High Delta Markets: The Geography of Innovation for the Next Decade
Jeremy Kirshbaum
In Uncategorized Posted October 17, 2017
This article was edited with the generous help of Kathi Vian at Institute for the Future. It was presented in partial form as part of the Institute for the Future 2017 Ten Year Forecast.
Silas Okwoche speaks carefully, but laughs easily. He is a global innovator, a self-taught hardware and software design engineer working out of Lagos, Nigeria. He does his work with tireless, casual passion. He can be found focused, at any hour of the day or night, working on some project, either in his own modest office or one of the shared working spaces throughout the city. Wherever you find him, he is always willing to indulge a conversation about something new or interesting. His ideas emerge as inventions, sometimes hardware, sometimes software.
For instance, Silas is co-founder of Nerve Mobile, a cell phone company that he launched with one other partner by reaching out via the Chinese online marketplace Ali Baba to contact an OEM producer of white label Android smart phones in Shenzhen. The OEM would routinely send Silas reference designs with a basic Qualcomm or MTK chipset—a gongban—and he would modify them slightly to his specifications. For example, he might add a better camera to one or a longer-lasting battery to another. Then he would use an Android OS as a software base and design some bespoke apps for industry verticals like agriculture or mining, selling the phones in small, customized batches.
The Nerve Mobile venture was profitable for a time, but eventually ended when the naira fell against the yuan, and the hardware became too expensive. Unfazed, Silas has since moved on to online content marketplaces and is experimenting with automated payments and virtual reality. It is probably unimportant to him that his work is a portrait of high delta innovation in the 21st century: fast-moving, patentless, context-specific and emergent. But what Silas is doing will change the way we think about markets, innovation, and economic development for decades to come.
A Landscape of Innovation Beyond Emerging Markets
Until now, the world has thought of global markets in terms of shared geographies and shared strengths: Western financial markets versus emerging low-cost manufacturing markets in the Global South, for example. But these categories will be upended in the next decade. Cloud services and distributed computing will disrupt the very concept of location as markets come to exist simultaneously in virtual and physical spaces. and market segmentation changes to recognize a radically interconnected world.
We will abandon concepts like emerging or frontier markets versus developed markets. Instead, we’ll think in terms of the market’s orientation to change. Is it pro-volatility or pro-stability, for example? Markets that are high in volatility—whether anchored in the high-frequency stores of the Balogun Markets in Nigeria or the cryptocurrency markets in the United States or the Hua Qiang Bei in Shenzhen, China—these are the markets that will emerge as growth zones of innovation. In fact, these markets, which we can think of as high-delta markets, will be the greatest source of innovation and disruption in the next decade. The business models that thrive in them not only survive under volatile, fragmented conditions, but actually require a volatile environment to thrive. And as traditionally stable markets and industries become more volatile and fractured over the next decade, we can learn from high-delta markets about how to build pro-volatility business models that will take full advantage of the inevitable disruptions already underway.
Effective innovation in these high-delta markets looks very different from the models at work in the low-delta markets of much of the late 20th century. In those low-delta markets, innovation begins with centralized R&D, usually in a corporate department, university, or government-sponsored lab. It’s commercialized with licensed intellectual property rights and structured partnerships with other organizations. In high-delta markets, by contrast, innovation is emergent, distributed, often ownerless, and incredibly fast. Open, opt-in systems win in these environments, and people and companies assume from the outset that success will be copied, so they generally rely on superior agility and speed rather than legal patents, even when that option is available. High-delta markets attract many small retailers with an entrepreneurial, flexible, and insecure workforce. Regulation is fragmented and emergent—not necessarily more or less stringent or even more or less corrupt, but less stable and predictable. Income levels may be high or low, defying traditional geographies of development. In fact, these markets almost certainly don’t correspond to official geographical designations: they are more likely to be neighborhoods or regional networks—physical and virtual—than cities or countries, regardless of where they appear.
A Tale of Two Cities: Hardware Innovation in High-Delta Markets
One of the most exciting zones of disruption from high-delta markets is hardware innovation. This story starts in the skyscrapers of the Hua Qiang Bei hardware market in Shenzhen and reaches far into the crowded high-frequency stores of Balogun Market in Lagos, Nigeria. Over the next decade, the story of this high-delta market ecosystem will create profound global disruption. It is already changing the way we do things in low-delta markets, and it offers what we might think of as “an urgent opportunity” to learn to thrive in the volatile and chaotic environment of the impending future.
