I like ecommerce, but I struggle with the business model. My concern has been the logistics. I think hard about the business, nevertheless, because everyone knows that internet is the future. So, the earlier we figure out what works on the web, the better for everyone.

Today, after a meeting, I tasked myself  to come up with an idea on what could be a solution to the logistics challenge, which I could share on this platform, within 10 hours. The challenge has been that sending men on motorbikes across Lagos to deliver items may not be optimal.

This is my solution on how we could improve the ecommerce business in Africa, using the three category leaders in Nigeria here:

• Let Jumia, Konga and Yudala come together and build drive-thrus in some strategic locations in Lagos and other big cities in Nigeria. The drive-thrus will look like the typical ones seen in McDonald’s, a U.S. fast food (think of Tantalizers or Mr. Biggs in Lagos). The only difference is that the drive-thru will be bigger and will have many outlets, enabling multiple service points. (A drive-thru enables customers to pay for fast food and pick the items without leaving their cars.)
• A customer goes to Konga, Jumia or Yudala website to buy a product. Say the customer has bought a shoe and will need to pick it up within 6 hours. At checkout, he will specify the location of the facility where he will like to pick up the item. The ecommerce companies will specify the turnaround time to get the product ready for pick-up. For example, if you place an order for shoe before 6am, you can drive to the outlet between 8am-8pm that day to collect it. If not, you will have to reschedule the pick-up date and time online.
• When customers drive to the facilities, they will drive to the particular ecommerce company they had ordered the items online. They will put a code in a system (think of McDonald’s voice ordering system except that this will be a typepad to punch a number). The code will help the sorting system to bring out the specific items as the customer drives to the collection point. This facility will be advanced and heavily automated to save labour cost. The customers will not have to leave their cars as the items are loaded in their cars.
• The facilities will be strategically located in the cities. One will be built as people are leaving 3rd Mainland Bridge into the Lagos Mainland. So people that placed orders in Victoria Island could pick the items as they return from work. By positioning these pick-ups, the ecommerce firms will reduce or phase out home delivery. Essentially, the deal is that these customer pick-ups could reduce the need of going to homes or offices to deliver items.
• The ecommerce companies must have a well synchronized system that mimics the legendary McDonald’s’ below 5-minute wait rule. The idea is that when the customer enters the facility, he or she should be done within 10 minutes. To avoid delay, only customers who have already paid for their goods can use the service. There will not be any pay on delivery.
• The ecommerce companies can setup a joint venture that will run this for them. In other words, all of them will pool capital and build the facilities. This could be the model ecommerce needs in Nigeria.

I do think if they can come together and do this in Lagos, Port Harcourt and Abuja in some strategic locations, they will reduce their shipping and logistics costs, while also expanding the product appeals.

Note that I have focused on logistics which I think is the weakest point of the ecommerce business in Nigeria. They already have nice websites (lol) but the logistics is broken. And to get it right, they need to come together and cooperate. Yes, we need coopetition in the ecommerce business in Nigeria.

Coopetition is the act of cooperation between competing companies; businesses that engage in both competition and cooperation are said to be in coopetition

Of course, if we have a functioning postal service, this will not be necessary. When that happens, the new true dawn of ecommerce will begin in Nigeria. But do not count on a functioning postal system in Nigeria anytime soon.

This is a Short Note.

I just spent one hour talking Marginal Cost to a new digital business opening in Africa. They are coming to run an ecommerce business. Very brilliant team with solid business vision.

At a time, I asked one question: what is your marginal cost? It was very tough as we spent minutes looking at cost. Largely, to have scalable advantage, your marginal cost must tend to zero in a digital business. In other words, having an additional customer must not carry any new cost.

For great digital businesses, that is a possibility. Facebook and Google enjoy that in their internet units. The scalable advantage ratio is close to 1. That is why the marginal price is zero (they make their services free for all of us).

My client had a great marginal cost in the web side of the business, but in the logistics side, the amount goes high. To add an additional customer in a new city will require cost, even though the marginal cost in an already covered city may be low. So, the only way to bound the cost is to narrow the service region. By coming to that conclusion,  the company is no more an Internet business. That scalable advantage has gone and the unconstrained distribution channel which Internet offers has been made meaningless.

At the end, I told the team to go and build a new business model for a logistics company because indeed their success will be largely dominated by logistics and not just on what happens online.  That your business receives customers online does not mean it is a web business. What really matters is where the cost elements are. For this particular ecommerce company, the business is simply a logistics firm, as far as cost is concerned.

