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Sustainable electronics transforming consumer tech companies by EOS Intelligence
by EOS Intelligence EOS Intelligence No Comments

Sustainable Electronics Transforming Consumer Tech Companies

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Globally, electronics are discarded at alarming rates, generating unprecedented amounts of e-waste. On the other side, finite resources such as minerals and metals, which are used to make these electronics, are getting depleted. To foster sustainability across the electronics value chain, many tech companies are adopting strategies such as incorporating long-lasting product design, using recyclable and biodegradable materials, using clean energy for power generation, etc. However, the sustainable electronics concept is still in a nascent stage of adoption, and a lot of work needs to be done. Strict legislation, cross-sectoral collaborations, organizations facilitating networking and knowledge sharing, and changes in business models are needed to implement sustainability across various business units in the electronics industry.

Growing need for sustainability in electronics

Global consumption of electronics is rising exponentially and is expected to double by 2050. This increase is set to adversely affect the environment, leading to more mining of raw materials, an unprecedented increase in e-waste, and increased carbon emissions during manufacturing.

Globally, people are discarding electronics sooner than before due to the availability of new electronics, owning outdated models, obsolescence, etc. Over the last few years, nearly 50 million tons of e-waste has been generated annually. Only 17% of this e-waste is recycled globally, and the rest is transported and dumped in developing countries such as Pakistan, Nigeria, and India, which do not have adequate facilities for processing and handling e-waste. This e-waste ends up in landfills, accounting for approximately 70% of hazardous chemicals, and pollutes the air and water streams. Moreover, e-waste generated globally contains recyclable or reusable raw materials, scrap rare earth metals, plastics, and valuable elements, which are valued at US$62.5 billion per year.

Given the economic and environmental cost of e-waste, as well as responding to growing consumer preference for sustainable products, several companies are looking to transition to sustainable electronics. Sustainable electronics are products that are made using recycled or reusable and biodegradable materials, as well as products that generate low carbon emissions during manufacturing and distribution.

Sustainable electronics transforming consumer tech companies by EOS Intelligence

Sustainable Electronics Transforming Consumer Tech Companies by EOS Intelligence

Recycling, clean energy power, and modular design for sustainable electronics

Over the last few years, consumer tech companies have been adopting many strategies for manufacturing electronics sustainably. In 2021, tech giants Cisco, Dell, Google, Microsoft, Vodafone, and many others together formed a “Circular Electronics Partnership (CEP)” to accelerate the circular economy for electronics by 2030 and to help businesses and organizations overcome barriers to sustainable electronics.

Several companies are looking to increase the life span of their smartphones to make them more sustainable. Increasing the phone’s life span by two years can reduce carbon emissions to a great extent, as 80% of the carbon emissions come during manufacturing, shipping, and the first year of phone usage. Fairphone, a Dutch-based smartphone manufacturer, has introduced smartphones with a lifespan of approximately 5 years, higher than the average lifespan of 2.5 years. Similarly, Teracube, a US-based sustainable smartphone manufacturer, has launched phones that can last up to 4 years.

Many companies are also designing their products with modularity, which allows users to repair, upgrade, customize, and disassemble their gadgets easily. For instance, Framework Computer, a US-based laptop manufacturer, sells laptops that can be upgraded. The company offers upgrading kits that contain laptop main boards and top covers to customize the device as per the user’s need. Similarly, Fairphone manufactures modular smartphones, which are easy to repair and upgrade. These kinds of gadgets eliminate the user’s need to buy new ones, saving both costs and wastage.

There is also an increased interest among consumer electronics companies to use recycled materials in various products. Sony, a Japan-based multinational corporation, has developed a recycled plastic, SORPLAS, and has been using it in a range of its products, such as audio systems and televisions, since 2011. In 2022, Logitech, a Swiss-American manufacturer of computer peripherals and software, used recycled plastic in 65% of its mice and keyboards. Similarly, in 2021, Acer, a Taiwan-based electronics corporation, launched a series of PCs named Vero, which uses recycled plastics for the chassis and keycaps. Acer also launched the Earthion program, an eco-friendly initiative, in the same year and started working closely with suppliers and partners to bring various sustainability measures in product design, packaging design, and production. Tech giant Apple stopped selling chargers and headphones along with the iPhone in 2020 to cut e-waste. The company used 20% recycled material in all its products in 2021 and uses robots to disassemble or separate metals from e-waste. There is 40% recycled content in the MacBook Air with Retina display, and 99% recycled tungsten is used for the iPhone 12 and Apple Watch Series. Samsung, a multinational electronics corporation, is using recycled plastics in refrigerators, washing machines, air conditioners, TVs, monitors, and mobile phone chargers.

Due to this increased demand for recycled materials, recycling companies are receiving investments to a significant extent. In 2021, Closed Loop Partners, a US-based investment firm, invested an undisclosed amount in ERI, a US-based electronics recycler that supplies materials to companies such as Best Buy, Target, and Amazon, to extend the capacity for the collection and processing of electronics. Similarly, in 2022, the Australian Business Growth Fund (ABGF), an investment fund focused on small to medium-sized Australian businesses, invested US$7.5 million in Scipher, an Australia-based urban mining and e-waste recycling business.

Significant activity has been happening in the refurbished electronics market as well due to the rising consumer awareness of sustainability. Trade-in and refurbishment reduce e-waste piling up at landfills, as it limits buying newer gadgets and thereby paves the way for greater sustainability across the electronics industry. Back Market, a France-based marketplace of renewed devices (which provides refurbished devices with a one-year warranty), has raised over US$1 billion since its launch in 2014. In 2022, Verdane, a European specialist growth equity investment firm, announced an investment worth US$124 million in Finland-based Swappie, a re-commerce company that sells previously owned, new, or used smartphones. Vodafone also announced a major initiative to extend the life of new mobile phones and to encourage customers to trade in or recycle their old devices. The company is planning to provide customers in European markets with a suite of services, including insurance, support, and repairs for their devices, in 2022. Samsung collaborated with iFixit, an online repair community, for its self-repair program in 2022. The company said that under this program, Galaxy device owners in the USA can make their own repairs to the Galaxy Tab S7+, Galaxy S20, and S21 products using easy-to-repair tools available from iFixit.

Tech companies have also started transitioning to renewable energy and looking for ways to reduce their carbon emissions. Intel, a US-based technology company, uses green energy of up to 3,100,000 MWh annually in the manufacturing of processors and computer accessories. Samsung’s facility operations in the USA and China switched to 100% renewable energy in 2019. In 2021, Microsoft entered into a partnership with IFC, a member of the World Bank Group, to reduce carbon emissions in the organization’s supply chain. IFC is said to work with selected Microsoft suppliers in emerging markets, primarily in Asia, to identify technical solutions and financing opportunities to reduce emissions in the production process.

Legislation to aid the shift toward the circular economy in electronics

For years, many countries did not have appropriate policies enforcing sustainability across the electronics industry. Nevertheless, the trend is reversing with several countries adopting legislation for the circular economy. For instance, in 2020, the European Commission announced a circular electronics initiative that would promote eco-design (a design that considers environmental aspects at all stages of the product development), right-to-repair rules, including a right to update obsolete software, and regulatory measures on universal chargers, to name a few. France became the first European country to pass the Anti-Waste for a Circular Economy Act (AGEC) in 2020, which requires producers of electronic devices to provide details on how repairable their products are. According to AGEC, manufacturers are required to scale their products at a rate of 1-10 based on the reparability index. France also plans to introduce a durability index by 2024, whereby manufacturers would be asked to describe the full lifecycle of their products. Moreover, the US government passed an order in 2021 to draft regulations that protect the consumer’s right to repair electronic devices and other tools.

It is not easy to manufacture sustainable electronics

While sustainable electronics are the need of the hour, and several leading players have already started promoting and investing in this space, the sector faces many challenges. Currently, there are no established standards, concepts, or definitions concerning sustainable electronics, and there is no strict legislation to enforce sustainability practices in the electronics industry. There are some rating systems that identify energy-efficient products followed in the USA and Europe (for example, the USA’s ENERGY STAR program). However, registering and complying with the ratings and their requirements is up to the manufacturer and is not mandatory. Moreover, e-waste regulations in several countries are poorly enforced due to low financing, and illegal practices such as dumping e-waste and incineration by the informal sector still persist.

Most electronics companies are also not transparent about their environmental performance, and the impact is often hidden. The term ‘sustainable’ is widely misused as a promotional tactic by companies targeting environmentally conscious consumers.

