Politics drives business, and I am tempted to comment on the recent return of the former Vice President of Nigeria, Mr. Atiku Abubakar, to PDP (Peoples Democratic Party), from the ruling All Progressives Congress (APC).

The Deputy Senate President, Ike Ekweremadu, has expressed happiness over the return of a former vice president, Atiku Abubakar, to the People’s Democratic Party, PDP. He described his action as a welcome development not only for the party, but also for the nation’s democracy.

Mr. Ekweremadu said this in a statement signed by his Special Adviser on Media, Uche Anichukwu.

The lawmaker said the move represented a massive vote of no confidence in the leadership capacity of the ruling All Progressives Congress, APC, first, by the masses, and now by the “cream of its hierarchy and founding members.”

“Nigeria is in dire need of a rescue mission to rekindle hope in our democracy, restore her on the path of prosperity, and halt the worsening divisiveness that threatens our corporate existence,” he said.

It is very evident that the Presidency will remain in the north come 2019, and then move South from 2023. Atiku’s last chance to taste the presidency will be 2019. He has something to prove to his former boss, former President Olusegun Obasanjo. With President Buhari there, there is no vacancy in the APC presidential platform. So, the only option for Atiku was the move to PDP.

I expect Atiku to be the flag bearer for PDP presidential ticket unless PDP orchestrates a big party meager with new heavyweights.

No credible PDP (presidential) contestant will come from the Southwest (had its turn), South South (too soon) and South East (waiting for 2023), so PDP is likely going to field someone from the Northern part of the country.

Politics of Ideas

I like the fact that Atiku will be running. My liking that Atiku is running is to push APC to do more for Nigerians. Without a strong contender in the North, Buhari will walk into the second term without any serious effort. Atiku is already hitting APC on economy, employment and development, and APC has been challenged to respond. Let me say this: APC, going forward, will be putting more efforts especially in North East where the citizens need help.

There are few politicians that can say what Atiku is saying in Nigeria, without the fear of one government agency opening a corruption dossier against him or her. That Atiku has joined the fray will bring more contacts sports, and that will be good for our democracy.

With only marginal reforms, APC has not done much in Nigeria. I know it is still early to judge them, but they put themselves in the position when they claimed that they could magically solve key Nigerian challenges. The more conversations and debates on the Nigerian democracy, the better. As Atiku returns, Nigeria will have many debates on national issues.

Educational Sector

The non-teaching staff of our public universities will begin strike today. This has been a cyclical event: once the teaching staff finish and get their goodies, the non-teaching staff resume. For decades, this movie has been playing. It is very unfortunate.

The non-teaching staff of Nigerian universities will commence an indefinite strike today in public universities. The staff have also provided reasons for resuming their suspended strike.

The staff, members of three unions, NASU, SSANU, and NAAT, announced the commencement of the strike last Thursday in a press statement signed by the national presidents of the three unions.

Largely, you cannot blame the non-teaching staff for asking for their promised benefits. The problem remains with the government which keeps opening new universities even when it does not have funds to support them. Of course, the same professors and administrators who go on strikes support opening more schools as such provides new opportunities to become vice chancellors, registrars, etc. But what happens is that as soon as the tapes are cut, crises begin because funds are not available to run the schools. We need reform in our university system.

All Together

I am hoping that Atiku’s return to PDP will open up intellectual policy debate in the Nigerian parliament. We have not seen anything like that. Possibly, Atiku could push his new party to bring energies to see how we can deal with many policy issues in the nation. One area I expect them to focus is the educational sector. If our universities continue to strike as they do, we will not be positioned to deal with the realignment of labour which is happening as artificial intelligence and emerging technology redesign the global commerce and industry.

Automation could destroy as many as 73 million U.S. jobs by 2030, but economic growth, rising productivity and other forces could more than offset the losses, according to a new report by McKinsey Global Institute.

