Cisco lived on a hangover for years. It wanted to sustain its highly lucrative hardware selling model into a world where “software is eating” everything. Under John Chambers, its former long-tenured CEO, the company kept the high-margin hardware party going for extended period even when the world had moved on. Mr. Chambers had a big challenge which caused the stasis: cannibalize a lucrative hardware business to participate in an emerging, and largely low-margin software one. He chose the hardware business and Cisco, over time, lost its bearing, running six quarters of declining sales.

Amazon had helped to unleash a double whammy through cloud computing for typical Cisco customers and commoditization of most server hardware. As that happened, the race trajectory was to the gross margin bottom: many companies like Facebook and Google were using off-the-shelf components to build their datacenters. Generic network equipment manufacturers like Taiwanese Quanta and Winstron brutally wounded Cisco business model with cheaper alternatives that did the work. Usually, after the generic builders have delivered, most of the companies use in-house networking software to put them to use. Over time, Cisco was totally cut-off with its premium (expensive) solutions.

Just like that, most datacenters do not rely on premium networking gears. From HP to IBM to Cisco, that transition affected many things: the cash-cow collapsed. Specifically for Cisco, it went into lost quarters where revenue declined. Mr. Chambers started to react, restructuring the business, but he was slow. Then Mr Chambers left.

Under a new leadership, a new strategy is evolving in Cisco. It is a total redesign for the pioneering networking gear company. Today, instead of focusing on the hardware element of the datacenter equipment for handling corporate networks, Cisco has gone into software. That was what it has resisted for years. It was a hangover just the same way Microsoft was slow to mobile to protect Windows. A transition from desktop to mobile was a threat to Windows and Microsoft wanted that not to happen or be delayed. Unfortunately to Microsoft, Apple and Google (through Android) did not get the memo: mobile happened without Microsoft. Cisco had the same issue: managing network was moving to software and it stood there protecting the margins on hardware.

The tech giant debuted software on … designed to make it easier for corporate customers to manage and monitor their networks. In addition to the new software, the company also introduced new data center switches with custom-made chips that are intended to make operating the software more efficient.

Customers that buy the new equipment must pay a subscription to access many of the new software features, marking a big departure for Cisco from its longtime business strategy. In the past, Cisco sold hardware that came with most services pre-installed and that customers had to pay for whether they wanted that software or not.

The new software by subscription underscores Cisco’s efforts to deal with declines in its legacy business of selling equipment for managing Internet and telecommunications networks. Businesses are increasingly buying computing resources on-demand from companies like Amazon and Microsoft instead of buying traditional data center hardware, which has hurt Cisco because of its dependence on selling data center gear.

Jumia, the Nigeria-based gigantic ecommerce company, has since consolidated most of its services. The new Jumia is now a leaner company and effectively more structured to grow in Africa compared to few years ago when it (i.e. the old African Internet Holding) had Kaymu and other businesses operating as separate entities. As Jumia grows and expands in Africa, it will take over new markets and territories.

I predict that by 2030, Jumia could become the largest retail bank in Africa, by total loan amount made to merchants. (It does not need to be a bank to make that happen.) I expect the 2020s to be the year of the ecommerce where many merchants will move online to sell their products. As they do that, companies like Jumia will hold more of their data. Holding the data will give Jumia better insights on what is happening in those businesses. And using the data, Jumia will make smarter loans to merchants at efficiency levels no traditional bank can match.

Yes, Jumia will be in a better position than most banks because it is seeing not just the transactions at the side of the merchants, but also at the side of the customers to those merchants. There is no data that will be greater than that.

The turning point for ecommerce will happen in 2022 in most parts of Africa because most of the challenges we face today would be dealt with.

In today’s videocast, I make a case that Africa will enter the era of affordable broadband internet in 2022. That will be the year we will begin a new dawn of immersive connectivity where you can eat and surf all you can. Industry players will take off the Internet meter and then focus on service, experience and quality. From satellite broadband vendors to the MNCs with balloons and drones, the sector will become very competitive and service will drive growth. This has happened in the past – every decade, Africa experiences a major industrial transformation. We saw that in banking and voice telephony. 2020s, starting at 2022, will be the decade of immersive connectivity.

Jumia Data Advantage

One of the key advantages for Jumia is that it is collecting massive data on customers and merchants as the industry develops. I do believe that the data it has and as ecommerce takes shape in Africa will give it a huge advantage over banks on merchant lending. I do believe that merchant online lending will be huge because of the potential usage-convenience over comparable products from traditional banks. Companies with data will win. Today, in most parts of sub-Saharan Africa, Jumia is ahead on merchant data, at granular level, not necessarily on the data volume. Banks have merchant customers but they see largely cash-anchored without necessarily knowing the customers. Jumia in its ecosystem sees those customers who are buying from the merchants. That gives it an advantage to structure loans more optimally.

