Smartphone shipments are down in a tough year for cell phones, and that means more pressure on an already precarious segment of the cell phone market: feature phones. Today, one of the players in the space, the KaiOS feature phone operating system, is getting a small financial injection that both speaks to that pressure, but also the opportunity to grow in what’s still open in the market: selling cheaper and lower — offering hardware that’s usable, but still Ultimately, it works for the poorest consumers in developing economies in sub-Saharan Africa.
The Hong Kong-based feature phone company, which was backed by strategic investors such as Google and TCL, has secured $3.4 million from Finnfund, an impact investor from Finland.
Finnfund financing comes in the form of convertible notes – meaning they can be converted into equity in a possible future funding round.
We’ve reached out to Sebastien Codeville, founder and CEO of KaiOS, to ask if more financial activity is in the pipeline and we’ll update this post as we learn more. It’s been a long time since KaiOS has raised (or more specifically disclosed) an outside investment: its last funding was in 2019, when Raised $50 million From investors including Cathay Innovation, Google and TCL.
Both Finnfund and KaiOS said today’s money will go to KaiOS to build its business in sub-Saharan Africa — a key market for low-end, low-cost devices. Africa is a particular investor focus, and has directly backed a number of startups in the region as well, including food supply chain startup Twiga and fintech Jumo.
“With this investment, KaiOS can expand into new markets in sub-Saharan Africa,” Codeville said in a statement. “We are delighted to partner with an investor like Finnfund who shares our vision of how important it is to promote digitalization in Africa.”
Finnfund estimates that there are about 3.4 billion people in the world today without an internet connection, mostly in developing economies, mostly because they can’t afford smartphones. Even the cheapest smartphone models, running for example Google’s Android OS, can take up to 20% of consumers’ monthly income, Finnfund estimates. (Using a little math on their numbers, Finnfund investing Up to $0.001 or 1/10 of a percent investment per potential user.)
The idea of KaiOS is that it’s a low-cost alternative for phone makers who want to build feature phones that can compete with budget smartphones. Packed with apps and other hallmarks for Internet-enabled phones, KaiOS currently lists 41 models of phones running its operating system, with the cheapest devices retailing for around $10.
But the start-up has a daunting task ahead.
KaiOS spent its early years on the wings of a lot of promise. It began life in 2017 as a fork of Firefox OS, which was an ill-fated attempt by Mozilla and its partners to build a viable smartphone platform for Google-backed Android and iOS competitors. Optimistically, the KaiOS team saw an opening to target the lower end of the consumer market, in developing economies, and to consolidate research and development targeting these users on a single platform for advanced feature phones.
Others agreed, and KaiOS soon picked OEMs like Nokia, as well as software partners, to build its ecosystem. Even Google, in hedging its bets, wanted to ensure that it played a strong role in the feature phone segment even as Android market share increased, and thus became a strategic partner for KaiOS, investing tens of millions of dollars in the startup.
But things did not turn out as expected.
When KaiOS announced the funding in 2019, it said about 100 million devices had shipped using its operating system. At the time, IDC predicted that 500 million feature phones would be shipped annually for the next five devices. Today, the company just says that “more than 170 million” devices running KaiOS have shipped — with a much smaller number of active market users around 100 million. It is estimated that today KaiOS has a 0.07% share of the total mobile phone market. By contrast, Android, which itself was powering the cheaper group of smartphones, has just over 71% and iOS has a 28.3% share.
In addition to feature phones’ small market share, their overall sales volume is also declining. India, followed by China, Pakistan and Bangladesh are the countries that dominate the feature phone market today. But on the other hand, since Nigeria is the only country in Africa to break into the top five feature phone markets (it ranks fifth), it means there is still potential across the rest of the continent, something Finnfund hopes to build on.
“Investing in KaiOS is another important step in connecting the unconnected,” Finnfund’s chief investment officer, Kuutti Kilpeläinen, said in a statement. “KaiOS has proven that it can solve the affordability issue, and we are proud to join the group of investors who all share the same ambitious goal of bridging the digital divide.”