Over the last few years, Shenzhen has morphed into a global manufacturing powerhouse and a hotbed for hardware innovation. The city has clearly benefitted economically. Buoyed by its conversion to a Special Economic Zone in 1980, it has grown, as anyone will tell you, from a few fishing villages to a city of over 20 million people. Considering the rate of growth, the scale of planning and organization seems almost impossible. The streets are clean, the buildings are massive and beautiful, with an aesthetic falling somewhere between Manhattan and a Blade Runner version of Los Angeles. The city sprints forward with a piecemeal efficiency undergirded by a common pragmatism and ethos of collective self-reliance that hasn’t quite forgotten the time when the only thing that made the city run was people working with other people. Perhaps this model of emergent growth guided by top-down planning is a model for other exploding megacities around the world. Perhaps there will never be another city like Shenzhen. Maybe it’s too early to declare victory, and the negative side-effects of today’s success will breed tomorrow’s failure. Undoubtedly, however, Shenzhen today is a marvel.
Some people have taken to calling Shenzhen the “Silicon Valley of hardware.” It’s an accurate designation, but not in the way you might expect. In Shenzhen, Silicon Valley-style venture capital and startup financing are largely absent. The ubiquitous industrial-chic co-working spaces, shared housing, and politically neutral counter culture that are seemingly inextricable from most “tech hubs” are scarce. People are (famously) nonchalant about intellectual property. The comparison does indeed recall the early days of Silicon Valley, when the manufacture of silicon microchips put the region on the map. But in Shenzhen, circuit manufacturing, and so much more, takes on a scale that the original Silicon Valley could not have imagined.
Aside from the manufacturing companies, one of the centers of gravity around which this ecosystem orbits is the Hua Qiang Bei hardware market. It occupies a section of Shenzhen that houses thousands of stalls and rooms, all selling hardware ranging from finished computers, phones, drones, and cars down to individual transistors. One of the locals claims it fills 25 skyscrapers. Whether or not that’s true, the market is undeniably massive. There, you’ll find every variation of product or component you can name, and many you can’t. From “USB-powered-lamps-shaped-like-little-hoverboards” to “self-stabilizing-selfie-sticks,” Hua Qiang Bei is the source for memetic variants of any global fad of the past, or any yet to come.
The real scale of Hua Qiang Bei is slightly hidden from the casual tourist. Most of the stalls or small rooms are connected to manufacturing companies nearby. So if you want more than one or two of the items the hawkers are selling—say, 10 million pieces—you have only to ask. This, in fact, is how many hardware companies are formed today. Most of the products in Hua Qiang Bei are “white-label.” In other words, they are manufactured with no branding; the buyer brands them. And although there are millions of variations on VR headsets, smart watches, phones, and more, they are, for the most part, based on the same, standard, open source chips referred to by many as gongban chips. This open source chip design, along with uncountable minor modifications on the Android operating system, is what drives Shenzhen. Most hardware companies in the world today are using these basic components, endlessly tweaked and remixed.
Which is not to imply that there are no truly original works being created in Shenzhen. Quite the opposite—despite the grossly over-reported counterfeit products, most of Shenzhen’s products are new, interesting, and often unexpected. Taking an original design and tweaking it over and over eventually lands you with a totally new creation, almost untraceable to its original roots. These products end up all over the world, along with the more proprietary products from Samsung and Apple (although they, too, are sourcing from Shenzhen, in whole or in part).
There’s another, more hidden face of Hua Qiang Bei: much of the market doesn’t exist inside the skyscraper but on thousands of interlinked WeChat groups and virtual storefronts, private and public to varying degrees. These virtual actors invisibly swarm among people within the market, connecting them to buyers and sellers across the world. Hua Qiang Bei market, in reality, cuts orthogonally through physical and virtual spaces and touches places and people in geographies all around the physical world, as well as throughout the virtual world, simultaneously. To mistake it for a collection of stalls in a skyscraper in part of Shenzhen is a grave mischaracterization.