“The dire predictions that robots are going to take our jobs are overstated,” says Susan Lund, the group’s director of research and co-author of the study. “There will be enough jobs for everyone in most sectors.”

Yet maintaining full employment will require a huge overhaul of the economy and labor market that rivals or exceeds the nation’s massive shifts from agriculture- and manufacturing-dominated societies over the past 165 years, the report says.

Nigerian schools must be supported to help drive Nigeria to avoid this massive labour dislocation. Mr Atiku, as he returns to PDP, could help push for reforms in the educational sector through his PDP compatriots. This reform is not just about more funding, but a fundamental structural change that will make education more relevant to the needs of the markets, even as Nigerian schools are pushed to look for alternative means of funding. I have put forward how new changes in our tax system could open private funding into our public schools. PDP has not provided bold new ideas in the last two years. Possibly, Atiku with his ambition could get his new party to begin to offer ideas. APC will then be forced to respond. That is what will make Nigerian democracy better, and eliminate the cyclical strikes we see in our university system.

Network effect is “a phenomenon whereby a product or service gains additional value as more people use it”. That is the elemental construct that drives great platforms like Facebook, LinkedIn, and Twitter: if your friends and families are in Facebook, the more valuable it will be to you. Indeed, the population of the users is the most important feature in the platforms, far ahead of any tool. That explains why cloning a product that mirrors Facebook, but without the users, does not offer any value.

The network effect is a phenomenon where increased numbers of people or participants improves the value of a good or service. The internet is a good example. Initially, there were few users of the internet, and it was of relatively little value to anyone outside of the military and a few research scientists. As more users gained access to the internet, adding more content, information, and services, however, there were more and more websites to visit and more people to communicate with. The internet became extremely valuable to its users.

Types of Platforms

I identify two types of platforms based on the relationships among consumers, advertisers, and publishers/producers. They include the following:

• Platform, Unbounded by Geography: In this type of platform, the relationship between the consumers and the producer is not bounded by any geography. This means that as the product scales, there is no inherent limitation on the physical availability of users and producers. Facebook belongs to this group. Its scalability is not affected by the physical location of its users (the consumers) and the producers (the users, also). Also, the advertisers can be from any location. Nothing is bounded by physical geography. This type of platform is very difficult to challenge in local markets as they have moats which no local company can exploit. (Let me call this Category 1).
• Platform, Bounded by Geography: In this type of platform, there is network effect, but the relationship between the producer and the consumer is bounded by geography. There is a limitation on how the platform can scale as it has to deal with the physical-induced marginal cost, and other issues. Uber, the ride-hailing app, is a good example. Also, AirBnB is another example. Uber depends on the availability of riders and drivers to have a business in any city. That is why Uber goes to big cities when it comes to any country (contrast that with Facebook which does not care about your location, to a great extent). Uber wants to have supply of riders and also drivers. You find the mix easily in big cities. The same applies to AirBnB which also needs to have available apartments for its renters. So, that city must have landlords even as it provides a good source of potential renters. That is why AirBnB looks at big cities as it moves into Africa. (Let me call this Category 2).

Local Competition Impacts

The Category 1 platforms are very difficult to challenge locally because they have moats which are not limited by geography. There is nothing a local company can do locally to have an advantage over them. So, most times, you do not have any local competitor to them as everyone has moved to the main (global) platforms.

But Category 2 platforms are very vulnerable. They can be easily dislocalized by geography. In other words, you can have many ride-hailing companies in Africa even when you have no one competing against LinkedIn and Facebook. So, in Kenya, we have Little Cab and in Nigeria, Taxify is challenging Uber. Across the Asian world, Uber has many competitors. It gave up in China when it sold its assets to Didi Chuxing.

Simply, Uber is vulnerable to competition because its business has bounded participants defined by geography. That reduces its scalable advantage to a little below one, even though it is asset-light. On the other hand, Facebook has little to worry when it comes to geography, pushing its scalable advantage to 1 as I noted in the video below.

