How Nigeria’s Next Generation Moguls Will Win

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November 3, 2018

In the past, moguls built business empires by controlling Supply. By controlling supply, they were able to move the price equilibrium points to their advantages. Demand (the users) just went along. So, in the grand scheme of competition, rivalries evolved out of the needs to control Supply. If you control the supply of rice into Nigeria, you would make tons of money, as you can fix the price. If you control the supply of cement, the same happens. That same applied across markets and industrial sectors, from banking to real estate.

Today, in the digitizing internet world, the game plan is to control Demand (not Supply). It is assumed that Supply is already unlimited and there is no need to build capabilities to control it. If you want to control Supply, you would break in the Internet because you are absolutely going to fail. Yes, how could you control supply of all news posted on the web, from Twitter to Punch to Facebook? You have no chance – only aggregators are positioned for such.

Airbnb controls Demand

Uber controls demand

But in that web economy, there is a smarter strategy: control Demand. Simply, in a market that is unbounded by distribution mechanism and unconstrained by geography, the only remaining opportunity is controlling how all the supplies reach Demand (the users).

Magically, companies like Facebook, Twitter and Google focus on just that. They provide platforms that control Demand leaving the unlimited suppliers to provide the goods. Yes, you have the news (the contents), but if Google does not help to deliver them to the readers, you are in trouble. When Facebook revoked access to some websites after the debacle of Cambridge Analytica, many went bankrupt in days. Those firms had supply but they have been cut-off from Demand.

Facebook is going through a redesign with its privacy policy and strategy. The social media giant has started to significantly limit data access to Facebook’s Events, Groups and Pages APIs. It has also shut down part of the Instagram API. This is expected as the company battles scandals with the mess it found itself with the Cambridge Analytica related privacy violations.

Now, you can see why that your old book may not be helping your strategy as what worked in the industrial age economy might crash in the web economy. Sure, you can call Facebook and Google the modern supplies. But you must know they have no factories to produce the items you consume on their platforms. Google depends on all open global sites in the world to do that “supply”; Facebook feeds on stuffs we post. So, it is clearly not the type of supplies which used to break banks to execute. If you can “supply” their types of supplies, you are in control of Demand!

Comments on LinkedIn on this Topic

In this era of abundance on the supply side, the game has shifted to demand, turning entities with capabilities to control demands into the newest emperors. The digital supply chain even supports this model, where your superiority and differentiation is on your ability to stimulate demand, and also going ahead to decide who gets what.

It’s a radical shift, because for centuries, many things have been rigged from the supply side: just create artificial scarcity, and suddenly – more billions in your bank account! Times have changed, inventories are managed better, with less losses, meaning that you can technically stimulate demand, control the levers, without having ‘leftovers’ anyway.

With the way many things have been democratized, aided greatly by internet and web, tearing geographic boundaries along the way; households are turning themselves into mini factories, schools, markets, consulting firms, etc, without needing to break banks just to manage assets.

Human capital remains the most valuable asset in this knowledge economy, everything else is just a supporting cast.

This is the greatest time to be alive, if you are not living now; I am sorry!

Apple Goes Services

By

Ndubuisi Ekekwe

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November 2, 2018

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Apple reported a healthy 20% gain in revenue to almost $63 billion. Compared to Q3 in 2017, that was $10 billion growth. It did that growth by deepening cash-generating services and other things (think of Google paying fees to be default search engine in Apple products) while also getting more dollars per hardware (iPhone, iPad, Mac, etc) sold. The great numbers came despite largely no major growth in the number of iPhones sold when compared to last year. Of course, for Apple, that was not really important as the price of iPhone had jumped from $618 to $793 on average.Yes, it makes more money per unit.

Apple’s revenue rose 20% to $62.9 billion while net income came in at $2.91 a share. Both surpassed analyst estimates, which is often good news for investors. This time, however, the focus was put on Apple’s outlook, amid broader concerns that economic growth may slow down in coming quarters.

Largely, the company could continue to make more money even when it is selling lesser number of phones. From what is happening, I can see two things:

The high cost of Apple hardware is pushing many people to extend the useful lives of their devices. Had it been cheaper, users might have upgraded.
By Apple continuously jacking up the prices of its devices for better margins, it is making it harder to get new cohorts of buyers into the ecosystem.