Now travel 12,000 miles to the west, to Africa. There you’ll find that Lagos, in Nigeria, is another epicenter of innovation in its own right, albeit in a very different way. It’s true that Shenzhen and Lagos have much in common. Both cities are hot and muggy for much of the year. Both have grown dramatically in the past couple decades from cities of about a million people to cities of over 20 million. But the way this growth has been handled in Lagos is dramatically, visibly different. Despite what the global press might have you believe, Lagos is not more dangerous than any other major city. It does, however, have a big waste problem, bad road networks, and a power grid that barely functions. Still Lagos, and Nigeria more broadly, are growing economically with a lurching, spasmodic perseverance complicated but not undone by resource shortages or fluctuations in currency values. Even outside the sections of Lagos that house millionaires and even billionaires, the entire country is, with significant ups and downs along the way, beginning to be recognized as a global economic center.
Lagos is unbounded in a way that Shenzhen is not. It is overflowing with itself. Skyscrapers stand next to hand-constructed sheet metal shelters, next to a KFC, next to a burning trash pile, next to a gleaming, hyper-modern bank, extending into the surrounding lagoon, the neighboring islands, and far inland in a sprawling, voracious mass with no clear border. Literally hundreds of different languages are commonly spoken here every day, and its critical density draws people from all over the world like a galaxy circling a black hole. Christians and Muslims, Togolese and Lebanese, millionaire businessmen and hustlers chasing a bus to sell a 10-cent bag of plantain chips all coexist in a state of tight, realist tension without malice. This diversity and energy, perhaps never seen before in history, are driving some of the most interesting innovations in the world. And although there is little else but chaos to the casual eye, order and pattern are easily visible to those who look. The volatility makes high-delta market business models hugely successful here, and those who realize it find the place burgeoning with opportunity.
You can find modern malls and grocery stores in Lagos, but most commerce still occurs in the crowded, vast and informal markets like Balogun Market, Makoko, and Lagos Island. In these markets, tomato and meat sellers intermingle with hawkers of cleaning products, Bibles, prayer mats, spices, clothes, machine parts and electronics. Cell phones are easy to buy and fix, and nearly everyone has at least one or two. The products are more varied, and the markets are organized differently, but the same business model drives Balogun Market as Hua Qian Bei. Small retailers and stalls distribute goods piecewise and in bulk. Both bespoke products and fresh, locally grown food are visible alongside the immediately recognizable FMCG and food brands that do enormous business in high-delta markets. And as in Hua Qiang Bei, only part of the commerce in Balogun Market happens in the physical market itself. Invisible rings of WhatsApp groups and Facebook messages garland the products on the shelves, direct the motorcycle riders to deliver, and place orders for more goods both domestically and from abroad—including from China.
This kind of place, in Nigeria and other countries around the world, is where many of the electronics in Hua Qiang Bei eventually find their home. Purchased in bulk by traders in Guangzhou, or brought to Nigeria by Chinese people themselves, the full range of both white label and branded goods are on offer. And increasingly, products designed locally but manufactured in Shenzhen are visible in the stands.
The Path from Hua Qiang Bei to Balogun Market
The story of Chinese-branded hardware products in Nigeria is one of rapid adaptation. When Chinese phones first entered the market, they were considered second-rate—cheap but quick to fall apart. The first breakthrough in feature-based innovation was multiple SIM cards. Lacking the oligarchical structure of the US telecom market, Nigerian telecoms offer highly differentiated, contractless plans for airtime and data, so having multiple phone numbers for different networks can be a big cost-saver. In addition, Nigerians like having several numbers for social reasons. One number might be for friends and family, another for acquaintances and business, for instance. So when phones began to appear with multiple SIM cards, they were a huge hit. No one is sure who first introduced this innovation or whose idea it was originally. It might even have been an accident, but certainly it came from the mix-and-match culture of Shenzhen.
Chinese mobile phone brands have evolved over time, and they are beginning to lose their association with sub-par quality. Companies like TECNO are introducing inexpensive but quality branded phones—smartphones and feature phones alike—using a combination of smart market targeting and business model innovations in the markets of Lagos. At the same time, white label products from Shenzhen are ever more common. And they are innovative in an emergent, unexpected way, perhaps accidental, perhaps not.
Take, for example, the Ghana Power Bank Phone, which, by accident or design, has found the perfect niche for uncertain environments. With three SIM cards and 3G connectivity, it has a giant battery that’s large enough to last for days during power grid outages or fuel embargoes. The battery has a USB jack for plugging in a lightbulb, or a fan, or a shaving razor. It’s not just a phone but an interactive multi-tool. It’s also a business platform, enabled by an open, interchangeable ecosystem of USB plugs, open source software, and gongban chips. Although unrefined and sometimes untrustworthy, such white label products are often the canary in the coalmine for the innovations that will scale next.