The electronic industry also operates on a linear established model, wherein products are manufactured (with planned obsolescence) and sold to consumers. Incorporating circular strategies for recycling and reuse requires a lot of remodeling and reconfigurations across the supply chain, and the rising consumption of electronic devices makes it difficult to adapt to any new changes. Challenges, such as complex recycling processes, costs of recycling, and consumer perception of green electronics, also hamper sustainability development. Most electronics are not designed for recycling and are made of a complex mixture of materials such as heavy metals, highly toxic compounds, glass, plastics, ferrous and nonferrous materials, etc. Recycling these materials is tedious and involves several steps such as dismantling, removing the hazardous waste, shredding into fine materials, and sorting the materials into various types. The process is also resource and cost-intensive, requiring human labor, more processing time, and adequate infrastructure such as various material screening types of equipment. Recycling e-waste could also be polluting, with potential exposure to toxic metal fumes.

Finally, the perception of consumers about sustainable electronics also needs to be changed, which is challenging. There is a notion among customers that the use of recycled, sustainable materials in electronics means products would be of lower quality. A lot of investment would be required to educate and convince consumers about the benefits of sustainable electronics and to address any concerns about quality. In most cases, it is difficult to pass on these costs to the consumers as they are unlikely to accept higher prices. Thus, this cost would be required to be absorbed by the companies themselves. Due to this, most current initiatives toward sustainable electronics can be best described as half measures.

EOS Perspective

The economic benefits of sustainable electronics are enormous. The resource scarcity and the price fluctuation of various minerals and metals make them necessary to recycle, recover, and reuse in the circular economy. Over the last few years, consumer electronics manufacturers have taken many sustainability initiatives, such as reducing energy consumption, eliminating hazardous chemicals, introducing biodegradable packaging, incorporating recycled and recyclable materials in products, and investing in renewable energy projects. Also, the refurbished electronics segment is growing fast, while interest is surging in introducing devices with built-in reparability. While several small initiatives are being taken by leading players, electronics manufacturers mainly do not know how to introduce sustainability across their products in a mainstream fashion.

Sustainability in electronics has still a long way to go. Several legislative initiatives are underway toward a circular (sustainable) electronics economy, and it is high time for electronics manufacturers to be proactive and rethink their business models. A complete business model transformation is required to integrate sustainability across every unit. Cross-sector collaborations with stakeholders such as product designers, manufacturers, investors, raw material producers, and consumers are crucial to understanding the technical know-how. It is essential to analyze the entire life cycle of products, from choosing raw materials to their disposal, and to prioritize circular strategies for such products. Electronic manufacturers also need to come up with creative and rewarding ways for consumers to be willing to choose sustainable products, as, in the end, the industry cannot flourish without consumer acceptability. The future of sustainable electronics can be bright, and manufacturers who see this as a potential business opportunity rather than a problem will benefit in the long term.

by EOS Intelligence EOS Intelligence No Comments

Can 3D Printing Move Beyond Design Customization in the F&B Industry?

First conceptualized over 40 years ago, 3D printing is still rapidly developing. The technology has been used in various industries ranging from 3D-printed human organs for implants to printing numerous customized products as per the customers’ requirement. There are several interesting applications of this technology in the Food & Beverage (F&B) industry as well. While currently they mostly pertain to creating visually complex geometrical food structures, there are also ongoing innovations with regard to using 3D printing for nutritional controllability and sustainability. However, most of these projects are one-off and 3D printing still remains a niche application in the F&B space.

3D printing is an evolving technology, offering F&B industry players benefits such as efficiency and customization. 3D printers are mostly used by F&B producers to make foods using the extrusion technique. In this method, the edible is in the form of a paste and is extruded from syringe-like containers onto a plate based on a 3D computer model. The process is similar to icing a cake using a piping bag, except with robotic precision, as the printer layers edible filament in desired shapes.

Traditionally, 3D food printing has been used to architect intricate shapes and designs that are difficult to achieve manually. It has been mostly confined to desserts such as chocolates and sweets as 3D printing offers huge potential for customization.

That being said, there is a gradual shift to adopt this technology in preparing more complex foods such as 3D-printed pizzas, spaghetti, burgers, and meat alternatives. For instance, since January 2022, BBB, an Israeli food chain has been serving 3D-printed burgers prepared from a mix of potato, chickpea, and pea protein. Similarly, since 2021, companies such as Spain-based Novameat and Israel-based Redefine Meat have been preparing 3D-printed beef steaks and other products using unique plant-based compounds that taste like blood, fat, and muscle that make up traditional meat flavors.

Printing beyond customization

While currently the main advantage of 3D printing in food is its ability to customize complex shapes and designs (thereby making it popular for creating chocolates, cakes, and cookies), it is also extending to customizing the level of nutrients in a meal. 3D printing offers the possibility to produce high-quality food concepts such as developing personalized meals by adding specific nutrients or flavors, ultimately giving more control over the food’s nutritional and flavor value.

With this idea in mind, a Netherland-based Digital Food Processing Initiative (DFPI) is testing this concept and trying to come up with a flexible food production system using 3D printing technology that will allow personalizing food at any time based on individual dietary choices. The collaboration is an ongoing project between the Dutch institution, Wageningen University & Research (WUR), global food and beverage companies GEA Group, General Mills, Tate & Lyle, and pharmaceutical company Solipharma B.V., together with Ministerie van Defensie, and a Netherland-based research organization, TNO, whose aim is to bring commercially viable personalized food products to the market, especially for military personnel and COPD (Chronic Obstructive Pulmonary Disease) patients.

Can 3D Printing Move Beyond Design Customization in the F&B Industry by EOS Intelligence

Another potential use of 3D printers is to reduce food wastage. The Netherland-based food-tech startup, Upprinting Food, which specializes in recycling organic food waste through 3D printing, has offered design services to various chefs and is also training restaurants to utilize their 3D printers to reduce food wastage. The company specializes in creating dishes out of any food left at restaurants and currently focuses only on high-end restaurants. They plan to expand their work towards retail and wholesalers in the future to reduce food wastage on a larger scale.

While 3D food printing seems to have a lot of unique uses, commercializing 3D-printed foods on a large scale has always been a challenge. For instance, printing a small piece (5x5x5 centimeter) of a food item takes around four to five minutes. Thinking about producing large-scale printed food would be difficult at this rate. In 2015, a project called the PERFORMANCE project (PERsonalized FOod using Rapid MAnufacturing for the Nutrition of elderly ConsumErs ) was shut down because it could not produce at a scale large enough to provide meals at nursing homes. The project focused on creating customizable meals for the elderly who had difficulties in chewing and swallowing. Thus, while customization of food products has immense use and strong growth potential in theory, it still needs a lot of work on improving speed and costs to facilitate its commercialization and feasibility.

Despite several advantages and functionalities, the market does not seem to use 3D printers for printing food as much as it could. It is mostly limited to confectionaries and very high-profile restaurants where quantities are small and prices are high. For instance, Natural Machines 3D printer, Foodini, is being used at Spain-based Michelin-star restaurant, La Enoteca, to prepare seafood, where food puree is printed into a flower-like shape, topped with caviar, sea urchins, hollandaise sauce, and carrot foam.

As per industry experts, 3D printing in F&B is still at an initial stage of development and will be more accepted once people see it being extensively adopted at restaurants. For now, 3D printing can be used to produce food with unique functionalities related to shape, taste, and texture such as printed pasta shapes of unique designs as offered by Italian food giant Barilla, through its spinoff business BluRhapsody as well as 3D-printed candy selfies by Magic Candy Factory, a spinoff of German candy manufacturer Katjes.

EOS Perspective

At present, 3D printing in food is largely limited to confectionaries. It is an evolving technology that offers considerable benefits of saving time and improving efficiency. It can potentially bring other advantages to the table, including reduction of food wastage, but such applications still require more research, investment, and trials, as well as attempts of expansion across food service formats, including small eateries and larger restaurants.

A 3D printing machine requires skill and appropriate training to print a meal. 3D food printing machines may not seem attractive for personal usage at this point but several food and beverage industry players have already moved in to adopt and exploit this innovative technology for various customized and attractive food options, although still largely at a pilot or experimental scale.

Most 3D food printers currently only cater to single restaurants or personal kitchens and are not very popular. For the technology to enter mainstream use and become attractive to broader audience, the printers need to be able print at large volumes. At the moment, there is a huge gap between what could be achieved with 3D printers in the F&B space and what has been actually tested and implemented. While several companies are working towards using this technology in innovative ways, there is a large space open for market disruption.

by EOS Intelligence EOS Intelligence No Comments

Cloud Kitchens on the Surge as Consumers Choose to Order-in

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For food delivery, e-commerce was an option before COVID-19, but as the pandemic unfolded, it became the preferred way to take customers’ orders. Restaurants were shut down for indoor dining, so customers turned to cloud kitchens to order and enjoy restaurant-like food without having to step out. The ease of having high-quality food delivered right at the footstep has instigated people, now more than ever, to order in. The pandemic has accelerated the cloud kitchen business, causing a paradigm change. Customer- and technology-driven cloud kitchens reflect a business model that will be adopted, sooner than later, unanimously by players in the food and restaurant service space.