On average, these trends are negative for Apple: anything that declines the absolute number of iPhone sold is bad because even the services which are supporting higher revenue cannot grow without more people using iPhones since Apple services are exclusive to the hardware. Markets did not like the trajectory; Apple stock went down by 6.63%.

Apple stock value

Apple Withdraws

Apple plans to avoid reporting the number of its devices sold per quarter. No company does that when in the position of strength. Yes, Apple knows that it can extract more money per device even when selling lesser number of devices. Yet, not disclosing how many iPhones, iPads, etc it is selling does not make it look better.

[Apple] will stop disclosing how many iPhones, iPads, and Mac computers it sells every quarter. Thus, analysts will no longer be able to see trends in iPhone unit sales, calculate average selling prices, or discern other key trends.

[…]

Looking for more reasons why Apple will stop reporting iPhone sales? Third quarter global smartphone shipments decreased 6%, the fourth quarter in a row of shrinkage, Strategy Analytics reports. “The global smartphone market has now declined for four consecutive quarters and is effectively in a recession,” said Strategy Analytics director Linda Sui. Rival market forecasters at Counterpoint Research predicted yesterday that 2018 will be the first calendar year ever of smartphone sales declines.

(Fortune newsletter)

All Together

Apple will be fine and investors will align. Simply, the company is making it clear that its future is going to include services. So, if you hold Apple stocks because of iPhones and iPads, you may have to reconsider. By dropping the disclosure, Apple wants investors to focus on its revenue bottomline and not the number of devices sold. As far as the company is concerned, if it can grow revenue through payment, apps, licensing, etc, investors should not overly care what is happening on hardware as the company transmutes into making services a key part of its future. Simply, Apple has gone Services.

LinkedIn Comment on this Feed

Apple has officially become a profit making machine: if units sales aren’t increasing, prices can as well go up, and the money keeps coming…

We live in a time where a mere ‘beautiful’ announcement from company’s CEO could add $50 billions to its stock value in one day, and when you misspoke – as high as $100 billion could be wiped off within 24 hours.

Interestingly, Apple is trying to shift the goalpost, something Elon Musk must be happy to hear. Some CEOs have complained about quarterly earnings reporting, on how it does not allow them to pursue long term strategic goals. Of course you hear these ‘complaints’ only when the forecasts are no longer favourable, so smart guys go ahead to change the narrative.

Apple is always smart, now it’s reengineering how it wants both analysts and investors to view its performances, no longer from the lens of hardware units sold; you can call it perception innovation, Apple is king at that…

Lagos Housing Market Size

By

Ibrahim Moronkeji

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November 2, 2018

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Lagos has 22 million population with 3.8m Lagos households earning more than $5,000 per annum. Lagos has 3.9 million households that earn more than US$5,000 or N1.83 million per annum, according to a report by the Economist Intelligence Unit (EIU). This comes to an average of N152,500 a month. The number of households that earn above $5,000 per annum is projected to rise by 96.4 percent to 6.9 million in 2030.

Around one-third of 3.8m household in Lagos represent roughly the upper and upper-middle household income of about 1.2m household, the latter ( remaining 2.6m population) are mostly resided on the Lagos Mainland Market mainly within central locations that have close proximity to link roads and bridges leading to other locations particularly the Central Business District (CBD) of Ikeja GRA, Maryland, Anthony Village, Ilupeju Gbagada, Ogudu GRA, Magodo GRA, Omole, Yaba, Surulere while the former are resided in Ikoyi, Victoria Island/Lekki Phase 1 respectively. These household segments have the interest and purchasing power that is required to acquire both upscale and medium-priced real estates.

Generally, asking rents for 3bedroom multiple family units on the Mainland ranges between N 1,200,000.00 and above while on the Island its ranges between a 1.8m, 10m and above per annum, according RAC Nigeria.

