Facebook, Google and Amazon might strike out in 'the rest of the world'
Source: http://www.stuff.co.nz/news/108352553/-

2018-11-05 19:00:22

The van pulled up in a dusty lane in Jaipur, India, and five men wearing green WhatsApp T-shirts jumped out. Before a gathering crowd, they launched into a short play designed to teach people how to recognise and reject fake news - one of many such skits performed across the country.

It was a testament to how anxious WhatsApp and its parent company Facebook are to defend their business in India after a series of horrific lynchings inspired by false rumours spread using their app.

But it was also a sign of how intensely Silicon Valley is now pinning its hopes on the developing world.

Take Mark Zuckerberg's declaration that he wants to shift Facebook towards private messaging - by far the dominant form of social media in poorer nations.

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In a conference call with investors, he said most of Facebook's future growth would come from "developing countries" such as India, Indonesia and the Philippines, and emphasised his investments in Messenger, WhatsApp and their mobile payments systems.

At Snapchat, too, chief executive Evan Spiegel tried to reassure analysts that he could reverse his app's shrinking numbers by expanding into the global south where populations "skew young".

Amazon has built four distribution centres in Mexico and spent more than £5 billion (NZ$9.8 billion) to expand into India, where it is locked in a battle with the Chinese e-commerce giant Alibaba and the Walmart-controlled Indian player Flipkart. Netflix has begun making Bollywood movies.

Tim Cook, Apple's chief executive, has gone to great lengths to protect its privileged position in China, agreeing to store the keys which unlock Chinese users' iCloud accounts on Chinese servers and vigorously disputing allegations of hacking in his supply chain.

Google has provoked fury by secretly designing a Chinese search engine that would share data with authorities, eight years after quitting the country for ethical reasons. Meanwhile it is vying with Facebook to bring internet access to rural Africa.

What lies behind this scramble? While different tech giants have different reasons, they are all subject to one basic fact of corporate life. Their valuations are based on their ability to keep growing, and if they stop growing they are in trouble.

Some of them can still grow within the rich world: Apple has been adept at squeezing ever more value from its loyal customers, slowly increasing the price of its phones and introducing new gadgets such as the Watch. But for others, such as Facebook, Snapchat and Twitter, finding new users outside the West is an urgent necessity.

According to Matti Littunen of Enders Analysis, these companies are trapped in a vice between their users and their real customers - advertisers.

It's no secret that Facebook's audience has reached "saturation" in North America and is actually declining in Europe. That was why markets wiped US$123b off its market value during one day in July. But Facebook has also reached the limit of how many adverts it can show its customers without alienating them completely. That means the supply of new ad space is tailing off, which drives up ad prices - and it also means that Facebook's revenue per user may soon peak in the West.

Google is a little safer, because most of its adverts are shown to users who are actively searching for the thing that is advertised, but it too is under strain, and in any case its subsidiary YouTube has the same problems as Facebook.

Escaping this trap will be no walk in the park. Users in the developing world are much harder to monetise because they simply don't have enough money. Facebook makes 10 times more from each North American user than it does from each Asian user, and over 15 times more than users in what it calls "the rest of world".

Then there is the problem of access. Even where infrastructure exists, the relative cost of data is often prohibitively high.

"Almost two billion people live in a country where mobile data is unaffordable," says Dhanaraj Thakur of the Alliance for Affordable Internet, who blames government telecoms monopolies for stifling competition. Relative to income, some Africans pay the equivalent €200 for a single gigabyte of data. That gives low-bandwidth apps a big structural advantage over others - something Snapchat's Evan Spiegel complained about in a leaked letter to employees.

Some tech firms have aimed to fix this through a practice called zero rating, which involves cutting deals with local phone companies to exempt their apps from data limits. Twitter and Wikipedia have both tried it. Facebook's Free Basics programme gives users free access to a narrow selection of apps in around 60 countries. But that has faced opposition from activists who accuse it of a kind of "digital colonialism".

Despite intense lobbying from Zuckerberg, India banned Free Basics in 2016 for unlawfully creating a two-tier internet. Facebook itself quietly ended the programme in Burma after being blamed by the UN for enabling ethnic cleansing against the Rohingya Muslims.

Indeed, Silicon Valley is finding that "rest of world" politicians have their own ideas about its plans.

"The free speech standard of American social media companies is really extreme for most of the world," says Ellery Biddle, head of advocacy at the citizen journalists' network Global Voices, who has studied Free Basics' impact.

She cites Uganda's recent WhatsApp tax, which aimed to stop inconvenient "gossip" but provoked riots. India has lambasted the app for spreading violence, often shutting down the internet completely to contain unrest. Facebook has also been blocked in Libya, where, The New York Times reported, "practically every armed group" has its own page.

Elsewhere, tech giants are the target of protectionist curbs.

"There are some countries that still treat the sector as a luxury, like tobacco," says Boutheina Guermazi, director of digital development at the World Bank. "There is taxation on incoming traffic, taxation on handsets, taxation on data."

China, happy for Apple to create domestic manufacturing jobs, has no reason to let Facebook and Google compete with home-grown titans such as Alibaba, Tencent and Baidu.

Instead, nearby countries such as Indonesia have become proxy battlegrounds where American firms race to gain market share before they are frozen out by the special concessions China negotiates for its own companies as part of its gigantic Belt and Road infrastructure investment programme.

This, Littunen argues, points to Silicon Valley's greatest hurdle. "The fundamental problem is that they just are not serious enough about actually getting to know these markets," he says (though he excludes Amazon from this diagnosis). The services they sell are completely formed by living in America. Google's mobile payments system, for instance, requires a bank account, something two billion people on Earth do not have.

Moreover, American tech giants have prospered by minimising human oversight, which simply cannot work elsewhere.

"If you want to become an important payments provider in Africa you have to have a huge network of people who do cash in and cash out," says Littunen. By contrast, local competitors are used to building networks and influence, acclimatised to working in areas without sophisticated financial systems or even roads.

Alibaba, too, is better prepared, having spent the last five years pushing e-commerce into remote farming villages in China.

It is a long, hard road ahead for California's would-be colonists. Their obstacles are geographic, economic and political. But perhaps their biggest challenge is to come to terms with, and adapt to, a "rest of world" that doesn't share their dreams, and doesn't always need what they're selling.

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