For the past 5 years that I have now been back in Pakistan the hottest topic of discussion amongst techies has been the arrival of Google and Facebook in Pakistan on the ground with in country presence. Besides techies every bureaucrat angling for relevance claims they are talking to the likes of Google, FB and recently PayPal and Ali Baba.
A lot has been said, discussed, hypnotized and speculated. Let me bust some myths offer some common sense pointers around what is likely to happen and why these guys aren’t here yet. Further why it may be fairly plausible for them to be on the ground soon, but later than we hoped.
First things first, they fully know and understand what the size of the opportunity in Pakistan is. Both companies are vying for new customers/audiences/new spend. They have sort of bottomed out in the West, the now famous “Next Billion” initiative at Google “ and FB trying to put Internet in the realm of affordability for the 4.3Bn people who are not online yet are not doing it for the social good of humanity but for creating a new customer base/audience that consume what they produce.
Based on the fact that the population of the earth is currently about 7.2 billion. There are about 2.9 billion people on the Internet, give or take a hundred million. That leaves roughly 4.3 billion people who are offline and need to be put online.
Hence the relative importance of Pakistan in that context cannot be ignored. Half the population of 200M folks around 25-32 years in age, mobile phones gaining momentum as is connectivity. So it is not in Google or FBs interest to watch from the sidelines. To the trained eye, they are not at the sidelines. Any thing but.
They are both pushing the envelope, they aren’t here but they are here. Here’s a hypothesis of the Advertising Market ad-dollars being exported out of Pakistan by companies buying Google and FB ads alone. I have no way of knowing this besides trying to connect some dots and asking some probing questions and doing some time honored financial filings research by associated companies and 10k filings in the US.
Here goes:
The total Advertising Market stood at $650 Million [1] in Pakistan(Again other peoples estimates/industry reports in Pakistan). That’s basically every thing rolled up.
Google Sales Last Year Attributed $45M to sales from Pakistan* based on research and inference of data available from various filings and domestic industry trends and sizing studies.
Google is 45% of Ad spend in Pakistan and FB 45%, again based on share of voice and advertising agency research.
FB would then also safely be at $45M give or take.
That Means the remaining 10% is All others, local + bing + yahoo + linkedin etc.
Are you ready for the real number?? So the AD SPEND is already roughly at 100M$ so all other past estimates are skewed. This may be too, but its fairly close to what the data can support today. This also means the industry’s total pie has increased and there is more to come. All the old school ways of figuring out total spend is done to keep the Tax man happy so not every thing is reported by our local agencies and ad-czars.
So all the self professed pundits of industry(age 60+ with digital ambitions) and their sizing metrics are completely off, and Google and FB are laughing all the way to the bank.
So lets evaluate whats going on, 100m$ are roughly being lost in FX transactions, with no tax being paid by FB and Google as they are not locally incorporated.(This is the government’s beef with the situation or what is being considered a loss), watch out its a matter of time the Central Bank regulating this space soon.(But must look at the other side of the coin also)
This is how the ad-spend process works:
An average consumer with a credit card who wants to do FB marketing does it, spends 10$ or 1000$ online, using their or a friends card. They get their online campaign, FB gets their money, the Bank runs the transaction and then by magic(or rather established) settlement norms the intermediary bank settles the charges in FX.
Like vapor the FX is gone. There is no tax regime in any of this.
Same thing for Google, they have less retail customers but still do, no less if you look at the model an agency sells a client on a Google campaign, the agency in turn uses a domestic or international credit card. If the order size is larger they are on net 30 day billings in which case they proceed to wire the Money out to Google in Ireland which is the central billing.
Again. FX gone. (Not really though as it is resulting in spawning economic activity, which is what should matter to any one with half a brain)
But that is a very simplistic way to look at it. Lets look at the net effect of this, like any advertising this is arguably adding to ‘market making’ activities. Ads result in conversion of prospects to clients, who in turn spend money, which in turn drives the eco system, which in turn results in Jobs, access to information or even international clients that could result in FX coming back in(Its safe to assume that for each 45m$ outbound share, there is a 100m$+ inbound share). So from my perspective Google is likely a net FX contributor(if you look at other markets where data is more transparent and who are of a similar demographic) when you account for all the small /mid sized/large publishers and game developers and every one else in the eco system who receives money from google monthly against content or games etc. Further, the missing piece are all the Google Services that free lancers use to build products, which they then advertise, either on FB/Google/Elance/the rest, and get paid $$ for services, time, products. All that FX arguably comes back in some form or an other.