Originally, Shenzhen was a place where companies from abroad came for cheap labor to manufacture their own technologies and then ship back abroad. Over time, though, Shenzhen’s ecosystem has evolved into a place where domestic Chinese innovators also come to scale and succeed. Now, in its next phase of self-invention, it has become a general manufacturing resource for anyone in the world to turn any idea into a manufactured reality. Shenzhen is not only providing the world with hardware, but also enabling a new generation of hardware designers.
Followed to its logical extreme, this path leads to an Internet for Matter. The internet originally enabled anyone with an idea to scale that idea to millions or even billions of people. Such scaling seems feasible in Shenzhen with a twist: instead of information, the ecosystem is producing new products and objects. There are still many barriers to this internet scale of hardware production. But in the high-delta markets of Shenzhen and Lagos, people with enormous ambition, with the intelligence to teach themselves, and with enough money to access at least a data connection are already learning from the vast, mostly free resources of the internet to design custom hardware products that fit their own context. And if they’re lucky, they can also produce them at a price that’s cheaper than ever before possible.
The Illusive Geography of High-Delta Markets
We should be clear that Shenzhen, the city, is not a high-delta market. Our 20th century habit of dividing markets by geography, of pointing to countries or even cities as markets, doesn’t help us much if we want to understand these new kinds of markets. The business model and relative volatility of the environment is what is important, far more than the physical location.
Part of Shenzhen—Hua Qiang Bei in particular—does fit the description of a high-delta market. Each hardware retail stall is operated by just a couple of people. Manufacturers partner with these retailers in an organic, intermingled way. If you don’t take time to learn about the complex networks of cooperation and competition that determine who is on what floor, who is selling what and who gets a cut, you might call this an “informal” market. This is not to say that a lot of money isn’t being made. Money is definitely being made. High-delta market business models don’t appear in response to poverty—they appear in response to volatility. And it’s no accident that the way manufacturers distribute through Hua Qiang Bei looks similar to how FMCG companies deliver products in the markets of Nigeria or Ghana. These distribution models are particularly effective for managing volatile environments with complex demographics or rapidly changing infrastructure and economic uncertainty.
It’s worth pausing here to make a point. Too often, when we think about emerging markets for technology innovation, we fall back on concepts like innovation driven by scarcity. Or perhaps we wax poetically about the impact on basic needs of people. Of course, this kind of innovation has its place, but it is only a subset of what is unfolding today in high-delta markets like the Balogun Market in Lagos. Silas Okwoche’s company, Nerve, is not innovating because it was forced into innovation by scarcity. Silas, with his knowledge and skills, could easily find work in any number of large companies. He is innovating for the joy of it and because he sees opportunities to add value and invent new things. He is no more driven by scarcity than the creator of Go Pro.
Our 20th century models can also lead us to associate high-delta markets with places that lack infrastructure, places with unstable political structures or very constrained resources, places that might, misleadingly, be termed developing nations. It is true that, in the past, richer places were more stable, and stability seemed to produce wealth. Now, stability tends to produce stagnation and paralysis, while volatility engenders rapid innovation and growth.
If you really want to understand high-delta markets, though, forget about both historical geographies and relative wealth. Focus instead on distribution. In low-delta markets, distribution is organized around siloed, centralized innovation zones that feed outward. Universities, think tanks and corporate R&D departments of secretive nature and huge proportions expand outward through carefully constructed contracts and licenses. In contrast, distribution within and between high-delta markets, poor or rich, is fragmented, but not random. High-delta market innovation is iterative, piecemeal, emergent, and often owner-less. And right now, Hua Qiang Bei is the epicenter of an innovation wave echoing out into high-delta and low-delta markets alike, all over the world.
Of course, the context for hardware invention in places like the Balogun Market of Lagos is much different from both low-delta markets or high-delta markets with a lot of infrastructure, like Hua Qiang Bei. Similar to many unplanned cities around the world, infrastructure itself is haphazard, distributed, and often non-functional in Lagos. The data ecosystem is different as well: for example, the role of telecoms is much more prominent in providing mobile banking and payments services. This kind of infrastructure resembles more closely that of Papua New Guinea or the south of India than Shenzhen or San Francisco, and it dramatically reshapes hardware-based services. Also, the open sharing of information in high-delta markets does come with a cost: products are quickly commoditized. In a high-delta environment like Lagos, managed services such as banking and payments, installation and maintenance fees, or even data insights are a hardware company’s best bet for margins greater than a sliver.