Any startup needs to model its scalable advantage (SA) to ascertain its capacity to scale and win in the market place. There are many factors which determine a company’s scalable advantage. Some are external like regulation, industry of operation and size of the market. Others are internal and they include marginal cost, supply pipeline, among others. In this video, I explain how to model that advantage by looking at the core transaction frictions between selling and buying. The more the business eliminates the friction, the more scalable it becomes.

Two-Sided Dislocalization

As noted for Category 2, the business has impacts associated with geography.  They have two sides: Uber with the riders and the drivers; AirBnB with the landlords and the renters. There are many other examples in this category: China’s Mobike, a motorcycle sharing startup is a good example. Even Etsy, the handcrafting retailer qualifies. There are many elements associated with geography, in these firms, either access to the network or the logistics for distribution. I will use Uber and AirBnB as they are more popular in Africa.

To compete against Uber and AirBnB, a local entrepreneur can build a better product because the global network effect of Uber and AirBnB while partially relevant is not absolutely dominating, locally.  Uber can have millions of riders in Europe and US but it has none in my village. So, if I go to Ovim (Abia State) and start one, I will be the leader in that locality. Sure, Uber has the brand equity which is huge, but the very fact that it has no driver, I am on top in my village. (That depends if there is a business for that in the village, I hope you get the point.) For AirBnB, where it has no listing, it does not exist and any entrepreneur can build a business therein.

All Together

In summary, dislocalization of network effect, i.e. making the localized network effect of global platforms irrelevant, is the way local companies can win. But you need to understand the type of platforms you can technically have any advantage to use local knowledge and expertise to win. There will always be many Ubers around the world, but we will not have many Facebooks.

Uber can lose drivers and riders easily to local competitors because its demand and supply pool are all localized. Unlike AirBnB which has a local supply but globalized demand, challenging AirBnB may be more difficult. Why? You can book your AirBnB short stay, in any city, from any location on earth, while you can only order Uber rider when you are local (i.e. where you need to be picked-up).

That means that Uber demand (i.e. riders) is bounded locally by geography making it easier to compete against Uber, unlike AirBnB which has a global platform that makes it easier for renters, who may not be local, to book. (Africa has many Uber competitors like Taxify, Little Cab etc while AirBnB has few. Sure, AirBnB itself is not even doing well.) That asymmetry in demand access makes a challenge against AirBnB to be tougher while Uber is a fair game. Indeed, the dislocalization of Uber is possible unlike AirBnB.

As I was flying across the Atlantic, from South Africa back to U.S., Konga fired 60% of its workforce. November 30, 2017 would be remembered as the day of the Big Pivot in the Nigeria’s ecommerce sector. It was a day that Konga provided a new vision which current and future ecommerce entrepreneurs could examine. Yes, Konga is killing Pay-on-Delivery, a wasteful feature that adds nothing but cost. Going forward, Konga will be “prepay only”, a feature which has worked in Nigeria, for generations. In our trust-challenged society, lacking credit system, people prepay for services. Every industry has adopted the prepay only, from buying food to paying for phone services  The sectors which are not using prepay are usually the ones that struggle: think of electricity distribution companies (Discos) and water boards. Of course, the Discos have an advantage in that they can estimate your bills, irrespective of usage, and earn income for services not rendered (a topic for another day).

Konga, one of Nigeria’s biggest e-commerce players, has sacked over 300 members of staff—around 60% of its total workforce, Quartz has learned from one of the affected staff employees, who asked not to be named.

CEO Shola Adekoya informed staff of the cuts today (Nov. 30) and said the company will adopt a leaner business model. Despite speculation that Sim Shagaya, the company’s founder and former CEO, could be returning to the role, Adekoya confirmed to Quartz that he’s staying on. Shagaya stepped down in Jan. 2016 two weeks after Konga sacked 10% of its staff.