The real issue is our inability to take the conversation to Google and FB and make it economically competitive for them to enter Pakistan along with managing their plight for legal protection and liability risk.(Operational, legal and personal for staff and others based here along with intellectual property protection)
So do you really think Google or FB care that their 45M$ in earnings were taxed? They could care less. 9M$ is a rounding error for a single P&L for either of them on a given day. Then what gives?
There is an evil beast at both of these companies called “Policy” the people arent, but the role or department some times is cited even internally as such. I have met some wonderful people, they are merely doing their job.
Lets look at this in retrospect. Remember the little saga with YouTube in Pakistan. A Ban. Now imagine Google having an office in Pakistan, Imagine any thing negative happening, then imagine a mob showing up at the Google office for mob justice. See the lock down on FB posts and govt demanding FB to block folks, yea, imagine them having an office and some staffer being picked up by FIA for not blocking an account… Now do you see why they aren’t here yet. This is the stuff that causes international incidents.
All of a sudden it makes sense, why the policy group at Google or FB is unwilling to put their employees in harms way. They need legal and personal protection before they come here. They may take a risk or two here and there, but there has to be firm commitments to make the operating environment similar to India to say the least, where Google has a huge operations(Roughly 5k direct/indirect employees) base and FB is not far behind.
Not only that, look at the pay scales reflected below
So there are many facets to FB and Google, one arm is responsible for Sales and there are many others who are doing R&D, Product Development, Investments, M&A and other activities. We just don’t want a sales office, we want the real deal, the real deal will only come when there is some one in government who is “Sane and Materially smart” who can represent the voice of the tech community and can arguably understand what needs to be done by way of incentives and legal protection to invite all these giants to come prosper in our part of the world. Not some minister who uses Gmail or has an FB account and thinks they are “with the program” because of this. We need a national level decision on this, not a provincial one. This is for the greater good of the country.
Not like Google and FB cant see their own data, they are both openly reporting that search results/ organic growth coming out of Pakistan is off the charts. So their engineering teams and others are constantly innovating to engage the audiences from far away. No one in Mountain View or Menlo Park can really understand the on ground sentiment irrespective of how many “show and tell visits” they undertake and Photo Ops( they do with government types angling for relevance, see my earlier comment on that breed,) from their Singapore or MENA offices. Interestingly enough Pakistan has less in common with the South Asian Countries and the MENA teams and their staffers from an ethnic background and a market making stand point than the guys in MTV or MP , because in the US you may find expats who actually went from a deep rooted Pakistani base and understand some of the dynamics if not all.
Our export variety ex-pats who went recently from PK to MENA or SG are typically not at a career trajectory to impact decisions at a global level within these firms from a Policy stand point. Don’t get me wrong, they are the ones because of whom we are still relevant. So a personal note of thanks to all of them.
Just that I like to call a spade a spade and put the issues out there so if some one actually makes an effort to read this they can understand what the hell is going on.FB and Google have been hiring sales, marketing and BD staffers from PK (3-7 yrs experience range) its great for us, our guys are getting exposure, but its not great for the country, because we are not placing senior talent at the companies that understand the economic value of making the case for Pakistan. From a career standpoint it opens a door for more Pakistanis to get in to these awesome firms, no doubt. But its not helping our cause. At a deeper level it will take these guys an other 10 years to impact changes we need today)
I know of one maybe two Pakistani origin VPs at Google and Maybe an other at FB . I know 2 dozen Indian origin at both places. So the issue is not India vs Pakistan, its visibility and momentum. We have neither going for us.
Imagine a CPEC level effort was put in place by the Government to put out credible folks, who understand Tech, M&A and the legal side of the house to court Google and FB, now that would be a “real damn tabdeeli.”