Products that delight people and make their lives better serve these distinctive markets well, as any good product serves the context of the person who buys it. But such products don’t “emerge from necessity,” any more than the iPhone emerged from necessity. The source, drivers, and quality of innovation in today’s high-delta markets simply cannot be explained by this narrative. While this trope drives compelling media stories as well as funding from investors and corporate interests, it is missing the point. Innovation rarely does what we think it should do—and it’s so much the better because it doesn’t.
Increasingly, even traditionally stable markets, rich and poor, are starting to fracture and destabilize. As they do, high-delta market strategies will become essential for managing that volatility. It’s no accident, for example, that the business models of Uber, AirBnB, or TaskRabbit, based on highly interconnected, opt-in networks of entrepreneurs, appeared after 2008, at the height of the economic volatility in the United States and Europe and that their prevalence continues to rise as infrastructure, governments, and business environments in these regions becomes more uncertain. We can apply these pro-volatility business models to the ever-shifting new contexts of the coming decade and beyond.
And this brings us to back to the geography that initially gave rise to the silicon revolution—the San Francisco Bay Area.
An Evolving Tale of San Francisco and High-Delta Money
Cities have the longest memories. Empires rise and fall, nations begin and end, natural ecosystems shift or are destroyed, and still a city will sit there, observant, silently collecting the impressions of events that pass through its corridors. A city is a nearly immortal creature: Dresden still stands, and Nagasaki, and Jerusalem. By some accounts people are even trying to resettle Chernobyl. The metropolis seems to be one of our oldest and deepest assumptions about how the world is organized.
By this timescale, any city in the United States of America is still a young city. Few are even as old as the nation itself. Their mythologies are still juvenile, and their narratives retain some of the unreflective self-satisfaction of the wunderkind. San Francisco is no exception to this rule. The city itself is curiously small, with less than a million people in a 49-square-mile area. It is increasingly inseparable, however, from the wider Bay Area, a nondescript moniker for the conglomerate of cities and townships surrounding the San Francisco and San Pablo estuaries on the Northwest coast of the California. Crouching on the lip of the sea together, these communities share an ongoing conversation about their increasingly interdependent future.
Even within the city limits, a surprising diversity of experiences co-exist, shifting from block to block. Parts of San Francisco are nearly completely Hispanic, and some are almost completely Cantonese. Tent-dwelling communities of the homeless, some the size of small towns, are a five-minute walk from Market Street, home to some of the world’s wealthiest companies and people. Although they share space, these groups intermingle surprisingly infrequently, living in different worlds that just happen to co-exist in the same physical location.
In the mid-1800s, the discovery of gold in California drew people to San Francisco from all over the world, and the architecture and ethos of the city still echoes this earlier period. It was during this time that many Chinese immigrants first came to San Francisco, in many cases under exceedingly harsh circumstances. They formed the labor backbone of gold mining itself and built the infrastructure to support the Western boom. Chinatown remains an icon of the city.
The Silicon Valley phenomenon is, of course, much newer in the Bay Area, and even newer in San Francisco. Launched a half-century ago near San Jose and Palo Alto, a felicitous confluence of silicon chip makers, research parks, and universities seeded a business ecosystem that over time has become known particularly for its consumer-facing software companies. Like a second gold rush, it has attracted people seeking fame and fortune from all over the world, and this influx has created the critical mass of ingenuity and wealth necessary to form a productive ecosystem that continues to spawn iconic companies and brands. Its structure has codified and systematized over time, and perhaps its most interesting child is the idea of starting a startup.
The process is a series of staged capital injections into a team with an idea, typically over a short period of time, to generate (usually) quick failures or (very occasionally) massive success. Part financial model and part indulgent self-aggrandizement, it has created a culture whose image of itself always slightly exceeds the reality. This culture is possibly necessary, however, and even perhaps even a deliberate component of what drives the region to the admittedly impressive heights it does reach.