The global cloud kitchen market was valued at close to US$ 52 billion in 2020, with the APAC region accounting for more than 60% of the global market share. Rising disposable income and increased use of smartphones have been driving the increase in online food delivery services (on which cloud kitchens depend), but it was not until the pandemic entered the scene that cloud kitchens really gained traction as restaurants and other eateries closed down.

COVID-19 accelerated the ascent of cloud kitchens as people used food delivery services much more frequently than before the pandemic. The growth was further favored by the trivial need for dine-in space due to social restrictions.

Everyone wants a piece of cloud kitchen on their menu

While China, India, and Japan are the key markets driving the growth of the cloud kitchen market in the region, the market in other countries is also witnessing significant growth rates. For instance, JustKitchen, a Taiwan-based cloud kitchen operator established in March 2020, has 14 “Spokes” (smaller kitchens for final meal preparation and packaging) and one “Hub” (larger commercial kitchen where earlier stage food preparation takes place) across the country. The company further plans to expand both domestically (by having 35 Spokes and two Hubs in Taiwan by the end of 2021) and internationally – it opened its first overseas kitchen in Hong Kong in June 2021 and plans to expand further in Singapore, the Philippines, and the USA. Another player, GrabKitchen, owned by Singapore-based online-to-offline (O2O) mobile platform Grab, which opened its first cloud kitchen in Indonesia (in 2018), now has operations in Thailand, Vietnam, Singapore, Myanmar, and the Philippines.

Restaurant chains are the primary adopters of the cloud kitchen concept. The pandemic has made India-based QSR chain Bercos realize that it is important to include deliveries as part of the business plan, because of which it is planning to launch three new cloud kitchen brands in the western and southern parts of India. Another Indian multi-brand cloud kitchen player, TTSF Cloud One, looks at opening 150 cloud kitchens by 2022. They aim to invest between US$ 3.3 million to US$ 4 million in the project through a combination of owned cloud kitchens, retail stores as well as franchised stores, and franchised cloud kitchens.

Owing to corporate strategy and global restructuring, the Philippines-based fast-food restaurant chain Jollibee Foods announced (in May 2020) that it would spend US$ 139.4 million on building its cloud kitchen network.

Global food chains are also partnering with local players to increase their outreach in the cloud kitchen ecosystem – in 2020, Wendy’s, a US-based fast food restaurant chain, entered into a joint venture with Rebel Foods, an Indian online restaurant company, to open up 250 cloud kitchens across India. This is a strategic move for Wendy’s as the company will get immediate access to scale rapidly across the country because of Rebel Foods’ existing network of cloud kitchens. Furthermore, Rebel Foods recently announced that the company plans to add another 250-300 locations to its repertoire across Southeast Asia, West Asia, and the UK via partnerships.

With the cloud kitchen concept growing at an astronomical rate, players, especially in nascent markets, are also looking to scale up rapidly. CloudEats, a Philippine-based cloud kitchen, plans to expand its reach further within the country (it currently has five cloud kitchens domestically) and other countries with the highest online food delivery penetration across Southeast Asia. Bangladesh-based cloud kitchen and digital food court player Kludio launched Kitchen-as-a-service to help restaurateurs, home cooks, and virtual brands expand with no upfront investment, and FoodPanda Bangladesh, in July 2020, announced that it would be launching 30 new cloud kitchens (in a period of 6 months) across the country.

Cloud Kitchens on the Surge as Consumers Choose to Order-in by EOS Intelligence

Cherry-picked business model served on a silver platter (well, almost)

Cloud kitchens present a sea of prospects for both food and restaurant industry players as well as other adjoining sectors. They represent the potential of a tech-enabled business model for the restaurant and food delivery industry, where operational jobs in the kitchen will be handled by robots and deliveries made by drones. Another opportunity is for restaurants that would like to expand their geographical reach but are incapable of opening another dine-in place. With a cloud kitchen in place, they can access new markets via delivery only. Restauranteurs can further use it to their advantage by experimenting with new food items with relatively no investment and low risk. Last but not least, the mid and large-sized restaurant chains, which thrived on the dine-in concept (before the pandemic), will be quick to jump and adapt (some players have already ventured into this space) the cloud kitchen model to capitalize on the growing food delivery business. Furthermore, new players entering the restaurant and food business can take this as an opportunity to pan the layout of their premises in a way that space is efficiently optimized to adjust both the restaurant layout as well as the delivery service.

But it is not all smooth sailing. With a large number of cloud kitchens sprouting, the competition will be fierce in the coming years. Furthermore, with only so many food delivery platforms to support the already crowded cloud kitchen market, they are easily exploited by food aggregators. Not only do aggregators charge a high commission (ranging between 25% and 40%), the ratings for cloud kitchens on these portals (for a cloud kitchen) play a massive role in influencing other customers and affect the brand value.

EOS Perspective

Unlike restaurants, a cloud kitchen offers no dine-in facility and relies solely on online orders. The delivery-only model has its limitations, especially when it comes to customer experience. And a slowdown in dine-in style is indicative that restaurants are moving forward and looking to enter this space. Therefore, a hybrid model where cloud kitchen and dine-in concepts integrate is most likely to rise in the future.

The restaurant industry is recovering from the coronavirus crisis and adjusting to the fact that a pandemic could shake the entire foundation of the sector which was once based on dining in. But now, with more and more people ordering in, the burgeoning cloud kitchen space represents a sprouting new business model. In the near future, smaller brands are most likely to embrace a cloud kitchen network model, whereas the hybrid business model (combining physical stores and cloud kitchens) will work best for the larger and established brands. For instance, in July 2020, Thailand’s fast-food restaurant chain, Central Restaurants Group (CRG), which currently operates 1,100 fast-food outlets nationally, announced that it would open 100 cloud kitchens across the country in the next five years to strengthen its food delivery business. Moreover, as social distancing becomes the norm (wherein restaurants are forced to maintain sizable distances between tables) and preference for eating out reduces, the dine-in spaces across restaurants are also likely to shrink.

In the long term, the concept of cloud kitchen seems practical and a plausible winner, however, its success hinges entirely on the growth of the food delivery market. Before the pandemic, in 2017, APAC led the global online food delivery market with a share of 52.1% and market revenue of US$ 34.31 (the region was anticipated to contribute a revenue of US$ 91.0 billion and a share of 56.2% by 2023). Post-pandemic, these figures have multiplied and present a space that exudes growth potential. For instance, in Southeast Asia, the food delivery market grew 183% from 2019 to 2020 (in terms of gross merchandise value) owing to changing consumer behavior (towards how they consume food) and the ease of ordering due to digitalization. Moreover, the growth in the food delivery sector is expected to continue.

Food aggregators have been active in the cloud kitchen space even before the pandemic hit. Their value proposition of acting both as a supplier (wherein it allows independent cloud kitchen players to use its platform while charging them on a revenue-sharing model) and operator of the platform puts them in an interesting position, where they have control, to a certain extent, of business functions of other players. Food aggregators may likely dominate this space in the long run.

The metrics of the food and restaurant service industry have changed as businesses evolve continuously. With concepts such as cloud kitchen, the sector has become consolidated, wherein multiple establishments work under a single roof.  In a nutshell, cloud kitchens are here to stay as they display substantial growth potential, provided players revisit their business strategies and rethink the right hybrid business model (such as merging with a large brand to expand into cloud kitchen space, among others) in order to thrive.

by EOS Intelligence EOS Intelligence No Comments

Beauty Tech Giving Beauty Industry a Facelift

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In recent years, artificial intelligence and virtual reality have been adding an additional dimension to the beauty industry, quite literally. With consumers increasingly embracing and demanding personalized offerings and precise results, leading brands, such as L’Oréal and Shiseido are investing heavily in the space. Just as in many other industries, AI is revolutionizing beauty products and how they are conceptualized, created, and sold. However, it is a long road from being perceived as gimmicky promotions to improving customer engagement to becoming commercial go-to solutions.

Artificial intelligence (AI) has been greatly integrated in our lives through different sectors and now the beauty industry is no exception. The use of AI, augmented reality (AR), virtual reality (VR) as well as complex beauty devices has revolutionized the way consumers perceive, apply, and select beauty products. Moreover, in the age of online retail, it enables companies to maintain a similar personalized level of service that would otherwise require a physical interaction with a beauty consultant. Technology is creating new experiences for the consumer, both in terms of beauty products’ features as well as purchasing process.

Beauty industry is also one of the most competitive sectors, with consumers always being on the lookout for new products and having low brand loyalty. Beauty tech seems to address this issue as well, as it elevates consumer engagement through enhanced personalized offerings, which in turn is a trend that has been driving the beauty industry for several years now.

The three main aspects of beauty tech encompass personalization through AI, virtual makeup using AR and VR, and smart skincare tools/beauty gadgets.

Personalization through AI

Across the retail sector, the key to consumer’s heart and pockets for a long time has been personalization of products and sales experience. Beauty industry is no exception. Consumers have been looking for the perfect skincare product that work best for them or the lipstick shade that goes perfectly with their skin tone. Moreover, consumers want this all from the comfort of their home. This is where AI comes in.

