then rotate), education start-ups.

Regarding the funding pool, this would accumulate in three subpools with live tracking for each (akin to a progress bar). As each subpool is filled, the funds would be released to one of the following:

  1. Small — Microfinance to help individuals with fluctuating incomes, perhaps in partnership with existing start-ups.
  2. Medium — Seed capital for the development of local businesses. Selection criteria would include a need to employ and train other locals.
  3. Large — Infrastructure development programs, prioritising clean water and telecommunications depending on location. These are crucial for longer term goals.

Gamers (or donors using our portals) can choose which pool to donate to, or have it randomly selected for them.

GAMERS

Get the app, find awesome games, and make in-app purchases while playing.

The idea is to minimise changes to the existing flow where possible so that end-user behaviour does not have to change. Hope to also get some word-of-mouth marketing happening by creating a seemless and enjoyable end-user experience, both for our app/portal and the games themselves (no intrusive advertising).

The other bonus for gamers is that with the clear link between purchases and humanitarian outcomes, they can see exactly how their money is being used, unlike many existing donation platforms.

US (THE SOCIAL ENTERPRISE)

We would be responsible for coordinating all the pieces:

  1. Build the apps and website.
  2. Establish and maintain partnerships with both games developers and humanitarian projects. Quality over quantity preferred here for scalability and impact reasons.
  3. Negotiate revenue-matching agreements with governments and platform companies (Apple and Google).
  4. Manage the funding pool and its returns for maximum impact.

Company revenue would be joining/membership fees from the devs, a proportion of the in-app purchases and any matching funds, as well as interest and another proportion of returns from the funding pool.

I imagine the main expenses would be salaries and establishment costs.

Balancing revenue and salaries would involve some mechanism appropriate to social enterprises. This is where things are fuzziest in my mind at the moment due to the conflicting interests (like all aspiring entrepreneurs, I’d like to make a decent living, but I am also mindful of the social outcomes I am trying to achieve). One potential mechanism would be a pre-defined charter that sets out a salary scale depending on the amount of revenue that is raised — I’m imagining some sort of monotonically increasing curve with an asymptotic ceiling, or perhaps once a pre-specified profit target is reached, any additional funds would go to the causes in their entirety.


Why it should work

Circular flow of income model. Haven’t seen this since high school but it seems relevant in this context.

Developing economies are constrained by the fact that the economy is small to begin with. By “exporting” in-app funding to provide the basics and help grow these economies to a state of self-sufficiency, we can in the long-term remove their dependency on intermittent donations and aid. Of course, app purchases won’t solve the problem in its entirety (to double the income of the bottom 20% would require some $1.8 billion per day), but as a private enterprise, we have control over how the money is used and can funnel them into activities that yield short-term (microfinance) and long-term (business development and infrastructure) returns and have positive feedback cycles for the local economy.

Strengths:

  • Requires little to no change in consumer behaviour
  • Takes advantage of fad market for scale
  • Unique marketing proposal; can integrate easily with other digital media
  • Relatively low costs of development and distribution
  • Transparency to inspire confidence from the public
  • Could be easily expanded to include other forms of entertainment (e.g. concerts)

Opportunities:

  • Increasing market penetration of smartphones generally
  • Crowded gaming market means developers are looking to maintain market share and increase visibility (e.g. TV advertising by Supercell)
  • Rise of digital celebrities and media focused on gaming, like PewDiePie and Twitch

Why it might fail

Weaknesses:

  • Huge partnership risk, so need to ensure there is enough value for dev partners to join
  • Lack of brand awareness for our company and team
  • No existing contacts in the games industry, tech giants, or humanitarian organisations

Threats:

  • Relies on disposable income, so revenue may fall drastically if the economy goes south
  • Disruptive technology in casual gaming, though this seems unlikely for the foreseeable future.

Next Steps

There are three things I’d like to do next:

  1. Develop the brand, settle on a name, etc. This is a bit cheesy but my initial thoughts for a tagline are a play on GG: “Great games. Greater good.”
  2. Talk to some potential partners to see if there would be interest on their end.
  3. Build a minimum viable product. In this case, I think this would be an app showcasing great games on Android. The iOS app and web portal can come later.

Like I said earlier, I’m happy to take on any feedback via comments or otherwise. If you’d like to get in touch, you can contact me at paul.wong.88@gmail.com. Thanks for reading!


#anightcapinitiative