By Denis BARRIER & Nicolas DUCRAY
Today, we are proud to announce that Cathay Innovation is the latest investor in KaiOS Technologies, leading the US $50 million Series B round along with existing investors Google and TCL.
KaiOS, whose mission is to connect the next billion users to the Internet, has already made significant headway with more than 100 million KaiOS phones shipped in less than 18 months. The company has establishing itself as the third largest mobile phone operating system (OS) after iOS and Android and the fastest growing ever OS at such an early stage. To further credit this standout company, KaiOS’s partnership with Jio in India, was recently awarded as the top initiative on Fortune’s “Change the World list” for its efforts in bringing internet access to the world.
We are thrilled to be part of their journey and support what may become one of the most impactful companies in this decade, as it can potentially change the lives of billions of people worldwide and contribute to dramatically reducing the digital divide.
The Problem: A Digitally Divided World
In 2016, the United Nations declared that access to Internet is a basic human right. Yet, half the world remains offline, with neither access to affordable mobile internet, a smart phone or modern apps. For example, in Eastern Africa, Internet penetration is about 25% and in South Asia, it is 30%. In these regions, a large part of the population is denied access to the basic life services, tools and knowledge that the Internet offers that are critical to entering the digital economy and benefiting from many life-enhancing opportunities.
Mobile connectivity is the key to getting underserved populations online given the cost of laptops, computers and other devices far exceeds that of mobile phones. But the cost of smartphones is still out of reach and remains the most significant barrier that prevents people from getting online. According to a 2017 report by GSMA, the average smartphone cost in India & Tanzania represent 16% of income for the people who earn less than US $2 a day. A basic smartphone is simply too expensive for them to afford.
That’s why “dumb phones”, that offer voice/SMS remain the standard in many markets. For example, in Pakistan and India, about 40% of the population uses a basic phone, about 15% uses a feature phone, and only 6–7% of the population uses a smartphone. No wonder the feature phone market forecast remains strong, with 400–500 million shipments a year.
The high-cost of smartphones is typically driven by the hardware requirements to support the OS and applications. For example, Google delivered a “light” version of Android, Android Go, that can run on less powerful hardware (thus reducing the cost of the components of the smartphone), but Android remains a ‘heavy’ operating system that requires at least 512MB of RAM (and at least 1GB of RAM to ensure an acceptable user experience) and a touchscreen. In addition, the Android applications themselves are sizable (sometimes, more than 100MB). This in turn imposes additional memory requirements on the phone, driving up the price of hardware significantly. Therefore, Android may not be the right OS to power affordable phones suitable for the next billion users, i.e. phones that can be sold in the $10–20 range.
On the connectivity side, Facebook offered Free Basics, a mobile app giving users access to a small selection of data-light websites and services that could be browsed without paying for mobile data, but the service had to be terminated in some regions because it was reportedly in breach with net neutrality.
The Solution: KaiOS Built at the same time a Proprietary Tech Stack and an Open Ecosystem to Close the Digital Divide
Enter KaiOS, a Linux-based light operating system customized for “smart feature phones”. Unlike existing offerings in the market, KaiOS requires an incredibly low memory (256MB) and has a lower energy consumption than any smartphone OS. They provide “smart feature phones” that can be sold for $10–20 but are fully equipped to run a wide range of applications offered by the world’s top Internet companies.
KaiOS brings 3G and 4G cellular connectivity, voice input, GPS and Wi-Fi, HTML5-based apps, a longer battery life and an optimized user interface to non-touch feature phones, hence reducing the price of connectivity. Soon, we believe this architecture will be specifically well suited for 5G.
Additionally, the company is building one of the most comprehensive ecosystems of partners all geared towards using the light OS approach to deliver connectivity and digital services to emerging markets. It allows users to download and install applications and offers a dedicated application marketplace through the KaiStore. Some major services are preloaded including Google Maps, Google Assistant, Google Search, Twitter, Facebook and YouTube.
Among many others, several large e-commerce and fintech companies are also in discussions with the company to power their marketplaces, payment and banking services, as well as world-class content providers to bring entertainment, gaming and practical information to the KaiOS user base.
To bring phones to market, KaiOS also built close relationships with global semiconductor companies like Unisoc, Mediatek and Qualcomm, phone makers like HMD/Nokia, Doro and China Mobile, and telecom operators like MTN, Ooredoo and Orange. These partnerships were developed to create shared value between the various constituents in the value chain, while keeping the price of the device low. Consequently, most of the world’s telecom and internet industry players have gathered around this new mobile Internet platform.
Establishing a Global Footprint for Global Connectivity
KaiOS started by powering the Jiophone, of Reliance Jio, in India, serving over 100 million customers in its first 18 months. The most basic version of the Jiophone is sold for $23, at least 40% less than the cheapest smartphone available in India. KaiOS also powers Wizphone, sold across Indonesia in 10,000 Alfamart convenient stores. Remarkably, the Wizphone is sold for $7 (partially subsidized by local banks and Alfamart).
Thanks to the wide range of hardware it supports and its strong customization capabilities, the KaiOS platform can be used in a large number of markets and applications including the developed world. For example, they have already sold 5 million phones in the US whether it be smart feature phones that are easier to use for the elderly or with limited functions, ideal for secondary phones or those looking to reduce daily smartphone usage.
In a recent study, Strategy Analytics estimated that more than 100 million KaiOS devices will be shipped again this year. We believe the company will do even better. The rise of KaiOS may bring the next billion users online, reducing the global digital divide. As a result, we will see numerous and diverse life changing services emerge in many countries worldwide.
KaiOS: An Unlikely Story ; A Cathay Innovation Story
Founded by Sébastien Codeville, a French entrepreneur in China, the company has been driving the rebirth of the Firefox OS project to establish the KaiOS platform. A spin-off from an internal project at Alcatel Mobile, Sébastien transformed KaiOS into a global startup, which went on to raise from leading world industry players as Google, Reliance or TCL. As a global citizen who lived in Europe, China and the US, Sébastien represents the exact kind of entrepreneur that can be empowered by Cathay Innovation’s global investment platform, and our mission to invest in technologies that have a positive impact on people.
When we invest in entrepreneurs and companies, we take into account how these new technologies and services will improve the life of the users and clients. We invest in the future ; in the future of work, financial services, commerce, mobility, and so much more. We are strong believers in backing tomorrow’s great tech companies, such as KaiOS, and helping them on their mission to expand to new markets and create new industries that build an improved and more sustainable world.