Through retail kiosks and mobile apps, AI enables companies to offer personalized shade offerings that are especially curated for the individual user. A number of companies is investing and capitalizing on this technology to differentiate themselves in the eyes of the consumer. One of the leading market players in the beauty industry, L’Oréal, has been one of the first companies to invest in AI- and VR-based beauty tech and acquired Toronto-based, ModiFace, in 2018. There are several different ways companies, such as L’Oréal, have incorporated AI into their product offerings.

Beauty Tech Giving Beauty Industry a Facelift by EOS Intelligence

Beauty Tech Giving Beauty Industry a Facelift by EOS Intelligence

Lancôme (a subsidiary of L’Oréal) has placed an AI-powered machine, called Le Teint Particulier, at Harrods and Selfridges in the UK, which creates custom-made foundation for the customer. The machine first identifies ones facial color using a handheld scanner, post which it uses a proprietary algorithm to select a foundation shade from 20,000 combinations. Following this, the machine creates the personalized shade for the user, which can then be bottled and purchased.

In addition to physical store solutions, AI-powered apps and websites also offer consumers personalized recommendations. In 2019, L’Oréal applied ModiFace’s AI technology to introduce a new digital skin diagnostic tool, called SkinConsult, for its brand, Vichy. The AI-powered tool uses more than 6,000 clinical images in order to deliver accurate skin assessment for all skin types. It analyzes selfies uploaded by users to identify fine lines, dark spots, wrinkles, and other issues, and then provides tailored product and routine recommendations to the user to address the skin concerns.

My Beauty Matches, a UK-based company, offers AI-based personalized and impartial beauty product recommendations and price comparisons. The website asks consumers diagnostic-style questions about their skin and hair type, concerns, and preferences, and uses AI to analyze the data and recommend products from 400,000 products (from about 3,500 brands) listed on its website. Alongside, the company runs Beauty Matches Engine (BME), which is a solution for beauty retailers using consumer data and AI algorithms to identify consumer purchasing and browsing patterns as well as their preferred products by age and skin or hair concerns. This helps retailers predict and stock, which product the consumer is likely to purchase, improving sales, increasing upsells, and providing a personalized solution to customers.

On similar lines, another app, Reflexion, uses AI to measure the shininess of skin through pictures and offers personalized product recommendations. The app claims to provide much deeper analysis than regular image analysis apps and provides additional features such as testing if products such as foundation are evenly applied. The app works by measuring a face surface’s Bidirectional Scatter Distribution Function (BSDF), which is a measure of light reflected on the user’s face.

Nudemeter is another such product, which uses AI to personalize makeup choices and foundation shades for a full spectrum of skin tones, including darker skins. The app uses color analysis and digital image processing along with its AI algorithms that ensure accurate color measurement irrespective of background lighting, pixels, etc. The app is currently being used by Spktrm Beauty, a US-based niche beauty company targeting shoppers with dark skin.

Virtual makeup through AR and VR

In today’s world where consumers prefer to shop from the comfort of their homes, AR and VR are enabling beauty companies to provide experience similar to that of physical retail to their consumers. AR and VR technologies-based apps let users experiment virtually with a range of cosmetics by allowing them to try several different shades, all within minutes and through their smartphone. This elevates the users shopping experience and improves sales conversion.

Sephora’s Virtual Makeup Artist enables customers to try on thousands of shades of lipsticks and eyeshadows through their smartphones or at kiosks at Sephora stores. While many such apps and filters have been in use for some time now, they are increasingly becoming more sophisticated, providing accurate color match to the skin and ensuring the virtual makeup does not move when the user shakes their face, changes to a side angle, etc. In addition, such apps also provide digital makeup tutorials to engage customers.

On similar lines, L’Oréal uses ModiFace’s AR and AI technology to provide virtual makeup try-on on Amazon and Facebook. The technology enables customers using these two platforms to try on different shades of lipsticks and other make-up products through a live video or a selfie from an array of L’Oréal brands such as Maybelline, L’Oréal Paris, NYX Professional Makeup, Lancôme, Giorgio Armani, Yves Saint Laurent, Urban Decay, and Shu Uemura.

Moreover, AR-based try-on apps helped brands connect with their customers during the previous year when most customers were stuck home and could not physically try on make-up. LVMH-owned Benefit Cosmetics has been investing in AR tech, and launched Benefit’s Brow Try-On Experience program (along with Taiwanese beauty-tech company, Perfect Corporation), which helps online shoppers identify the right eyebrow shape and style for them and then choose products accordingly. The company uses facial point detector technology for the program. The app witnessed a 43% surge in its daily users during April and May of 2020 (as compared with January and March 2020), when people were confined to their homes owing to the COVID outbreak. This helped connect with consumers in a fresh manner and increased brand loyalty. Moreover, Benefit claims that brows products have been their strongest category post-COVID outbreak.

One of China’s leading e-commerce players, Alibaba, also partnered with Perfect Corporation to integrate the latter’s ‘YouCam Makeup’ (an AR-based virtual makeup try-on technology) into Alibaba’s Taobao and Tmall online shopping experience.

Smart devices

In addition to AI and AR based apps and solutions, smart devices is another category in the beauty tech space that is gaining momentum. A certain section of premium consumers are increasingly open to invest heavily into smart beauty gadgets that not only improve skin and hair quality but also help them quantitatively measure the results from using a certain product. While these products are currently expensive and for a niche audience, they have been gaining popularity, especially across the USA and China.

One such smart skincare device is L’Oréal’s Perso, which is based on ModiFace’s AI-powered skin diagnostics and analysis technology. Perso uses AI, location data, and consumer preferences to formulate personalized moisturizer for the consumer. The product is further expected to extend into foundations and lip shades. Perso is expected to be launched in 2021.

On similar lines, in July 2019, Japan-based Shiseido, launched its smart skincare device called Optune, which measures a user’s location-based weather and air pollution data, sleep data, stress levels, and menstrual cycles to create a custom moisturizer. Optune is available on a subscription basis and costs about US$92 per month.

In 2020, P&G also launched a premium skincare system, called Opte Precision. The skincare device uses blue LED light to scan one’s skin and applies a patented precision algorithm to detect problem areas and analyze complexion. Post this, the device releases an optimizing serum that is applied to spots to instantly cover age spots, pigmentation, etc., and to fade their appearance over time. The device has 120 nozzles and works on a technology similar to that of a thermal inkjet printer. The device targets a premium niche audience and costs US$599 with refill cartridge costing US$100.

In 2018, Johnson & Johnson’s drugstore skincare brand, Neutrogena, also launched a smart skincare device – a skin scanner, called Skin360 and SkinScanner, which uses technology from FitSkin (a US-based technology company). The scanner comes in the form of a magnifying camera that gets attached to a smartphone. The camera, which has a 30-time magnifying power helps scan the size and appearance of one’s pores, size and depth of fine lines and wrinkles, the skin’s moisture level, and also provides a score to the skin’s hydration level. The data is processed in a mobile app, which in turn provides a complete skin analysis and offers expert advice and product recommendations. While most smart skin devices are relatively expensive, this one retails at around US$50.

EOS Perspective

While AI and AR have been embraced by a lot of industries in the past, beauty tech is still in its infancy. That being said, there is a lot of potential in the space, especially with the consumer becoming increasingly comfortable with technology. While till recently, most technology-based products in the beauty sector were gimmicky and more for fun and consumer engagement, brands have started taking this space seriously, and started launching products that offer real sales growth opportunity.

Moreover, while AI and AR-based technologies have been accepted fairly easily by the consumers and industry players alike, smart devices is still a very niche category, with most products focused on a niche affluent clientele, who are willing to spend more than US$100 on products that may help improve their skin. There is a lot of potential for this segment to innovate, collaborate, and launch products at a more affordable price point in order to reach the masses.

Over the next couple of years, we can expect new niche players, exploring the benefits of beauty tech to enter the market in addition to greater number of partnerships between traditional beauty giants and technology companies. As personalization continues to be the mantra for consumers, beauty companies cannot look to ignore the space in the coming future.

Industry Game for Diversifying Monetization Pathways
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Industry Game for Diversifying Monetization Pathways

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Currently, gaming industry is believed to be bigger than any other popular entertainment mediums such as films and music. IDC estimated that global gaming revenue reached US$180 billion in 2020. Another research firm, Newzoo, indicated that global gaming industry generated US$159.3 billion in revenue in 2020. On the other hand, the global film industry surpassed US$100 billion in revenue for the first time in 2019 according to the Motion Picture Association. And, as per MIDiA Research (a firm specializing in digital content research), global recorded music industry generated US$23 billion in 2020.

Gaming industry has been on a continuous growth trajectory

Gaming industry has enjoyed a steady growth in the past few years with increasing its reach by each year. As per Newzoo’s analysis, the number of gamers increased from 2 billion in 2015 to 2.7 billion in 2020, indicating annual growth rate of over 6%.