Insights & Analytics

Defining Household Income today, comes with a lot of disparities and school of thought as revealed in a number of report from the renaissance capital/TNS, Africa Development Bank and Economic Intelligence Unit. Social strata that exists in Nigeria has its own peculiarity for instance some quarters have classified middle income class as those that earns average monthly income of NGN75,000-100,000 ($480- 645, or roughly $6,000-7,000 pa) while others put it 152,000 and above.
Upper & Upper-Middle Household Income are the most heterogeneous as compared with Middle & Lower class, Upper/Middle includes entrepreneurs of different class like the Small but growing businesses SBGB owners, Senior Managers & E-Class Executives, Directors/Founders, top politicians and heads of MDA’s.
Arguably Nigeria boasts of over 50 blue-chip firms operating in Lagos. These set of firms operate a globally competitive payroll, middle managers take-home ranges between N500,000 and N1.2m. The combination of these blue-chip firms employs at least 35% of (the 1.2m population that belongs to the upper & upper-middle household numbers that form part of the 3.8m household in Lagos) a workforce population that works daily in Lagos, which is put at over 420,000 workforces. The remaining population in this bracket 75% of (1.2m) people falls either within a self-employment, entrepreneur. Small but growing business owners, captain of industries/serial entrepreneur, facilities & equipment vendors, Suppliers/Import & Exporters at different bulk market like Alaba Int’l, Int’l Trade Fair, Ladipo Market etc, independent oil & gas marketers, Independent building contractors & Real Estate Expert, Architect and Engineers, Industrial Farmers, Manufacturers or Craftsman and woman that makes a least of N10m total revenue quarterly.
Other narrative that can reflect the household distribution in Nigeria is the shopping pattern and disposal income, the likes internet service and/or cable TV access. Cable TV, Car model & class, Social Affinity and Spending/Investment Orientation are all differentiators. There is a strong relationship between Household income and Internet & Cable TV access level, in Nigeria, DSTV has the largest market share in the Pay TV space with subscription ranging from N1000, 5400, 1600, 4000, 6800 up to N15,800, meanwhile the premium bouquet of 15,800 a month, is a bouquet mostly subscribed by the upper household income and a share of the upper-middle household, these population are resided within Ikoyi, Lekki phase 1, Omole, Gbagada, Magodo, Yaba, Surulere and GRA Ikeja, including Northern part of the country in Abuja, Kaduna and Kano. This is an indication that there is a high number of Upper and upper middle house income that resides in these areas.

Consumer pattern in figure 1 below revealed how the Middle House Income spend their disposal income on healthcare, ICT, Education, Water Utility, Transport, Clothing & Footwear, Food & Beverage, ICT, Clothing & Footwear, Health, Personal Care, Transport, Financial Service, Education, Energy, Others and Housing. Housing is third after Food & Beverage and Health at 14.7%, 35.6% and 20.3% respectively. Thus, real estate/housing is taking a large churn of the household income within upper and middle-income household annual spending and plans.

A high number of upper middle household live in leased/rented accommodation (68%) with an average household size of 3.7 people. The average number of children in each household is 1.6 (excluding those away at school) vs a national average that is closer to 3; larger families are more common in rural areas. Nearly half of the upper-middle have no immediate plan to move to a new house, 18% are planning to move to a newly completed self-owned apartment, others have desire to own a house or property but do not have plans or don’t really have know-how to go about this and those who have seen or heard about a number of real estate plans have not yet made a final buying decision.
The average number of cars per upper-middle-class household is 1.9 (around one third of upper-middle-class Nigerians have a car that is less than five years old); 60% upper-middle of homes have two cars. Car ownership remains a social symbol and prestige, among this class.

Nigerian Upper household invest largely in estates/assets, Oil & Gas, Equity/Share/Bond, Manufacturing, International Trading and/with future re-investment plans while the upper-middle class have a good saving culture, they care little about the deposit rate and don’t expects to borrow from a bank. If they had the funds, they would rather invest in land/or completed property than shares or bonds. Most do not have mortgages (which represent approximately 1% of GDP) or credit cards, though many expect to apply for the latter.

Note:

Strategic marketing and positioning of real estate investment that is targeted at the upper and upper-middle household in Lagos, requires both online & offline location-marketing effort. This would eliminate waste in circulation and afford accurate visibility for prospective brands proactively. E.g a Facebook, twitter, Search Engine and Truecaller ads should be narrowed into all aforementioned location where this household are concentrated.