High-delta markets appear periodically in this community, but Silicon Valley as a whole is not really a high-delta market. Entrepreneurial risk does not a high-delta market make. Although the venture capital and start-up ecosystem are a far cry from the traditional corporate world of the US and Europe, the region has stabilized considerably over several decades. The top players are predictable, and the environment they live and work in is quiet and sedate, despite how they mythologize it. Certainly, some elements of high-delta market business models are still visible, but they are not prominent in today’s ecosystem. The region’s business models, and the models of innovation that accompany them, are more centralized than distributed, more corporate than networked. In this reasonably stable environment, low-delta business models often succeed more easily.
But mythology holds power, and remaining in the air is the belief that no idea, however absurd, is impossible. So it makes sense that blockchain technologies have found a ready community in the Bay Area. Blockchain technology was most likely not invented in San Francisco (although no one really knows where it came from), and the city is not even its only home. But it is certainly a place where passionate advocates, evangelists, and skilled practitioners have set up camp. The San Francisco blockchain community skews heavily toward the white and the male, which is significant because of the curious, juvenile American practice of categorizing people and according them privileges by color. However, the ideological breadth of the blockchain community is wide.
Having emerged originally out of the cryptography, hacktivist, and anarcho-libertarian communities online, and bolstered early on by gold collectors and other fiat currency skeptics, it is now a weird mix of established corporate professionals, entrepreneurs, investors, communists, capitalists, anarchists, policy nerds, technologists, snake-oil salesmen, and consultants. Many blockchains involve an incentive system to trade contributions of computing power in return for money, a process called mining. In a fascinating echo of the other gold rush 150 years prior, most of the miners today are in China, working in massive server farms. As Mark Twain once said, “History does not repeat itself, but it does rhyme.”
Blockchains can do a lot of things, but one of the simplest things they do is form distributed currencies, also known as cryptocurrencies. The details of the technology are labyrinthine, but what’s important to us is that, using a blockchain, anyone with a little programming knowledge can issue a unique asset that is enormously difficult to counterfeit—and this asset becomes worth something if someone will buy it. The more people buy it, the more people want it. Suddenly a new financial asset is born.
These coins, tokens, assets, or whatever we call them are traded on a variety of online platforms, like Poloniex or Kraken. The platforms, in turn, are a wild maze of charts, forums, and spreads. They are reminiscent simultaneously of a penny-stocks exchange and online gambling. The comment boxes are a fraught jungle of insider tips, economics, finance, insults, misogyny, genuine humor, and administrative updates. The lists of coins and tokens are like a list of financial services offered in a cyberpunk fantasy (which at some level is actually a fair characterization). Names like DarkCoin, Monero, ZCash, Nxt and Omni hint at their sources and purposes. Many of them have specific intended uses or functionalities. Monero is privacy-centric. MazaCoin promotes the native sovereignty of the Northern Cheyenne. Ether drives the distributed computing platform Ethereum. Dodgecoin started as a joke. PotCoin is purpose-built for the cannabis industry. All of them fly back and forth, exchanging value among themselves and back into fiat currency, changing hands in surprisingly high volumes.
Emerging through the fog of information surrounding the coins, however, are the familiar characteristics of the high-delta business model: Many small sellers interplay instead of a few large ones. Innovation is rapid, emergent, and often ownerless. Information flows are organic. The market is both physical and digital.
Come back to the ground in San Francisco for a moment. Here groups form around the different coins. People scheme to “pump and dump,” artificially inflating the value for a short time in order to profit. Entrepreneurs live seven or eight people to an apartment in the inflated San Francisco housing market. They sleep in one another’s closets, hoping people will buy their token to crowdfund their new venture. This same high-delta market, however, exists simultaneously online in many places all over the world. Again, geography does not define the market—volatility does.
Because cryptocurrencies work well in low-trust, low-infrastructure environments, their earliest use cases were illegal online markets for purchasing things like drugs and weapons. But they well may find their best use cases in other high-delta markets. Although their value is volatile, they are easy to move around with relative security. In a place like the Balogun Market, where people are trading the quickly depreciating naira, or in Hua Qiang Bei, where buyers from every walk of life across the world are welcome, cryptocurrencies offer important affordances. Some groups are targeting this opportunity directly. Stellar.org, for instance, is trying to ease the cost of converting and transferring fiat currencies, starting in rural Honduras, Northern Nigeria, and other volatile regions where the use case is strongest.