Industry Game for Diversifying Monetization Pathways by EOS Intelligence

Games are generally played through mobile devices, personal computers, or gaming consoles. In 2020, 2.5 billion were playing games on mobile devices (including games played via smartphones and tablets), 1.3 billion on personal computers, and 0.8 billion using consoles. Mobile gaming was the largest revenue segment in 2020, accounting for nearly half of the total gaming industry revenue, followed by gaming on consoles and PC which represented 28% and 23% of the market share, respectively. These estimates are from Newzoo Global Games Market Report 2020 which was based on a survey of 62,500 people from 30 countries (representing more than 90% of the global games industry revenue) conducted between February and March 2020.

Gaming on smartphones generated US$63.6 billion in annual revenue in 2020, recording 13.3% growth over previous year. Increasing number of smartphone users and improving internet connectivity are driving growth in this category. Gaming on tablets generated US$13.7 billion, indicating a moderate growth of 2.7% over previous year.

Mobile gaming has seen unprecedented growth due to coronavirus outbreak. According to Sensor Tower, a research firm providing insights on mobile app ecosystem, global downloads of mobile games from Google Play and iOS App Store totaled 28.5 billion in the first half of 2020, an increase by 42.5% as compared with the same period in 2019.

Newzoo’s analysis concluded that console gaming generated US$45.2 billion in 2020, representing 6.8% growth compared with 2019. While there was an increased demand for gaming consoles amidst coronavirus outbreak as more people turned to games due to stay-at-home restrictions, the manufacturing and distribution of gaming console providers were affected because of global supply chain disruptions, and as a result, the increase in demand for gaming consoles could not be met. For instance, Sony sold 118,085 PlayStation 5 consoles within four days of its launch in November 2020, but this figure was approximately one-third of the volume of PlayStation 4 sold over its launch weekend in November 2013. PlayStation 5 consoles were in high demand and were sold out within minutes after being made available in retail outlets. In October 2020, Sony’s Chief Financial Officer indicated that the company was not in capacity to fulfil pre-orders for PlayStation 5 consoles because of supply chain bottlenecks created by coronavirus outbreak.

PC games, including browser-based as well as downloaded versions, clocked US$36.9 billion in annual revenues in 2020, representing 4.8% year-on-year growth. Though PC games market is not declining, it shows the smallest growth compared with other categories, mainly because there is more deflection towards mobile gaming which is comparatively more convenient and less expensive.

Further, the number of gamers worldwide is expected to cross over 3 billion mark in 2023 contributing nearly US$200 billion in annual revenue for the global gaming industry.

Gaming Market Breakdown by Region
Asia Pacific North America Other Regions

Asia Pacific represents the largest gaming market with a total of US$84.3 billion in annual revenues in 2020.

China, Japan, and Korea are among the top five revenue generating countries worldwide. In 2020, China’s gaming industry raked in about US$41 million in annual revenues, while gaming industry in Japan and Korea recorded annual revenue of US$18.7 million and US$6.6 million, respectively.

North America represents the second largest gaming market which generated about US$45 million in annual revenue in 2020.

The USA, the second largest gaming market worldwide by revenue, accounted for majority of the share of the North America gaming market, with about US$37 million in annual revenues in 2020.

Europe was the third largest gaming market with revenue of US$32.9 billion for 2020, followed by Latin America in the fourth place, with revenue of US$6.8 billion.

MENA represented the smallest region in terms of revenue with US$6.2 billion.

With rising popularity and wider reach, gaming industry looks to unravel multiple monetization strategies

Historically, gaming used to be an entertainment medium for a niche segment, mainly gaming enthusiasts and children or teenagers. At the time, ‘game-as-a-product’ was a go-to monetization strategy for most game developers, where gamers paid one time to purchase the physical or digital copy of the game.

Today, however, gaming attracts a much wider audience, enticing people from every age group. Business strategy has also evolved from upfront-based revenue model to ongoing-based revenue model where game developers seek monetization avenues from various transactions during the lifetime of a game. For instance, retail sales of Ubisoft (a French gaming company) were 98% of total sales revenues in 2010, and in 2019, this was less than one-third of the total revenue. Gaming companies today are increasingly looking to diversify their monetization avenues beyond upfront retail sales.

The most widely used monetization strategies nowadays include:

In-game purchases

In-game purchases refer to virtual items such as new features, functionality, upgrades, aesthetic elements, or content that gamers can buy to enhance their gaming experience. Newzoo estimated that in-game purchases accounted for nearly three-fourth of the global gaming revenue in 2020.

While in-game purchase seems to be a good monetization strategy, it also involves high cost to acquire paying users. Based on analysis of 992 apps between September 2018 and August 2019, Liftoff (a mobile app marketing firm) found that game developers spend an average of US$86.61 to acquire a user who will make in-app purchase. Moreover, the median average revenue per paying user for free-to-play games was estimated at US$6. However, there was high variance in the amount spent by the gamers and a small set of gamers, who were grossly engaged in games, expectedly spent US$35 to US$70 per day, thus creating high returns for the game developers.

In-game ads

In-game ads is a widely used monetization strategy, especially for free-to-play games. According to a report released in June 2020 by Omdia (a UK-based technology research firm), worldwide game developers earned revenue of US$42.3 billion in 2019 through in-game ads. Based on analysis of top 1,000 games by downloads by App Annie (app analytics company), 89% of them used in-game ads as one of the revenue streams.

As per a 2019 survey of 284 game developers conducted by deltaDNA (a consultancy firm for gaming industry), 94% of the free-to-play mobile games carried in-game ads. Rewarded ads are most popular: 82% of game developers in the deltaDNA survey indicated that they deployed rewarded video ads, compared to interstitial video ads (57%) and banners (34%).

As per the same survey, 30% of game developers showed more than five ads per gaming session. While in-game ads seem like a lucrative monetization opportunity, there is also a risk of affecting gaming experience and thus loosing gamers’ interest. deltaDNA survey suggested that display of too many ads might result in gamer churn (30%), affect gamers’ playing experience (27%), and scare off potential gamers that might be willing to spend on in-game purchases (16%). Hence, game developers need to strike a balance and control the frequency of ads.

Subscription

Witnessing the success of subscription streaming service such as Netflix and Hulu, many game developers have started exploring subscription-based model generating regular revenue stream.

Console gaming companies have been diving into the subscription model for a few years now, for instance, Sony’s PlayStation Now offers on-demand streaming of PlayStation games for a monthly subscription of US$9.99 in the USA. Some of the leading mobile and PC game developers also offer subscription service, for example, Uplay Plus by Ubisoft and EA Play by Electronic Art (creators of world-renowned FIFA game). Subscription-based model is more suitable for large gaming companies who have multiple games under their umbrella, thus offering a wide selection range to the gamers.

Based on a survey of 13,000 people in 17 countries between May 2020 and June 2020, Simon-Kucher (a global consultancy firm) suggested that over one in three gamers opted for at least one gaming subscription. Moreover, hardcore gamers who typically dedicated more than 20 hours per week on gaming would spend US$19 to US$40 per month on gaming subscription service, and casual gamers who played fewer than five hours per week were willing to shell out US$10 to US$30 for monthly subscription.

Gaming industry ecosystem is expanding with advent of new services

As gaming is more and more perceived as mainstream entertainment, there is an increased effort to capitalize on the industry’s wider reach, thus giving birth to eSports and games streaming services. Moreover, with increased demand from gamers to reduce reliance on hardware and access their favorite games anytime anywhere, advancement of cloud gaming service is encouraged.

eSports

eSports includes games played in highly organized competitive environment. As per estimates of Valuates Reports, an India-based research firm, the global eSports market was valued at US$692 million in 2019 and it is expected to reach US$1.9 billion by 2026.

eSports demand cross-industry collaboration including key players such as eSports organizations, tournament operators, digital broadcasters, etc. eSports offer monetization opportunities through advertising and sponsorships, media rights, ticket sales, merchandise sales, as well as in-game purchases.

Game streaming services

Game streaming services allow live broadcasting of gaming sessions by players. Game streaming services have been welcomed by the community of gamers as a medium to learn, connect, and get entertained.

Gaming video content was valued at US$9.3 billion with a viewership of 1.2 billion in 2020. The content may include pre-recorded or live gaming sessions by individuals as well as live broadcasting of eSports events. Game streaming service segment has particularly seen high involvement from Tech giants. Amazon’s Twitch and Google’s YouTube Gaming are the top two players in this space with annual revenue of US$1.54 billion and US$1.46 billion, respectively, in 2019.

Cloud gaming services

Newzoo projects cloud gaming to grow from US$585 million in 2020 to US$4.8 billion in 2023. Cloud gaming ecosystem typically includes game developers, cloud gaming platforms, as well as content service providers. Google launched its cloud gaming platform ‘Stadia’ in November 2019. For a monthly subscription fee of US$10, Stadia offers access to 152 games. Microsoft launched cloud gaming platform xCloud for its Xbox user base in September 2020. China-based gaming giants Tencent and Netease started beta testing of their cloud gaming platforms in 2019.

