Small income disparities lead to faster mobile growth

In recent years we have witnessed the growth of companies whose business concept is based on mediating and coordinating services and information between large numbers of individuals and organisations.

Providers of services linked to mobile communication, the online classified advertising website Finn.no, Facebook, iTunes and eBay are some examples of companies that operate as mediating service providers.

"These companies represent key building blocks in a network-based economy," says strategy researcher Ulas Burkay.

One distinctive feature of this type of service is that it is not just the quality of service that determines its value to the customer, but also how many others are using it. This phenomenon is referred to a "network effects."

In the long run, you would derive little benefit from your mobile phone unless you had someone you could call.

When the mobile phone conquered the world

In his doctoral dissertation defended at the BI Norwegian Business School, Ulas Burkay was interested in finding out how this type of mediation service is tapping into new markets.

• What determines which countries these service providers decide to establish infrastructure in?
• What is it that makes some countries quicker to adopt new digital services than others?

Burkay has examined the introduction of mobile communication services in 87 countries over a period of 24 years. He takes the first commercial launch of mobile communication in Finland in 1980 as his starting point and studied its international establishment through to 2003.

The strategy researcher has been particularly interested in considering the network effects, i.e. the way in which the value of a service increases in line with the number of users.

Income parity leads to faster growth

In his dissertation Ulas Burkay shows that the combination of a country's average income level and small income disparity leads to new digital and mobile services being taken into use at a faster rate.

"The high value of an average income that is equitably distributed means that more people can afford to buy the service. The value of the service increases in line with the number of users. This signals significant potential benefits for those who have not yet taken the service into use. This contributes to further spread," says Burkay.

As new mobile technology gradually wins new markets, it will become cheaper to establish infrastructure in new countries. Consequently the service providers will also enter new markets with lower income levels and less equitable distribution of income.

According to Burkay, his study shows that the greatest market potential for new digital services lies in countries where income levels are high and income distribution is equitable.

Reference: Ulas Burkay (2012): "The Rise of Mediating Firms: The Adoption of Digital Mediating Technologies and the Cosequent Re-oragnization of Industries." Series of Dissertation 4/2012. BI Norwegian Business School.