Ecommerce is the future because at the end commerce will move online. These merchants will need capital to grow, and ecommerce entities like Jumia have the customers where merchants could sell. Banks like GTBank understand this trajectory and are building marketplaces. Yet, the scale pales to what Jumia and Yudala could offer. At the moment, no bank in Nigeria is better positioned than Jumia for this market of the future. We are talking of small business lending where alternative data is scarce. Jumia has built a brand. And as the ecommerce business picks up, I expect the merchant lending business to grow. Applying for this loan may simply be hitting a button on the merchant dashboard, and may not technically require completing any form, unlike a traditional bank lender, because Jumia has all the data it needs to make decisions.

All Together

A bank may be blind to the needs of merchants but ecommerce platforms understand the needs and challenges of their portal-partners.  Jumia will not need to ask the merchants to fill paper forms on revenue because they have that data. It may not also ask the merchants to list their customers because it knows all of them. And because Jumia understands the trajectory of the transactions, e.g. seasonal demand of the products, it would be best positioned to make smarter loans. With that deep understanding and capabilities, it could lead the merchant online lending by 2030 in Africa. It may not have to do this lending directly; it can package the data for banks to do the lending while it takes a cut. That way, it pushes the risks to others.

Yes, Jumia could take advantage of its great industry positioning in the continent to run a possible aggregation construct merchant lending. That will bring additional revenue from multiple bank partners as it take its commissions. To further reduce risk, Jumia could warehouse the products and ship directly to final customers.  The merchants will benefit and the customers could see lower prices due to economies of scale, made possible with funding.

The banking industry has since changed: companies like Jumia will play key roles in the future. Any bank that looks at lending competition purely from institutions with “banking licenses” will struggle. Amazon loaned $1 billion to its merchants last year, signifying that within a decade it may topple most U.S. banks in that category while recording near-zero default rate.

Merry Christmas and Happy New Year ahead!

Today, I discuss how Nollywood (the eponymous Nigeria’s movie industry) can improve revenue.  I do not really watch the movies because of time, but in my family, there are fans: the TV seems perpetually connected to YouTube for Nollywood. I used to follow in the days of Living in Bondage, Circle of Doom, and Glamour Girls before I lost track of the amalgam of new productions which are released daily. With new actors and actresses, Nigeria has got a great sector there. The people that pioneered this industry, creating new sources of employment, deserve our commendation.

Nollywood is an enigma. I had expected they would run out of money because of piracy. Yes, I am always astonished how the producers make money with so much piracy happening on YouTube, illegal shops and elsewhere. On music, Facebook is not far, hosting “personal contents” with clear instructions not to distribute. Yes, users distribute copyrighted movies and music with little consequences. But to blame Facebook and Google will miss the mark: the law is on their side. All they need to do is to remove the contents, after alerting them, if you think the hosted contents are copyrighted. The problem is that policing ecosystems with billions of users is a lost cause. You have no chance.

This is my suggestion for Nollywood producers: do not bother asking YouTube and Facebook to be removing the copyrighted movies and music. It is a waste of time especially when the producers do not have resources to hire people to police the piracy within these platforms. Rather, the Nollywood association should approach Facebook and Google with a proposal. That proposal should be for Google and Facebook to pay their producers for the rights to movies and songs uploaded by their users. In other words, as soon as the users upload the contents, the rights go to Facebook and Google thereby making the process non-illegal.

This arrangement has two benefits: the producers would not have to bother asking Facebook and YouTube to remove the contents and the tech companies will not have to deal with legal challenges that may result for hosting digital wares they do not have rights to use. Of course, the more money for Nollywood is not bad.

While Facebook and Google may not initially like this plan, I am very sure if the association explains their challenges, the technology companies will listen. The key is making it clear to Facebook and Google that Nollywood can provide great contents in their ecosystems in the right way. That will be a win-win as the tech firms would improve user experiences even as the producers have more resources to make better movies.

For Nollywood to move to Nollywood 2.0 with better funded movies, they will have to deal with the revenue side of the business. Having a clear roadmap on how to deal with Facebook and YouTube will be fundamental to that future. Despite nearly 27 years of making movies, the improvement on movie quality has been largely incremental. Nollywood has to change that and advance faster.

ICT provided productivity gains across different industrial sectors in Africa as governments and firms adopted technology to modernize their processes few decades ago. That adoption provided the platforms for new basis of competition as ICT cushioned efficiency in customer service and superior product offering, giving the early adopters opportunities to win market shares.  In banking, for example, new banking institutions used technology to compete against the older dominant ones, and in the process redesigned Africa’s banking landscape.

Without IT, we would not have GTBank, Zenith Bank, Diamond Bank and the other new generation banks in Nigeria. These institutions used technology to improve service and in the process brought new customers in the sector. Who needs a mat to his bank, as legendary Lomaji Ugorji would say in an Equatorial Trust Bank advertisement? You do not need one because from 6 hours, the new banks gave us 30 minutes for most transactions. And today, we need only 4 seconds for some of the same transactions via our mobile devices. IT has advanced industries, and the world is better through the productivity gains it unleashed, enabling improved human welfare globally.