A Deloitte survey of over 2,000 US customers conducted between December 2019 and May 2020 indicated that 23% of gaming respondents were multiplatform players, playing games via all three mediums, i.e. mobile, console, and PC. Cloud gaming services could offer good value proposition for these gamers which look for seamless play between platforms.

EOS Perspective

As mobile gaming started to gain more traction, there is an increasing demand for casual games which target mass audience. As per analysis of top 1,000 games by downloads in 2019, casual games accounted for 82% of all game downloads, and remainder were hardcore games. Casual games are for on-the-go fun, which requires less time and low skillset, while hardcore games demand high commitment from the gamers who willfully spend comparatively more time and money on gaming.

Usually, casual game developers prefer ad-supported business model. Since these games require low skills, attracting masses, they are likely to generate more revenue through in-game ads than in-game purchases. As the level of skill set required goes up, a hybrid monetization model is preferred. Beyond that, the main monetization method is in-game purchases, especially for role-playing and strategy games which demand gamer’s higher engagement.

The role of gaming is evolving from a medium of entertainment to a social engagement platform. Games such as PUBG enables social interaction and networking as it allows to connect with different players and chat with people in the game. As per Sensor Tower, PUBG was the highest-grossing mobile game globally in 2020, earning US$2.6 billion in annual revenues. Rising popularity of such games shows how the gaming culture is transforming and pushing game developers to design games allowing players to socialize within the virtual environment.

‘Cross-play’ is another interesting trend which is likely to be the way forward for gaming industry. In September 2018, Fortnite became the first game to allow cross-play between mobile, PC, and all major consoles (Microsoft XBOX, Nintendo Switch, and Sony PlayStation). Between March 2020 and June 2020 more than 60% of Fortnite players paired up with a player from another platform to cross-play. The average monthly revenue-per-user who cross-played Fortnite was 365% higher than non-cross-players.

Multiplayer gaming is becoming a cultural phenomenon, and thus, the industry needs to focus on offering easy on-demand access and development of platform agnostic games.

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Ethiopia’s Half-Hearted Push to Telecom Privatization Finds Limited Success

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Ethiopia’s telecom sector has been considered as the last frontier for telecom players, since the country is one of just a few to still have a state-run telecom industry. However, this is due to change, as the Ethiopian government has finally opened up the sector to private investment. Privatization of the telecom sector has been on the prime minister Abiy Ahmed’s agenda since he first took office in 2018, however, it was initially a slow process, mostly due to bureaucracy, ongoing military conflicts, and COVID-19 outburst. Apart from that, the privatization terms have not been very attractive for private players, making the whole process complicated.

With a population of about 116 million and only about 45 million telecom subscribers, Ethiopia has been one of the most eyed markets by telecom players globally. The telecom sector has immense potential as Ethiopia has one of the lowest mobile penetration rates in Africa.

To put this in perspective, Ethiopia has a mobile connection rate of only 38.5%, while Sub-Saharan Africa has a mobile connection rate of 77%. Moreover, 20% of Ethiopian users have access to the Internet and only about 6% currently use social media, which is much lower than that in other African countries. That being said, about 69% of the country’s population is below the age of 29, making it a strong potential market for the use of mobile Internet and social media in the future.

This makes the market extremely attractive for international players, who have for long been kept at bay by the Ethiopian government. Thus, when the government expressed plans to open up the sector, several leading telecom players such as MTN, Orange, Etisalat, Axian, Saudi Telecom Company, Telkom, Vodafone, and Safaricom showed interest in penetrating this untapped and underserved market.

Currently, state-owned Ethio Telecom, is the only player in the market. Lack of competition has resulted in subpar service levels, poor network infrastructure, and limited service offerings. For instance, mobile money services, which are extremely popular and common across Africa have only been introduced in Ethiopia in May 2021.

Moreover, as per UN International Telecommunication Union’s 2017 ICT Development Index (IDI), Ethiopia’s telecom service ranked 170 out of 176 countries. To correct this, in June 2019, the government introduced a legislation to allow privatization and infuse some competition and foreign investment into the sector. The privatization process is expected to rack up the country’s foreign exchange reserves, in addition to facilitating payment of state debt. It also aims to improve the overall telecom service levels and help create employment in the sector.

As a part of its privatization drive, the government has proposed offering two new telecom licenses to international players as well as partially privatizing Ethio Telecom by selling a 40% stake in the company. The sale of the two new licenses will be managed by the International Finance Corporation, which is the private sector arm of the World Bank.

Ethiopia’s Half-Hearted Push to Telecom Privatization Finds Limited Success by EOS Intelligence

While this garnered interest from several international telecom players, with 12 bidders offering ‘expression of interest’ in May 2020, the process has not been very smooth, owing to bureaucracy, ongoing military conflicts in the north of the country, and the proposal of an uneven playing field for international players versus Ethio Telecom. This last challenge appears to be a major obstacle to a smooth privatization process.

As per the government’s initial rulings, the new international players were not to be allowed to provide financial mobile services to their customers, while this service was only to be reserved for Ethio Telecom. Mobile money is a big part of the telecom industry, especially in Africa, where it is extremely popular and profitable as banking infrastructure is weak. This made the deal much less attractive for foreign bidders as mobile money constitutes a huge revenue stream for telecom players in African markets.

However, post the bidding process in May 2021, the government has tweaked the ruling to allow foreign players to offer mobile money services in Africa after completing a minimum of one year of operations in the country. However, since this ruling came in after the bidding process was completed, the government missed out on several bids as well as witnessed lower bids, since companies were under the impression that they will not be allowed to offer mobile money services. As per government estimates, they lost about US$500 million on telecom licenses because of initial ban on mobile money.

Another deterrent to the entire process has been the government’s refusal to allow foreign telecom tower companies to enter the Ethiopian market. The licensed telecom companies would either have to lease the towers from Ethio Telecom or build them themselves, but they would not be allowed to get third party telecom infrastructure players to build new infrastructure for them, as is the norm in other African countries. This greatly handicaps the telecom players who will have to completely depend on the state player to provide infrastructure, who in turn may charge high interconnection charges that may further create an uneven playing field.

These two regulations are expected to insulate Ethio Telecom from facing fierce competition from the potential new players, and in turn may result in incumbency and poor service levels to continue. Moreover, even with regards to Ethio Telecom, the government only plans to sell 40% stake to a private player (while 5% will be sold to public), thereby still maintaining the controlling stake. With minority stake, private players may not be able to work according to their will and make transformative changes to the company. It is considered a way to just get fresh capital infused into the company without the government losing real control of it.

In addition to these limitations, the overall process of privatization has faced delays and complications. The bidding process has been delayed several times over the past year owing to regulatory complexities, the COVID crisis, and ongoing military conflict in the northern region. The process, which was supposed to be completed in 2020 was completed in May 2021, with the final bidding process taking place in April 2021 and the government awarding the bids in May 2021.

During the bidding process, the government received only two technical bids out of the initial 12 companies that had shown interest. These were from MTN and a consortium called ‘Global Partnership for Ethiopia’ comprising Vodafone, Safaricom, and Vodacom. While the Vodafone consortium partnered with CDC Group, a UK-based sovereign wealth fund, and Japanese conglomerate, Sumitomo Corporation, for financing, MTN group teamed up with Silk Road Fund, China’s state-owned investment fund to finance their expansion plans into Ethiopia. The other companies that had initially shown interest backed out of the process. These include Etisalat, Axian, Orange, Saudi Telecom Company, Telkom SA, Liquid Telecom, Snail Mobile, Kandu Global Communications, and Electromecha International Projects.

In late May 2021, the government awarded one of the licenses to the ‘Global Partnership for Ethiopia’ (Vodafone, Safaricom, and Vodacom) consortium for a bid of US$850 million. While it had two licenses to give out, it chose not to award the other license to MTN, who had made a bid of US$600 million. As per government officials, the latter bid was much lower than the expected price, which was anticipated to be close to a billion by the government.

Moreover, the government seems to have withheld one of the licenses as currently the interest in the deal has been low, considering that it only received two bids for two licenses. Given that they have somewhat altered and relaxed the guidelines on mobile money (from not being allowed to be allowed after minimum one year of operations), there may be some renewed interest from other players in the market. That being said, the restriction on construction of telecom infrastructure is expected to stay as is.

In the meanwhile, Orange, instead of bidding for the new licenses, has shown interest in purchasing the 40% stake in Ethio Telecom, which will give the company access to mobile money services right away. However, no formal statement or bid has been made by either of the parties yet. If the deal goes through, it will give Orange a definite advantage over its international competitors, who would have to wait for minimum one year to launch mobile money services in the market. In May 2021, Ethio Telecom launched its first mobile money service, called Telebirr, and managed to get 1 million subscribers for the service within a two-week span. This brings forth the potential mobile money holds in a market such as Ethiopia.