High-delta markets, as a categorization that lumps together such seemingly disparate industries and places, might at first seem bizarre, but they offer a reframing with great power. They give us the language and concepts to think effectively about an increasingly volatile world around us. As most places in the world grow more unstable and uncertain, the business models of today’s volatile markets can help us prepare for the emerging landscape. They urge us to envision the future landscape without the often misleading and valueless categorizations of countries by average income, culture, or geographic location. In the chaotic world of the next decade, we will need every tool available to survive and continue to build profitable, impactful projects. High-delta markets can provide the lessons and signals to guide us along this uncertain path.
Designing the Future in a High-Delta Ecosystem
So much said to give a proper framing to Skytech, perhaps one of the most innovative hardware design groups in Nigeria. Skytech is based in Akure, about six hours by bus outside of Lagos. Akure is home to approximately 150,000 people—a large town, although dwarfed (as is nearly anywhere!) by Lagos in the west.
Skytech produces connected smart-home and smart-office solutions for a low-infrastructure context. Skytech’s founder, Olaide, creates his products and services with dramatic technical acumen. He’s taught himself over a dozen programming languages and several hardware disciplines, from Arduino to PCB. The company’s products are simple and delightful. An example is the IoT water pump control system. Nearly every house in Nigeria, and many other places as well, uses a personal water tank because no functioning municipal water system exists. Most people pump water from a well up into the tank using an electric pump. The tank is elevated to create running water for the house or building. However, it’s difficult to tell when the tank is full, and so it often overflows, causing inconvenient and costly water damage. With Skytech’s product, the tank automatically stops filling when it hits a sensor at the top, and the pump can be controlled remotely through Wifi, Bluetooth, or SMS.
Skytech has other IoT solutions. One product automatically switches between the power grid and a generator to address a common problem in Nigeria: the electrical grid here is unpredictable at best. Another is an interactive hardware design board that Skytech sells to schools for educational purposes. The list of Skytech’s solutions is long, but all of them start in the same way—by securing components from China.
Sometimes the components Olaide needs have already reached Akure, having traveled from Guangzhou in China via Lagos port to the market in Akure. Local buyers use such components mostly for repairs, for TVs, laptops, phones, or even cars. However, brokers at each step of the process expect a premium, so by the time the components reach Akure, they’re pretty expensive. Still, they’re conveniently at hand. But if Olaide needs a special component, or a large volume, he orders directly from China through Ali Baba. This route is cheaper, and business has been brisk. At one point, Skytech was buying so many components from SEEED studio, a Shenzhen-based hardware components manufacturer, that the company was made the official distributor in Nigeria.
Obviously, a key to the success of Olaide and Skytech is the use of the internet—and Ali Baba, in particular—as an interface with Shenzhen. This interface allows Olaide to access the prodigious resources of Hua Qiang Bei with a certain amount of brokered trust. It also allows him a broader view of the kinds of components and services that are available to him on the global stage. Simultaneously, the internet amplifies Olaide’s capacity for design and invention. Using self-led training courses online, Olaide has been able to develop skills across the entire software and hardware stack. It is this informational connection, coupled with the hardware capabilities of Shenzhen, that fuels his innovations.
The model of designing products locally in Akure, while mining Shenzhen’s manufacturing capabilities via the internet to produce products cheaply and at scale, holds enormous potential. The markets for well-designed hardware solutions—especially connected IoT solutions—are vast and untapped. Moreover, with a little bit of help, any place in the world can now grow its own knowledge economy, creating a second-wave leapfrog opportunity. Just as cell phones allowed low-infrastructure economies to enter the mobile information age without using landlines, Shenzhen and the internet may allow low-infrastructure countries to skip straight to knowledge economies, without needing to develop their own manufacturing sector.
Of course, the dynamic interplay between Hua Qiang Bei and Nigerian markets is just one thread in the story of high-delta markets. Studying these markets and their business models, wherever they appear, will give us the necessary tools to develop pro-volatility systems that will survive one of the most volatile periods in recent memory. With high-delta market principles, we can innovate faster, adapt more quickly, and create more interesting things than we ever have before. High-delta markets are going to be the biggest—perhaps the only—source of growth in the next decade, as low-delta markets stagnate and destabilize. Never has the cost of isolation and inaction been so high. High-delta market innovation rewards openness and speed. This future is coming quickly. If we want to be there to meet it, then we must run toward it—with open arms.