In 2017, only 26% of people used the services of a real estate agent. This year, the number will reduce further because of the growing (number of digital native young successful captains of industries, senior executives with top blue-chip firms and entrepreneur) population. They are tech savvy, urban and conduct their own research before making a rent or real estate investment decision.

Social affinity and extra-curricular places, that falls in these locations can also afford networking or where need be destination/hotspot co-branding for prospective realty brands. This are places people in this upper-class bracket as descried above, have good footfall and are frequently visiting with their friends and family at their leisure time. E.g. Strategic fuelling station or Hospitality place.
This household class are frequent users of mobile taxes such as Uber, Taxify & OgaTaxi etc within and out of the locations mentioned above, during the 5 working days and weekends, an alliance that affords an experiential marketing with this modern taxi operator can be a sales Growth trajectory.

Ad agencies designing the copies and motion pictures for realty products in this segment may need be sure of the most effective channel and social language to use by looking deeper into the above insights and understanding the pain points and concerns of this segment, and their behavioural patterns continuously to keep building the brand that whets their appetite. This segment of household are well learned people and rarely make impulse decisions on real estates, rather an informed or referral and thought led decisions.

Videos that depicts past similar projects success, testimony and learning or cases videos that lead a prospect to take-action, can also deliver an effective marketing and sales Growth using the Big 3 digital channels for realty brands (FB, LinkedIn and YouTube).

Organization of Seminars or attending high-level seminars in town, seminars and corporate event are usual spot, where this Household segments find themselves attending this kind of gathering at least once or twice in a quarter. This serves as a Consumer Touch point for realty brand to network and touch prospects with their products and promises, the population that fall into this space have strong believe for Seminars and workshop, so there is high possibility of closing deals and networking further at this venue.

E-mail newsletter is a powerful instrument to establish and maintain a long-term relationship with this type of audience. To achieve this, one need to collect emails from website visits and also genuine corporate email vendors or strategic partner, although one need ensure what is been send falls into their concerns/pain point not just direct marketing designs or contents. Like sending them information on a new property on the market and tips that help them make better decisions.

Blockchain Banking in Nigeria; Paystack’s N10 Billion Milestone

By

Ndubuisi Ekekwe

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November 2, 2018

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It seems it is (nearly) here – Interswitch with Microsoft is unveiling blockchain banking in Nigeria. And three key banks (GTBank, UBA and Zenith Bank) and the alpha conglomerate (Dangote) are part of the party. Sure, they did not mention banking; it remains a blockchain service. But when you have the leading banks supporting the initiative, it is safe to extrapolate that banking would be part of the applications.

According to CNBC Africa, the focus at the moment is improving processes for supply chain. But I promise you that it would move from supply chain to payment and more. When you provide a service for trade services and financing, you are supporting one of the most critical elements in banking. Over time, there would be more integration and just like that, we would have blockchain banking in Nigeria. (Personally, it will not do much as the challenges we face in Nigerian banking cannot be fixed by technology alone. So, whether blockchain or not, for a very long time, it is going to be all the same.) Certainly, Interswitch has gotten over its hangover and innovating at scale.

Interswitch is exploring a blockchain-based supply chain financing service in partnership with Microsoft Azure that aims to digitise the process between corporates and banks when providing trade financing to entrepreneurs and business owners in the Supply Chain sector. Akeem Lawal, Divisional Chief Executive Officer, Payment Processing at Interswitch, joins CNBC Africa for more insight on this platform.

It surely needs to do that because companies like Paystack are coming: the startup just hit $28 million monthly transaction volume in Nigeria.

In mid-2017, we shared that for the first time, customers were using Paystack to pay over N1 billion in monthly transaction value to Paystack merchants. …

A year and three months later, we’re thrilled to announce that we’ve hit our next transaction milestone: customers are now using Paystack to pay over N10 billion naira (~$27.5 million) to Nigerian merchants, every month.

Why Amazon is Google’s Main Competitor

By

Ndubuisi Ekekwe

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November 1, 2018

0

Thanks for the great comments and questions on the piece on the future of advertising business. I wish I can share my slide but that will not happen, unfortunately. To help understand my thesis, on ad business, one has to look at tangential competitors and not just the typical industrial peers.