The firm will also explore how to eliminate that marginal cost exposure through partnership with a local logistics firm. It does not want any logistics capex and in Africa, except South Africa, that will be challenging. They will have a lot to do to make the business an e-commerce. At the moment, I see a logistics firm with a website. As a logistics firm, the valuations will come down to reality because you cannot be a meatspace business, and yet build your growth and valuation models with numbers that mirror truly digital companies.

First, what is innovation? As an engineer, I will answer the question using an equation.

Innovation = Invention + Productization

You can replace that Productization with Commercialization or Implementation. Understand that an idea could simply be an invention, but until it has a market impact, it cannot be an innovation. Yes, without an economic value, you cannot have innovation! This economic value could be direct or indirect. Take for example, ancient Egyptians developed concepts in geometry to allocate land near River Nile. That idea was not directly commercialized, but it helped streamlined the process of land partitioning  which consequently helped all the farmers. By mapping the land, minor overflowing of the Nile was not catastrophic as farmers could still locate their plots easily afterwards.

Information and communication technology is enabling a faster pace in the process of invention. With higher computing power, people could come up with great ideas faster and cheaper. And the process of transitioning from invention to innovation has never been better. With a global market accessible through the Internet, the world has evolved into a tight atomic economic unit. This interdependence brings a new understanding that nations cannot hide, and classical economic theory of comparative advantage makes lesser meaning now.

Comparative advantage was proposed in the era of manufacturing when availability of raw materials was critical to location and localization of industries. It was based on an old model of factors of production, which did not capture knowledge as we do today. Increasingly, nations like Japan and South Korea have shown that what matters is knowledge power in order to be vibrant and successful.

This brings up the African challenge. How will the continent survive under its present model of dependence on minerals when the world has since moved from that for creating wealth and prosperity? There are opportunities; we can innovate on the process of our mineral processing. This will involve using knowledge to differentiate our commodities. We get higher value in the international market. But if the continent continues to rely on this present model where it extracts and sells without adding value to the products, it will face economic consequences in few years. We have seen that information systems and Internet bridge national and international boundaries quicker and any major technical breakthrough could be felt in more ways across the globe faster.

Disruption will surely come. We have noted that some old traditional industries are going through some unfortunate metamorphosis. What is happening to newspapers as a result of the disruptive innovation by Google could happen to nations and continents. Just like the film photography is history due to digital cameras, cotton and rubber farming could also be.

Why not? If a smart student in MIT figures out the best way to harness the powers of nanotechnology to create artificial cotton, those Sudanese cotton farmers will be out of work. It will be disruptive and consequential when new technologies in the lab right now hit the market in 10 years. There are inventions today and will become innovation soon. Africa could pay a severe price.

The continent needs leadership to help transition our industries and markets. Massive education is what we need right now to develop the capability to compete, become the sources of innovations ourselves, and provide safety nets in our economies. Few years ago, nations would have time to react to new innovations, but now, it comes so fast that without preparations it is possible to see foreign earnings dropped by 50%. I am so scared on the thought that petroleum will one day cease to be ‘economically useful’ because of alternative sources of energy being developed in the lab. If it happens suddenly, and without preparation from some OPEC members, many could default on their sovereign debts.

Balancing Tech Strategy in the Age of Disruption

As African countries devise means to chart a path in this age, they need to remember that we have one resource in abundance: our young people. The promise of the new Africa cannot be decoupled from the optimistic exuberance that comes when we see the hope and aspirations of boys and girls on the streets of Lagos, Nairobi, Accra, Yaounde, and more. Getting them to realize those dreams with unbounded opportunities will be the challenge of this age across African capitals.

Doing that will mean we need to radically re-think how we build the future. Over two weeks in Lagos, I tracked the number of times the Guardian newspaper wrote articles on technology. I observed that IT (information technology) was seen as technology with no mention of agricultural technology, mining technology, construction technology, etc. The implication is that we have made IT to be synonymous with technology, creating an erroneous construct that unless a young girl or boy is doing IT, the person is not playing in the technology domain. The nation has made it even more challenging as every leader talks of IT, not remembering that we have other technologies.

I am not against IT. However IT is yet to serve as garri and yam across our food joints and restaurants. Facebook and Google may be more exciting than IITA Ibadan but the latter may have more impacts in the lives of many Nigerians. When it fixed the cassava mosaic disease, it saved the nation in 1987. Projecting what IITA does to be exciting, just as Google and Facebook are promoted by governments will create the balance Nigeria needs. You cannot make rock starts from the leaders of IT and neglect legends from IITA and you think kids are not watching.

Our nation needs to have a real conversation: one that shows that for all its flashes, IT is just a small part of the technology domain. It has a role, but it cannot be our only technology. We need to inspire our young people to be excited about other types of technology. That is the only way we can build a balance and enter the future with lesser disruption.