Unlocking prosperity: Generative AI's role in expanding markets in the Global South

As a venture capital investor in the Global South, we see a very different opportunity for generative AI (GenAI) than in the Global North. While the Global North investors focus primarily on the opportunity for GenAI to reduce costs through more automation, the big opportunity unlocked in the Global South involves substantially growing the total accessible market (TAM) for many businesses.

By reducing costs and enhancing usability, GenAI is enabling the creation of a new generation of profitable businesses that can reach much larger audiences, benefitting the underserved aspiring middle class and small businesses.

More TAM => More investment capital

One of the biggest factors in considering a venture capital investment is the size of the potential market. If the market isn’t big enough, investing is less interesting and potentially ‘uninvestable’.

Today, in the Global South, most tech startups focus primarily on serving the top section (higher income) of the economic pyramid because those people have more ability and willingness to pay and are generally more willing to try new products.

So, an edtech business in Brazil might be limited to a TAM of 4 million wealthier customer prospects and expand to 10-15 million if it could access the much larger aspiring middle class. The latter would be much more investable.

Three barriers to reaching the aspiring middle class

Three of the most important barriers to reaching the aspiring middle class are:

Price point: It must be affordable AND profitable to the business. The biggest factors on the latter are reducing the cost of customer acquisition and operations.

Access: As inexpensive smartphones and data plans proliferate, this is becoming a decreasing barrier.

Usability: While users are gaining more familiarity with mobile apps such as messaging, entertainment, and e-commerce, barriers exist for language, literacy, and general usability, often connected with education and cultural issues.

GenAI increases TAM for sustainable, profitable customers

GenAI enables businesses to offer products at lower price points by increasing the efficiency of both customer acquisition and the cost to serve each customer.

For example, a job tech startup in India can use GenAI to enable much more personalised ‘handholding’ of a worker to attract and onboard them to a jobs matching platform. This might include providing a friendly conversational interface in their language of choice, ensuring a good understanding of their expectations, skills, and capabilities, and answering their questions–all that would be much more expensive to do with a human agent.

With a larger customer base enabled by GenAI, the business can spread its fixed costs (e.g., building the tech platform and corporate overheads) across maybe 30 million customers rather than 10 million customers (without GenAI) further reducing its allocation of fixed cost per customer and enabling customer profitability at a lower price point.

Unlike models where some customers are unprofitable and subsidised, GenAI can enable a sustainable approach to the ongoing provision of products, creating a virtuous cycle of growth and profitability.

Creation of new enterprises

Generative AI is a catalyst for a new economic era in the Global South. By expanding the TAM through reducing costs and enhancing usability, GenAI is enabling the creation of new profitable enterprises that can serve larger audiences than incumbents.

Calling all ambitious Global South entrepreneurs! The path forward is paved with GenAI; so learn about it, envision the ability to reach even larger audiences, and pursue rapid execution to improve the lives of millions of underserved customers.

(The author is Managing Partner of Capria Ventures.)