EOS Perspective

While several international telecom companies had initially shown interest in entering the coveted Ethiopian market, most of them have fizzled out over the course of the previous year, with the government only receiving two bids. Moreover, the bid amounts have been much lower than what the government initially anticipated and the government chose to accept only one bid and reject the other. Thus the privatization process can be deemed as only being partially successful. Furthermore, the opportunity cost of restricting mobile money services has been about US$500 million for the government, which is more than 50% of the amount they have received from the one successful auction.

This has occurred because the government has been focusing on sheltering Ethio Telecom from stiff competition by adding the restrictions on mobile money and telecom infrastructure. While this may help Ethio Telecom in the short run, it is detrimental for the overall sector and the privatization efforts.

Restrictions on using third-party infrastructure partners, may also result in a slowdown in rolling out of additional infrastructure, which is much needed especially in rural regions of Ethiopia. Other issues such as ongoing political instability in the northern region have further cast doubt in the minds of investors and foreign players regarding the government’s stability and in turn has impacted the number of bids and bid value.

It is expected that the government will restart the bidding process for the remaining one license soon. However, the success of it depends on the government’s flexibility towards mobile money services. While it has already eased its stance a little, there is still a lot of ambiguity regarding the exact timelines and conditions for the approval. The government must shed clarity on this before re-initiating the bidding process. MTN has also mentioned that it may bid again if mobile money services are included in the bid.

However, with Vodafone-Safaricom-Vodacom consortium already winning one bid and expecting to start services in Ethiopia as early as next year, the company definitely has an edge over its other competitors. Considering that the first bid took more than a year and faced several bureaucratic delays, it is safe to say that the second bid will not happen any time soon, especially since this time it is expected that the government will give a serious thought to the inclusions/exclusions of the deal and the value that mobile money brings to the table for both the government and the bidding company.

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COVID-19 Outbreak Boosts the Use of Telehealth Services

Telehealth is one of the few sectors that have benefited from the coronavirus outbreak. Telehealth services have been around since 1950s, however, they were perceived as a nice-to-have alternative to conventional delivery of healthcare services and thus largely underutilized. COVID-19 pandemic has proved to be a game changer for the industry. Since social distancing became a necessary measure to curb the risk of COVID-19 transmission, telehealth emerged as a viable option to offer uninterrupted healthcare without physical contact. Towards the end of 2020, Deloitte predicted that virtual consultations would account for 5% of total visits to doctor in the world in 2021, up from 1% in 2019. To put this into perspective, in 2019, doctor’s visits in OECD-36 countries totaled 8.5 billion, worth approximately US$500 billion. 5% of this would result in about 400 million teleconsultations and over US$25 billion in value (if doctors earn the same for teleconsultations as for in-person visits).

Telehealth services uptake during the pandemic varied by region

While the adoption of telehealth services has increased across the globe, the growth rate varied by region depending upon factors such as technology and infrastructure, consumer awareness and willingness, government regulations, insurance policies, etc.

In the USA, world’s largest telehealth market which accounted for 40% of the global share in 2019, the growth over the years was steady but incremental mainly because of regulatory constraints and stringent insurance policies.

In response to the pandemic, the US government health insurance plans (Medicare, Medicaid, etc.) as well as private insurers expanded their coverage for telehealth services. As a result, telehealth accounted for 43.5% of all US Medicare primary care visits in April 2020, compared with just 0.1% before the pandemic. US Centers for Disease Control and Prevention indicated that the number of telehealth visits increased by 154% during the last week of March 2020, compared with the same period in 2019, primarily due to policy changes and public health guidance on telehealth during the pandemic. Considering unprecedented rise in demand for telehealth services during the times of pandemic, in April 2020, Forrester (a research and consulting firm) revised their estimation for virtual general medical care visits in the USA from 36 million to 200 million for the year 2020.

UK and France have been the dominating countries in the European telehealth market. Telehealth services’ growth momentum due to COVID-19 pandemic in these countries is likely to continue because of conducive environmental factors such as established ecosystem, favorable regulatory framework, reimbursement policies, and consumer readiness. UK’s National Health Service revealed that 48% of GP consultations in May 2020 were carried out remotely over the telephone, compared with 14% in February of the same year. Teleconsultations in France increased from 40,000 in February 2020 to 611,000 in March 2020.

Growth of telehealth market in Switzerland, Germany, and Austria has been comparatively slow as these countries have more decentralized healthcare systems in contrast to UK or France. For instance, McKinsey’s survey of over 1,000 consumers from Germany, conducted in November 2020, showed that only 2% respondents started or increased usage of telehealth services since COVID-19 outbreak.

In countries such as Greece and Czech Republic, telehealth platforms were launched for the first time during the pandemic. Ireland had telehealth platforms before COVID-19, but the adoption of the telehealth services even after pandemic remains moderate because of lack of favorable regulatory framework.

COVID-19 Outbreak Boosts the Use of Telehealth Services

China and India are among the fastest growing telehealth markets in Asia. The number of telehealth providers in China increased from less than 150 to nearly 600 between late 2019 and early 2020. Telehealth platforms in India are witnessing increased interest from both patients as well as doctors. India’s leading health-tech firm, Practo, reported that 50 million people opted for teleconsultations through its platform between March 2020 and May 2020, representing 500% growth in teleconsultations during this time. 1mg Technologies, another telehealth service provider in India, indicated that between March 2020 and July 2020 nearly 10,000 doctors showed interest in signing up with the platform to offer teleconsultations. The company had only 150 doctors onboard until March 2020.

Japan, which is one of the largest healthcare markets, lagged in remote healthcare services because of stringent legislative policies. Remote consultations were allowed only for recurring patients and for limited number of ailments. Following the spike in COVID-19 cases, Japan temporarily eased restrictions on telehealth by allowing doctors to conduct first-time consultation online. Japan health ministry indicated that about 15% or 16,100 Japanese medical institutions (excluding dentists), offered telehealth services by July 2020. This shows phenomenal growth as in July 2018 only 970 of such Japanese healthcare institutions offered telehealth services.

In South Korea, telehealth was banned before COVID-19. This ban was lifted temporarily during the pandemic, but the long-term growth of telehealth in South Korea will depend on how the regulatory framework is shaped in the post-COVID era.

Vietnam also joined the telehealth upsurge as the country’s first telehealth app (developed by the Vietnamese multinational telecommunications company, Viettel) was launched amidst corona virus outbreak in April 2020.

Industry stakeholders seek to capitalize on telehealth boom

Healthcare providers have turned to telehealth to compensate for cancelled in-person consultations due to COVID-19 outbreak. This has encouraged providers to scale up their telehealth capabilities. For instance, over 56,000 doctors in France started teleconsultations by July 2020, as compared with only a few thousands at the beginning of the year.

Healthcare providers are not the only players looking to capitalize on the increase in demand for telehealth services. Other industry participants such as insurers and pharmacies are also exploring this segment.

In the USA, leading insurers such as Cigna, United Health, Aetna, Anthem, and Humana are partnering with telehealth providers to capitalize on the spurt in virtual healthcare demand. For instance, in February 2021, Cigna announced plans to acquire MDLive, Florida-based telehealth firm serving 60 million people across the USA, with a view to bring telehealth services in-house and reduce the patient-provider accessibility gap. Pharmacy giants Walgreens and CVS also extended access to telehealth services during COVID-19 crisis. In March 2021, a US-based digital retail pharmacy NowRx expanded into telehealth to provide care for HIV patients in California.

Since telehealth primarily encompasses delivery of healthcare services through digital and telecommunications platforms, telecoms and cable operators are uniquely positioned to organically expand in to telehealth space. Telecoms have the opportunity to expand in healthcare space by delivering telehealth as a value-added service. In October 2020, CommScope, an infrastructure solutions provider for communications networks, estimated that telehealth has the potential to create US$50 billion per year revenue opportunity for internet and telecom service providers in the USA.

Moreover, leading technology firms including Amazon, Microsoft, Salesforce, Tencent, Alibaba, and Alphabet are also investing in or considering to invest in telehealth. For instance, in January 2020, Alibaba launched an online coronavirus clinic, to offer remote assistance to patients across China.

Telehealth startups are mushrooming across the world and raking in millions in investment. Mercom Capital Group indicated that, in 2020, telehealth attracted nearly US$4.3 billion in venture funding. This represents 139% year-on-year increase compared to US$1.8 billion in 2019 implying that COVID-19 outbreak was the key driver behind the increased investment in telehealth.

Since everyone is trying to grab a piece of the growing telehealth market cake, this has led to flurry of M&A deals. Mercom Capital Group recorded 23 M&A transactions in telehealth space in 2020, up from 14 transactions in 2019.

