To Sell More Smartphones, Change How They're Bought and Sold

05/03/2016 01:41 pm ET Updated May 04, 2017

By Mark Heynen, CBO of PayJoy

Back in Guatemala, Juan Alvarado* would never have been able to afford a Galaxy S6.

Few vendors near his rural hometown sold upscale phones, the 19-year-old California resident said. Those that did made the customer pay the full price for the phone up front. A Galaxy S6 in Juan's hometown would have cost him 6,000-7,000 quetzales (US$788-919)--a huge sum in a country where gross national income (GNI) is only US$3,410 per year.

What's more surprising, though, is that when he lived in Guatemala, Alvarado didn't even own a simple flip phone. Why bother? Most people back home, he said, didn't have phones either.

As the mobile sector continues to contract, the question of how companies can reach customers like Alvarado's Guatemalan neighbors becomes more pressing. Most new smartphone users in the next five years will come from emerging markets. For example, an estimated 75% of new mobile subscriptions in the first quarter of 2015 came from the Asia-Pacific region and Africa.

Yet customers in these markets don't have the resources to buy what Sony, Apple, and other big smartphone manufacturers are selling. And the alternatives don't really measure up, whatever Silicon Valley tech evangelists may say.

It is true that prices are dropping, especially in emerging markets, due to an influx of cheap Android smartphones from Chinese manufacturers. But a $30 smartphone, like many feature phones, provides a very limited internet experience--which those aforementioned evangelists would know, if only they'd put down their iPhone 6s to try one. I did, when I was a program manager at Facebook working to expand penetration of its mobile app into emerging markets. And I discovered a shocking fact: on cheap smartphones the Facebook app, which is popular even among rural farmers in Myanmar, barely works at all.

The irony is that even if Facebook's many Internet.org connectivity initiatives succeed, it won't get many people access to Facebook--unless they get access to better devices, too.

It's a first-world problem, too

Hurdles to mobile access exist even in developed countries. In the US, lower income customers tend to buy no-contract prepaid phones; this option denies them access to the carrier subsidies that cheapen devices for buyers who can afford to commit to two-year contracts. Instead, lower income customers have to pay the full price of the device up front--a consideration that pushes them towards cheaper devices that don't offer a full experience.

"It's a huge struggle for our customers," said Alex Reyes, whose company owns 10 prepaid phone stores in California. And that struggle can have a dramatic impact on citizens' ability to access the internet. About one in 10 Americans have no high-speed internet access beyond their phone's data plan.

Many vendors and carriers, including Verizon, AT&T, and Apple, offer some form of installment plan, but they're only accessible to customers with strong credit. Customers like Reyes', who don't have credit histories, are all too often left in the cold.

Alvarado in this case was lucky. In California, he was able to pay for a Galaxy S6 with an installment plan despite his lack of credit history. Now he has full access to apps like Snapchat, Facebook, and WhatsApp, which he uses to keep in touch with friends and family from home.

Devices, not data, are the answer

Conversations about widening internet access for the underprivileged tend to focus on the cost of data, not devices. For instance, Facebook's controversial Free Basics service, which lets smartphone users access "essential" websites without data charges (or adequate privacy protections, according to many critics), has a stated aim of bringing more people online. The reasoning seems to be that if data is cheap, the devices to access it will follow.

But in most of the world, as noted by many, the cost of devices is the problem.

About three-quarters of the world's offline population is low-income, rural, and elderly. For these people, smartphones are as far out of reach as other necessities of modern life. That's particularly true of the more expensive devices needed to take full advantage of the internet in 2016. Companies need to innovate less around expanding networks and more around getting adequate devices into the hands of those who need them, whether through widening access to installment plans and carrier subsidies or through other, as yet undiscovered means.

What those who take the internet for granted don't appreciate is that for those in developing countries, smartphones can be a gateway to economic empowerment. They help vendors streamline their retail businesses with mobile payment systems and farmers to research the best fertilizers and crops for their climate. They can also help the unbanked establish their creditworthiness and gain access to loans. And then there are the priceless intangibles, like helping immigrants like Juan keep in touch with their families back home.

If we can smooth the road for the next one billion, it will pay enormous dividends to the global community as a whole.

*Name has been changed to protect privacy.

With contribution by Jill Merriman of Hippo Reads.

Mark Heynen is the Chief Business Officer of PayJoy, a startup helping the world get access to technology and finance regardless of geography, status, and income level. He is also a serial entrepreneur who started his first company in his twenties in England. Once selling it, he joined Google to help launch Android, then moved to Facebook to launch their mobile apps into emerging markets. He has also successfully built and sold companies including DropTalk, which was acquired by DropBox.