Giving f***ing press statements and putting up pictures on FB accounts with captions like “successful meeting with FB” “Great talks with Google” “Pay pal coming soon” etc is all immaterial and only fuels false hope and inspires our already mis-guided youth to believe crap and to hero worship those, who are doing this for their 5 minutes of fame till they are in government and want to stay relevant at all the Diplomatic and International kitty parties.
Some other insights for all of those who think that by not being here Google and FB are missing out. Lets look at some product innovations from both of them that did not require them to be here, but had they been, the localization quantum would have been crazy.
- Google Maps has traffic data. So guess what, every one of your android carrying members of the Google regime are voluntarily providing Google location data, by calculating tower location and average speed they turned on live traffic without needing any damn permit or permission. For all the Pakistani map companies that think they will use laws and regulation to keep Google out, best of luck. You should rather be working on localization items so that just like in India Google turns around and buys you out for some thing of value that you produce.
- If you are a Telenor or Zong customer using FB, see the little sign that comes up that says, you are using FB for free. There is no such thing as a free lunch, FB is running attribution studies on you, your profile, age mix, social disposition, economic demography, because they are mapping your connection data to your profile data, they are segmenting the market and will use this info to better target ads. If some thing is free, you should quickly understand that you are the product 🙂 They have more points of info on you and your habits than your spouse.
These are some very basic examples that I didn’t have look far and wide for. If this is the level of access they have without being here we must understand the flip side of this equation. They do not need our permission to operate here, but It would be good to work with them so as to benefit from their products, services, economic propensity to spend/invest and grow markets.
Its not like only we are at some sort of fault on the other end of the equation these companies know they can push the envelope till some thing breaks, they will then come to drawing board. They know that in economies like ours every thing is for sale, including government, legislators, policy makers for as inexpensively as a photo opp or an internship for the relatives of the “well placed”. We know from the confessions of an Economic hit man, how this new world order operates.
No less it is in our best interest to open the market the economy and let some one else in besides the boogie men of CPEC.
So when you put up the power plants and generate excess electricity you will still have one of the highest un-employment rates in the world for youth. Also instead of turning the whole nation on to an army of Free-lancers(which does have its merits when there is an over supply of talent not when there is scarce talent or mediocre talent) it would be better to grow the organized sector where by these guys are given opportunities at careers and exposure to new and ground breaking technology. That will only happen if we invite the right kind of international firms and global firms to come invest with us jointly, for their gain and ours.
How many PHd free lancers do we know that innovated on their own, it does benefit to be part of an ecosystem. Sadly the lack of payments coming in from free lancing and the plight of these free lancers dealing with the banks is still not resolved. They are exploited and their monies held on to so the banks can make an extra buck of the interest earnings. But the frenzy continues.
Some one who has no real world training, schooling or is self taught, 9 times out of ten will not be able to compete any thing globally competitive even in the free lancing space. Not every one is born gifted to make or launch free lancing million dollar fortunes. We are at best creating an army of mediocre people who could have done better but we let them down.
I share this to demonstrate how badly our priorities are screwed. Its election year(soon), I bet if for nothing else just to be electable it may be a good strategy for some of these politicians to go out and bring one of these foreign firms home with all the modalities thought out, no short term MOU bullshit. I can assure you the youth will look up on that favorably. Even though, arguably it still is late.
[1] This data is hotly contested because the reporting agencies like Gallup and Nielsen apply various discounts on the actual rate cards, in this case the Gallup study for the year 2014 has a 65% discount applied. http://gallup.com.pk/bb_old_site/AdSpend/2014/MediaAdSpend_14.pdf
As a basis for research and discovery when these and other studies are analyzed they list digital to be 1-2% of total Spend. The overall media space is seeing increase in spend year or year as an aggregate and digital is only Growing.
Other research available online, quoting data points of size and percentage of spend circa 2013 etc also available at
http://www.cpdi-pakistan.org/wp-content/uploads/2015/02/Broadcast-Media-in-Pakistan-Hostage-to-Media-Economy.pdf
Updated Nov 30th 2017 with additional background info.
Love it! As always excellent analysis.
Brilliant. Spot on!