Nextdrop, a tech start-up in India looking to solve water utility logistic issues, is breaking many rules. They are a for-profit company, but they plan to make their money from solving a social issue. They are a tech company sourcing data from the crowd, but their crowd only has access to non-smart phones and are not online. To understand their business model you first must understand the water utility system in India.
Water – a serious issue in India
In most urban areas and 2nd tier cities, a household may only get water every 2-10 days, but no one can tell you when. Water is released by valve-men at odd times throughout the day, which means consumers often have to wait by their taps for hours. Most can’t afford large tanks or wells to store water. For a large percentage of the population, this means that one person (typically a woman) has to stay at home and cannot go out for work. The absence of real-time tracking means the utility doesn’t know where the water is going and where it isn’t.
The problem is not only an issue for consumers. Water providers (a complex network of government and private companies) have little visibility to what is occurring in their network. They are often “fire-fighting” to keep their network operational:
“The engineers had no information on how much water there was, which pipes were leaking, which area got more water, or which area was deprived,” says NextDrop CEO Anu Sridharan
How can the crowd help?
Nextdrop has devised a cunningly simple solution to this seemingly insurmountable problem. With the almost ubiquitous ownership of non-smart phones in Indian urban areas, the Nextdrop team saw an opportunity. Nextdrop created a mobile phone system that connected the valvemen and engineers to the customers – sourcing from the crowd if there is an issue:
- Valvemen contact Nextdrop when they plan to release water (currently via a simple voice-recognition software calling service)
- Nextdrop then texts customers to let them know when water will be turned on
- If the customer does not receive water when expected, then can text or “missed call” Nextdrop to let them know. This information is passed immediately to the utility companies to allow them to start to fix the problem
Both sides of the system gain huge value. One of Nextdrops users, a housewife, claimed, “You’ve set me free.” She runs errands, sees friends, or takes extra paid work without worry or guilt over risking her family’s water security.
In turn, the water companies have data on their network without the need to install complex and costly monitoring sensors.
Where is Nextdrop capturing the value?
For a Western start-up, the obvious place to try and capture value might have been from the utility companies. However, Nextdrop was clever about trying to establish early revenue. They were quick to learn that having the complex network of government bodies and private companies pay for their service was a bureaucratic and political nightmare (and legal nightmare once added in bribery) – the incumbents weren’t willing to pay for something they weren’t sure was going to be valuable for them. Instead, they went to the consumer. They discovered quickly that consumers would be more than willing to pay the equivalent of $0.10 USD for the service – the consumers immediately gained more value than this cost.
Even with this cost, Nextdrop were able to achieve 70-80% market penetration, and a 10% feedback rate in their pilot city!
Time to scale and grow?
To date, Nextdrop has rolled out successfully in a handful of areas, and has approximately 35,000 users. The technology is easily scalable, and surely it is time to grow and capture the market.
However, Nextdrop needs to keep severally challenges in mind.
Firstly, as they go to each new market they will need to convince a new set of incumbent companies and government agencies to use their technology. This is no easy feat, and may require some political and bureaucratic slight of hand. Currently, Nextdrop is taking 9 months per district to get through the red-tape. Secondly, they will need to spend time and money to educate their customers (aka the crowd) of the technology. Thirdly, competitors could easily copy their model, and work quickly to steal market share.
These challenges are not insurmountable, but will require cash. Hopefully NextDrop will get the investment it needs to grow. They should look to companies like Uber and Airbnb for inspiration as winners of the same challenges.