The Konga layoff is consequential because it is reducing capacity in a company that needs more people. The implication of this is that Konga is not looking for growth, but rather to “journey along” in its present territory. As a company that is huge in logistics, it needs more people to expand territory, but here, it is cutting capacity. That is not a good sign. (Please read on, Konga may have a reason to reduce manpower, as it transmutes into a subscription classified portal. But yet, for the fact that it is still offering logistics services, the business did not make the pivot on the position of strength.)

Konga is redesigning its business model with the following changes:

• It has phased out pay-on-delivery: That is a brilliant strategy which will improve its operating cost. Konga is coming late to prepay only platform. Companies like Payporte and partially Jumia have moved away from this wasteful feature. It is the worst feature in the Nigerian ecommerce sector.

In mid-November, Konga.com made a bold step and became a prepay only platform. In recent years, we have explored several solutions for payment and e-commerce in Nigeria and concluded that prepay is a necessary approach for our business and the market

The struggle with payment in Nigeria is huge. Konga has KongaPay and is still struggling to effectively collect payment. It means we have a long way to go to fix payment in Nigeria.

• Subscription-based marketplace: Konga will move from commission-based marketplace to subscription-based marketplace. The advantage is that merchants will pay for listing even if their items are not sold. That provides consistent revenue to Konga provided the merchants like the new model. In the commission model, Konga would only make money, if and only if merchants’ items are sold. The subscription-based model gives a window that Konga is struggling in selling items on its portal. So, it wants to protect its cashflow and its interests, and will likely make lesser money compared to a commission-based model.
• Shut down warehouse service: Konga will not allow merchants to use its warehouse. This is also a clear sign that the items are not moving out of the warehouse very fast. So, if they are not selling well, there is no need of warehousing them. Konga wants to save that real estate cost.

• Subscription classified service: Konga will not have an inventory. Going forward, it will only link merchants, who have subscribed for access to its platform, and buyers. Its logistics company, KOS, will remain available to support the delivery. Konga is making it easier for buyer and seller to contact each other since there is no risk of disintermediation: Konga is already paid by the subscription.

We have enabled a contact seller button that allows open communication between and seller and buyer in cases where pay on delivery transactions still need to be carried out directly between the seller and the buyer.

Konga has changed its business model and should not be written in the context of Alibaba or Amazon: Konga is now a B2C (business to consumer) version of Craigslist where the business pays subscriptions. Most global marketplace earns commissions, but Konga is asking for its merchants to pay subscriptions to access its portal. We will see in coming quarters if that model will unlock the opportunities in Nigeria. In Nigeria, Konga will compete with OLX and Jiji than Jumia.

The Ecommerce Problems

Konga’s challenges are not uncommon. In a well-received piece in Harvard Business Review, I explained why running ecommerce will remain challenging in Africa for a very long time. From Kalahari to Mocality, companies have struggled to find a model that works. Some of the key challenges (modified) are as follows:

Distrust: Rich Africans have yet to embrace online shopping, due to online fraud.

Cost of broadband: Africa enjoys tremendous growth in mobile internet which is the popular means for people to access the web. But the cost remains high

Logistics: Ecommerce is very more complicated with nonfunctioning postal systems. Online businesses operate delivery motorbikes, which increase the cost of doing business there.

African open market: In Africa, there are “markets” everywhere, starting with the security guards who run stores in front of their masters’ mansions. There are open markets, supermarkets, and even unemployed youth selling things at traffic stops in major cities. An e-commerce company must beat these entities on prices to be competitive..

Literacy rates: Even if all the infrastructure and integration issues are fixed, illiterate citizens may be unable to participate directly on e-commerce sites that require reading and writing skills.

Konga has worked to tackle many of these challenges. As an industry pioneer, it was working and learning on the process. That is usually very expensive. Moving into subscription marketplace is the latest experiment in that firm.