Yes, I had explained that the biggest competitor to Google is Amazon and not Facebook, Twitter or Baidu (as most posit). Why? Google makes most of its money from digital advertising and the industry that dominates digital advertising is retail. Today, Amazon controls about 49% of that market (ecommerce sales). So, as Amazon expands, natural ad customers to Google would struggle and that would imply deteriorating revenue, for Google, from that category. For every Sears that dies because of Amazon’s competition, Google loses (potential) revenue to Amazon. For Google to thrive, it has to find ways to slow Amazon in that trajectory.

The timeline presents U.S. retail industry advertising spending from 2010 to 2019. The source projected that the spending would amount to 23.5 billion U.S. dollars in 2018 and further grow to exceed 23 billion in 2019. Retail is the industry with largest digital ad spend in the U.S., followed by automotive and financial services. Across industries, digital ad spending is going to amount to nearly 83 billion U.S. dollars in 2017 and 113.2 billion in 2020.

Amazon controls 49% of U.S. ecommerce sales (source: TechCrunch)

Amazon is really a very formidable company as it remains one of the few companies in the world with a product where all stacks and elements are controlled by one firm. I have recognized Amazon Echo as the zenith of all products as from browser, OS, computing device, retail shop, etc, Amazon controls all to the doorstep of the customer. Yes, Amazon does not share any level of stack with any other entity; all is in-house and under its care. If that product scales, every other technology firm is imperiled. (Microsoft makes OS and browser but it needs Dell and HP for the computers; Facebook needs browsers and OS; Google needs a retail platform despite all investments in many areas. But Amazon Echo needs no other entity to the doorstep of customers!)

Amazon runs ads for merchants in its platform

Besides, Amazon has built one of the best retail advertising businesses in the world where it is now collecting billions of dollars yearly from merchants. Google gives you web visits; Amazon delivers sales because advertising on Amazon means you are reaching people already in the mode to BUY unlike Google where ads are shown to people not in shopping mood (think of showing toothpaste ads to a student researching on chemicals in toothpastes). Largely, on Amazon, the chance is that searching toothpaste has a higher chance the person wants to buy one. So, merchants see more sales conversions for ad money spent on Amazon search. That is a huge challenge for Google.

Facebook has walled off the partying and events communities, and if Amazon takes care of the merchandise, I do not know what will remain for Google. Yes, we put adverts for two major things: events and products. If Google becomes a second-platform for both, there is a problem for Larry Page and his lieutenants in Alphabet, the parent to Google.

This may explain why Google is not showing friendly handshake to Amazon these days. Amazon is not just attacking Google, it is going to the heart of its business which is advertisement. As Sun Tzu put it in The Art of War: you must defend your flanks to win. Indeed, Google has a war to fight.

All Together

Industry competition will continue to evolve. In ten years, how many merchants will spend money for TV when they can put that money in Jumia and Konga to reach customers more efficiently? There would be massive shifts; to thrive, companies must adapt. Yes, Microsoft made about $1.7 billion from Bing, its search engine, last year. But Google will likely pay Apple $9 billion this year (to expand to $12 billion later) to have Google as the default search engine in Apple products. Yet, Apple has no search business but making multiples ahead of what Microsoft makes. For Google to pay that to own that space on Apple products is a testament on the tenacious nature of modern ad business: no one is safe!

LinkedIn Summary of this Piece

Great comments and questions on the piece on advertising business evolution. To help understand my thesis, on ad business, one has to look at tangential competitors and not just the typical industrial peers.

Yes, I had explained that the biggest competitor to Google is Amazon and not Facebook, Twitter or Baidu (as most posit). Why? Google makes most of its money from digital advertising and the industry that dominates digital advertising is retail. Today, Amazon controls about 49% of that market (ecommerce sales).

So, as Amazon expands, natural ad customers to Google would struggle and that would imply deteriorating revenue, for Google, from that category. For every Sears that dies because of Amazon’s competition, Google loses (potential) revenue to Amazon. For Google to thrive, it has to find ways to slow Amazon in that trajectory.

Besides, Amazon has the best search, created and engineered for buying things. Google gives you web visits; Amazon delivers sales because advertising on Amazon means you are reaching people already in the mode to BUY unlike in Google where a researcher (not in shopping spirit) may see ads . Plus, the Amazon Echo, the first end-to-end stack product, ever, by one firm!