I have written extensively on the need for the Nigerian insurance industry to use technology to redesign the industry. Everyone knows that technology brings productivity gains and our banks have done great works in the use of technology to redesign their businesses. People used to complain about our banks with the legendary comedian Lomaji Ugorji taking a sleeping mat to a shadow bank, just to illustrate how long it could take to get cash. The bank he was advertising for, now defunct, unfortunately, could allow you to get out within an hour. We have made real progress in that sector. Today, the queue is practically zero second as you do not need to wait for anyone on your mobile app to bank.

But with the advent of the Internet, many things are changing, owing to the unbounded and unconstrained nature of the web. The companies that relied on ICT to change their sectors are also now vulnerable. Indeed, ICT brought huge productivity gains, Internet is delivering disruption at scale.

The implication is that the way we run Internet companies must be different from the way we ran businesses pre-Internet and when ICT was the vehicle for productivity gain. There are key things to note:

First, nothing is more important in a startup than having the capacity to acquire new customers, easily. A startup must grow because without growth, the alternative is bankruptcy. So, over the last few years, we have seen companies introduce new roles like Head of Growth, and Vice President of Growth. In a network effect business, the most important product is “many users” because the more the users, the more useful the product becomes. That is the positive continuum that delivers a virtuoso circle.

But knowing that growth is important is certainly obvious, for every founder. The challenge is executing the growth strategy. Companies like Google and Facebook which can acquire customers at ease, even at low or zero costs, have huge scalable advantages. It means they can scale without much burdens, financially. When a startup has a huge scalable advantage, it becomes very exciting to investors. Also, its valuation moves up because the path to huge returns is very clear. Such companies have defined trajectories for success because there is nothing that is more impactful in a digital business than growing customers, at scale, and then doing so easily at low cost.

As a digital entrepreneur, the path to glory is lower marginal cost as that drives scalability. I have listed key frameworks which make that happen.

Few months ago, I predicted that Uber and Lyft would eventually merge. My point is that most of these category-kings, after destroying value, pivot to eke out something at the end by combining. They need to because very soon both Uber and Lyft will have to battle a new enemy: Didi Chuxing, the China-based ride-sharing startup.

In this piece, I explain why Uber and Lyft will merge. The trajectories both are following show that they will have challenges with Lyft gaining on Uber, but the overall industry cooling. As soon as that happens, their margins, if they have any, will collapse. Once that happens, they will begin to talk of merger, with each other. Government will see their struggles, and will dismiss any anti-trust concern gone. The result: it will bless their union. Uber is today’s Category-King, but its  past behaviors have slowed it down, offering a window for Lyft to catch-up. As they become peer-competitors and rivalries, they will destroy the sector. I do see many close rivalry typical of others that ended together: Elance/Odesk (now UpWork),  Groupon / LivingSocial,  Sirius / XM and  Rover / DogVacay. Please add DraftKings and FanDuel in the list; I predict they will merge also despite any FCC ruling, at the moment. They will struggle, owing to wounds they inflict on each other, in coming years, and will be saved via merger.

Didi Chuxing defeated Uber in China, and absorbed Uber’s Chinese assets. The company just raised $4 billion to pursue a global expansion. That brings the year total to $10 billion. The company is now worth $56 billion, only behind Uber (2016; $68 billion) or ahead if you use the Softbank-led latest round (2017, $50 billion), in the most valued private technology startup category.

Didi Chuxing, the Chinese ride-hailing app that is Uber’s biggest rival overseas, has raised another $4 billion to aid its international expansion. Softbank and Mubadala Capital, a state fund of Abu Dhabi, both participated. Didi said it would use the cash to buy a fleet of 1 million new-energy vehicles (NEV) and the expansion of charging infrastructure

With this money, Didi Chuxing wants to move into Brazil, Latin America’s largest economy. It plans to take majority stake in 99, a leading ride-sharing startup that operates from Brazil. Didi plans to start operations in Mexico in 2018.It already controls the Southeast Asian market through Grab where with Softbank it invested $2 billion. Grab leads the Southeast Asian ride-sharing market. With 99 and Grab, Didi is holding two important regions. India’s Ola, which is the leading startup there, in the sector, has Didi and Softbank as leading investors. (Softbank is a Uber investor, so it will win irrespective of who survives.)

Interestingly, Didi has given up in U.S. (it has shut down its U.S. app), pushing its customers to choose Lyft to make life harder for Uber. Yes, Didi wants a stronger Lyft to weaken Uber at home and distract its global expansions. With multiple legal issues before Uber to deal with, Didi is expected to gain more grounds internationally. Lyft is gaining grounds on Uber already in U.S. Of course, Uber can manage the amalgam of bad press and distractions to evolve under its new leadership.

As Didi raises this unbelievable amount of money and Uber struggles globally and locally, even as Lyft remains largely a U.S. business, both Uber and Lyft may decide to combine. If they combine, Uber will be saved the trouble of fighting for its position at home (U.S.) and can then focus to challenge Didi internationally. On that premise, I believe that Uber and Lyft will merge to handle the challenges coming from Didi.