EOS Perspective

COVID-19 outbreak worked as a catalyst resulting in dramatic increase in telehealth services utilization; whether this growth will continue in the long term, remains a question. This growth of telehealth market is primarily demand-driven. Thus, to sustain the growth momentum it would be imperative to overcome the challenges faced by the industry before the pandemic.

Ambiguous and often changing regulatory framework remains one of the biggest hindrances to telehealth. In order to tackle the spread of coronavirus, many countries temporarily relaxed their regulations for telehealth. However, it remains unknown whether countries will pull back the relaxations once the pandemic is over. Moreover, telehealth opens up doors for cross-border provision of healthcare services. This calls for development for a universal law for telehealth which is acceptable worldwide.

Further, the market will also largely depend on how the reimbursement policies evolve in the future. Historically, in many countries, reimbursement for teleconsultations has been lower than for in-person consultations. During the pandemic, the reimbursement amount was leveled in order to encourage adoption of telehealth. This proved to be a strong incentive driving the surge in telehealth. Post the pandemic, if the policies are changed again offering lower reimbursement for teleconsultations as compared with in-person visits, this could impact the growth momentum.

Data security and privacy concerns have long been debated as some of the biggest barriers for telehealth worldwide. Development of more secure platforms using technologies such as blockchain, AI, and Secure Access Service Edge (SASE) networks could potentially address these issues in future. Further applications of blockchain are being explored to improve operational transparency, increase protection of health records, and detect fraud related to patients’ insurance claims as well as physician credentials.

It is believed that the risk of misdiagnosis increases with telehealth as compared to in-person visits. This risk can be significantly reduced by integration of remote patient monitoring technologies with teleconsultations. IoT-enabled remote care monitoring technologies have been evolving by leaps and bounds. Teleconsultations carried out in conjunction with data collated from smart wearable devices can potentially help to cut down misdiagnoses.

Telehealth has become the new normal amidst coronavirus outbreak. While the telehealth market growth in the next 2-3 years could be attributed to pandemic crisis, the future will depend on how the regulatory framework will shape up and whether the industry will be able to tackle the challenges related to the technology implementation.

by EOS Intelligence EOS Intelligence No Comments

EdTech’s Growth Fueled by Coronavirus

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For years, tech adoption has been relatively slower in the education sector than in many other sectors. This considerably changed when COVID-19 hit in early 2020 and triggered the closure of educational institutions all over the world. With classroom doors closed and conventional methods of education taking a setback, e-learning gained momentum like never before. From virtual classes to tutoring and conducting meetings online to learning new skills, the pandemic propelled EdTech into the spotlight, putting it on a growth trajectory.

Changing face of the EdTech market

To control the spread of coronavirus, nearly 190 countries had implemented temporary school closures by the end of March 2020, disrupting education of more than 1.5 billion students. Over the coming days, as the count of people affected by the virus multiplied hourly, all educational institutions (including schools, colleges, universities, vocational training centers, and skill development institutions) were directed to remain shut until the situation improved, driving students to shift to online learning. This sudden change away from classroom learning has led to the adoption of online learning on a large scale.

Before the coronavirus pandemic, the EdTech sector was estimated to reach a value of US$ 342 billion, growing at a CAGR of 13.1% between 2019 and 2025. The forecast revisions accounting for the impact of the COVID-19 pandemic predict the global EdTech market to reach US$ 404 billion, with a CAGR of 16.3% by 2025. The sudden adoption of e-learning across educational institutions, as well as an increasing need for upskilling courses by working-class individuals, are driving the tech embracement in the COVID-19 pandemic scenario.

Moreover, with uncertainty still looming on the reopening of educational establishments, technology will need to play a critical role across all aspects of education – content generation, knowledge consumption, and assessments. This is expected to intensify the pace at which digitization happens in the education sector.

Investment at an all-time high

Over the last decade (from 2010 to mid-2020), global EdTech venture capital funding stood at US$ 36.8 billion, of which more than 50% occurred since 2018. Investment in EdTech has sky-rocketed over the last few years – the sector witnessed investment of merely US$ 0.5 billion in 2010 but reached a striking figure of US$ 7 billion in 2019, 14 times more in a span of nine years. Even during the COVID-19 pandemic, companies globally attracted US$ 4.5 billion in funding between January and July 2020, which is the highest ever funding raised during a comparable period in the last decade. It is expected that the trend will follow, and the investments will grow further, anticipated at US$ 87 billion over the next decade.

During the coronavirus outbreak, the demand for e-learning increased manifold, accelerating the investment spree in EdTech. While the USA is home to nearly 43% of the world’s EdTech companies (followed by India – 10%, Brazil – 9%, the UK – 8%, and China – 3%), as of 2020, the companies that received the high-value funding deals during COVID-19 period were situated elsewhere.

India-based online tutoring firm Byju’s raised more than US$ 1 billion from January through September 2020 (US$ 200 million in January from Tiger Global Management, USA-based investment firm; US$ 200 million in February from General Atlantic, USA-based equity firm;  US$ 23 million in June from Bond Capital, USA-based investment firm; US$ 122 million in August from DST Global, Hong Kong-based investment firm; US$ 500 million in September from Silver Lake, USA-based equity firm) to become the first company in the EdTech domain to reach a valuation of US$ 10.8 billion.

The second company was China-based Yuanfudao, an online live course platform, which raised US$ 1 billion in March 2020 from Hillhouse Capital (a China-based private equity firm) and Tencent Holdings (a China-based technology conglomerate).

Another noteworthy deal was also scored by China-based Zuoyebang, an online education tutoring provider, which received US$ 750 million in funding from FountainVest Partners (a private equity firm based in Hong Kong) and Tiger Global Management.

Moreover, mergers and acquisitions are also likely to grow in the near future, considering many small players will not have the necessary finances and expertise to revamp their business model to the changing market needs and are likely to merge with or acquired by larger players.

EdTech’s Growth Fueled by Coronavirus by EOS Intelligence

Increased adoption of advanced technology

The short-term rush in additional demand for EdTech solutions brought by COVID-19 is also expected to give headway to increased adoption of advanced digital technologies in the future. Solutions based on technologies such as artificial intelligence (AI), augmented and virtual reality (AR/VR), and blockchain (we wrote about the role of blockchain in virtual education in our article Blockchain Scores Well in the Education Sector) are likely to gain more momentum and be integrated into core education delivery.

It is expected that by 2025 AR/VR market in EdTech will reach US$ 12.6 billion from US$ 1.8 billion in 2019, growing at a CAGR of 38.3%. AI is expected to observe a CAGR of 40.29% between 2019 (from US$ 0.8 billion) and 2025 (to US$ 6.1 billion). Other technologies that will see a spike include robotics (expected to grow from US$ 1.3 billion to US$ 3.1 billion during the six-year period) and blockchain being increasingly incorporated into learning processes (expected to grow at a CAGR of 34.8% from US$ 0.1 billion to US$ 0.6 billion).

EOS Perspective

COVID-19 has proved to be a turning point for the EdTech industry and acted as a push for change that was already underway in the education sector. The pandemic downrightly disrupted the education system, making online learning an essential part of the way we learn; however, it is unlikely that digital learning will become the new norm. Now, whether e-learning becomes the sole mode of education or blends with physical classes, the EdTech market has growth potential, and the investment angle also looks bright.

Whilst a large number of players in the EdTech sector were able to capitalize on the need for education during the pandemic, not all digital learning platform providers will stick around. In the long term, players with a clear-product concept and a well-defined monetization policy will emerge winners. They must also be thoughtful of the fact that the unforeseen growth the sector witnessed during the pandemic is only transient and once educational institutes reopen, the demand for online learning is likely to shrink (even if by a small percentage).

In terms of user adoption, EdTech companies saw significant growth by offering free access to their platforms. However, this is not a sustainable strategy that firms can adopt in the long run. Once things get back to normal and the free trials end, companies will need to attune their product pricing and come up with more affordable plans. Nevertheless, emerging on the winning side of the pandemic will not be easy for the players as they walk a very thin line between offering innovative learning models and meeting market demands while still being able to generate revenue and remain profitable.

Moreover, while the new users multiplied quickly, retaining them is easier said than done. Emphasis on service quality and overall delivery experience would be crucial to convert current free subscribers into paying customers.

Bearing in mind that the current momentary spike in demand for online tools is not directly proportional to increased business, EdTech companies need to revisit their business strategies to achieve long-term growth. As the competition increases, companies must tweak their commercial business model to adapt to changing customer requirements and fulfill the need for on-demand educational lessons.

Additionally, the importance of collaborative partnerships with educational institutions (for their need for customized curricula, creating teaching modules and courses to train teachers) and corporations (the need for upskilling employees on technical competencies) cannot be underestimated. Business models based on such partnerships are likely to open new avenues of revenue generation. This will also negate the per-student acquisition cost for EdTech players.

Nevertheless, though the growth path for the EdTech sector may have a few roadblocks, in hindsight, the overall outlook towards the sector’s growth in the near future appears to be optimistic.

Read our other Perspectives on coronavirus here

 

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