by
Navi Radjou
Airbnb lets spare room owners make money out of their idle asset and makes the asset easily accessible for more travelers.
The idea of offering your spare room on the web is not new, but with Airbnb you don’t have to create your own website and hope that Google-searching travelers find you. Thanks to Airbnb, more people will travel, bringing more tourism dollars to more people in the countries they travel to, creating more profits and distributing them more fairly.
This kind of innovation is almost a textbook example of frugal innovation. It removes a major source of cost/effort to both supplier and customer and relies on simply being smart with what you already have. There is no major capital investment involved and yet it revolutionizes the industry and unlocks the value-creating potential of hitherto idle assets.
What enables revolutions like this is the existence of broadband networking and mobile infrastructure, cloud-based data storage, and clever digital programming — stuff we already have. The result is a growing realization that there are many more available assets and capabilities to meet consumer needs than we have traditionally imagined.
The digital revolution, therefore, is helping to create a more frugal economy, one that generates greater value in a highly efficient, socially inclusive, and eco-sustainable manner — using fewer resources. What’s more, many of the innovations originate in relatively poor, underdeveloped regions or are designed to serve low-income customers, which means that the innovators have no choice but to be frugal. Here are some striking examples of how these digital innovators are shaping the frugal economy worldwide:
Healthcare. Escalating healthcare costs — due in part to the explosion of chronic diseases among Americans — are expected to account for 20% of U.S. GDP by 2020. To rein in these costs and deliver better care at lower cost, the U.S. urgently needs to adopt frugal medical practices from resource-constrained regions like China, India, and Africa.
Take China, which sits on a ticking demographic time bomb: it will be home to 500 million people over 60 by 2050. China can’t build enough new hospitals and train sufficient doctors to take care of its rapidly aging population. To solve this issue, Neusoft, China’s largest IT service provider, deployed a low-cost telemedicine solution that enables doctors in cities to remotely treat older patients with chronic diseases who live in rural areas. This frugal solution is built around affordable and easy-to-use medical devices that can be operated by nurses in rural clinics.
Education. Khan Academy has upended the education sector by offering free tutorials on multiple subjects as short videos via YouTube. Yet, over 5 billion people worldwide don’t have internet access. So Khan Academy launched KA Lite, an open-source software that delivers its educational content without internet connectivity.
In India, Khan Academy partnered with Foundation for Learning Equality and Central Square Foundation to preload KA Lite on the ultra-cheap Raspberry Pi microprocessor, which can be deployed as a local server in a school. Today, underprivileged students at Akanksha Schools in Mumbai learn math with KA Lite by accessing its content locally using low-cost tablets like the $35 Aakash.
Energy. Climate change is a clear and present danger to all of humanity. To keep the rise of global temperatures below 1.5 degrees Celsius, all countries — rich and poor — need to rapidly transition to a low-carbon economy powered by renewable energy. Africa, a continent where up to 90% of people lack electricity but where mobile phone penetration reaches 90%, is showing us the way. In Kenya, half of the population uses M-PESA, a mobile payments solution that doesn’t require a bank account. M-PESA is now enabling other disruptive business models in sectors like energy.
Take M-KOPA, a home solar system that comes in a kit containing a small solar panel, two LED lamps, an LED flashlight, and a mobile phone charger. Although the entire kit costs $200, Kenyans can purchase it with an initial deposit of $35 and pay off the rest by making a daily micro-payment of 45 cents using M-PESA. After paying for a full year, the system is unlocked and the customer owns the product outright. Adding 600 new customers a day, M-KOPA intends to cross the million-unit mark by the end of 2017. Thanks for these frugal off-the-grid energy solutions, African households are leapfrogging from candlelight to solar light.
Housing. In its latest report, Harvard’s Joint Center for Housing Studies points to an “affordability crisis” in the U.S. housing sector. With rents growing more rapidly than average Americans’ income, nearly half of renter households today spend more than 30% of income on housing. Meanwhile, even middle-class Americans are being priced out of the housing market in states like California, where average low-tier property prices went up by 10% in 2015.
Here is an aberration: The average American house size has more than doubled since the 1950s, while the average family size shrunk by half during that same period! In lieu of building more McMansions — which only the wealthiest can afford — the U.S. could harness technologies like 3D printing to build affordable houses faster and cleaner and make them accessible to most Americans.
In 2014, the Chinese company WinSun used a giant 3D printer to construct 10 houses in 24 hours. WinSun claims its proprietary process can save up to 60% of construction waste, cut production time by up to 70%, and shave off 80% of labor costs. Italy-based World’s Advanced Saving Project recently upped the ante by unveiling the world’s largest 3D mud printer, which combines advanced technology with ancient construction techniques and abundantly available cheap materials (mud and clay) to build ultra-low-cost houses that are durable and sustainable.
Finance. According to one recent estimate, Europe is home to 50 million low-income people who altogether represent a €220 billion ($245 billion) untapped market, especially for financial services. Traditional banks — with their monolithic business models and hefty fees — have been unable to crack this lucrative market.
Enter Compte Nickel, a French startup that enables people without a bank account to walk into a local mom-and-pop store, subscribe to their service in just five minutes, and get an international debit card and an international bank account number. The service enables users to send/receive money with their mobile phone and pay anywhere in the world using their debit card—all at no extra cost. Compte Nickel charges a flat annual maintenance fee of just 20 Euros (compared to 180 Euros charged by retail banks). Adding 20,000 new customers a month and with a 97% customer satisfaction rate, Compte Nickel expects to close 2016 with half a million clients.
Armed with 3D printers, mobile technology, and open-source hardware, a new generation of innovators is emerging to address our basic needs faster, better, and cheaper than traditional providers. These digital pioneers are using frugal innovation, rather than distributive economics, to tackle the global wealth inequality crisis. I hope more entrepreneurs will join them to co-build an inclusive frugal society where everyone can live better with less.
*Navi Radjou is a Silicon Valley-based innovation and leadership advisor. A TED speaker and winner of the 2013 Thinkers50 Innovation Award he is the coauthor (with Jaideep Prabhu and Simone Ahuja) of Jugaad Innovation (Wiley 2012). His latest book (with Jaideep Prabhu) is Frugal Innovation (The Economist in association with Profile Books and Public Affairs, 2015).
By: N. Peter Kramer