The Valuation

The difficulties in the market have affected Konga. Even though it has raised about $100 million, the company, according to its major investor, is worth less than $50 million. The challenges in the operating environment have depressed the valuation. Konga is estimated to have less than 200,000 active users in its platform.

Much of what is known about Konga’s operations has been gleaned from the quarterly reports of its investors, particularly Kinnevik, which owns a 34% stake in the startup. Last year, Kinnevik’s second quarter report pegged Konga’s active customer base to 184,000 (pdf)—less than 1% of Nigeria’s population—suggesting the company was having difficulties growing its customer base.

Market Competition

Interestingly, there is no major competition in the Nigerian ecommerce sector. What is happening is that there is no market size. Jumia and Konga are not destroying values, and practically are not big competitors. Their problem is simple: they are serving a very small market. The Nigerian ecommerce market is than 1% of the total retail sector.

Jumia is bigger but not necessarily doing better. The advantage for Jumia is that it has a more active and larger funding pipeline from Rocket Internet, its German parent company. Konga’s backers are traditional investors while Jumia is owned by an operator, a quasi digital conglomerate with more active roles in its businesses. But despite all the monies they have thrown in Nigeria, their impacts are marginal: they have not moved the sector and continue to struggle to unlock the opportunities.

Why Konga is Struggling

By reducing its staff capacity, Konga will lose any economies of scale in the traditional ecommerce business model. You could say that it reduced its geographical coverage. When an ecommerce company does that, it means it is losing ground. The driving challenge to Konga is the marginal cost which is dominated by the distribution cost. By operating its motorbikes, instead of relying on a national postal service (Nigeria has none), the biggest cost element in Konga business is offline. That is why I see Konga as a logistics company. Its marginal cost is driven by logistics and not what happens on the web. And it is that marginal cost that will make Konga to narrow the cities it does business. When a company narrows where it delivers its services, you know that the company is not a web company: Konga has never been a web business, just as every ecommerce operator in Nigeria.

As the marginal cost remains high, typical in Nigeria with no logistics, Konga’s capacity to scale remains stunted. The scalable advantage is near zero because the marginal cost bounds where it can operate, geographically.

Your digital startup cannot grow if you do not have a scalable advantage. You must have a means to add new users at a cost model that tends towards zero. In essence, if the market has been perfect (it is not, and nothing is), you must serve customers at zero prices, on the web. But you do not do that since you need to make profit to exist as a business. That is why you have a cost on your apps or you extract tax via advertising.

From the Quartz piece, it seems that Konga is also struggling with its marketplace, where it does not carry inventory but takes commissions on closed sales. The company will be phasing out the storage of inventories for merchants, in its warehouse as noted above. In other words, Konga does not see value in selling the items for merchants, at commissions.

The simple reason for taking this decision is that the items are not selling well enough to justify allocating warehouse spaces for them. Possibly, Konga will free the warehouse and then stock with its own items (that is not an option with the new business model). Of course, no one can fault Konga for its strategies, but marketplace is a model that has worked in many places in the world. Alibaba operates largely on that model. But Nigeria is not China. Had Konga been able to execute that model, it would have enjoyed the benefits inherent in aggregation construct where it becomes an ecommerce aggregagor, earning commissions.

But for everything I have noted in this section, Konga has a model for marketplace but in this case pursuing it with subscription, not the typical commission. It can enjoy the aggregation construct benefits though the income will be lower as subscription guarantees cashflow but is usually lower than income from commission. In other words, it is sure of income when merchants subscribe, but over time, it will leave more money on the table if it has gotten the commission model to work. I think this is brilliant if there is scale: Konga is doing the usual Prepay even in the way it relates with its merchants.

Konga Should Sell to Jumia

The Nigerian ecommerce market is still at infancy. Someone will make money in it but it will take time. I have noted that growth will begin from 2022. That is the year it will make sense to start an ecommerce business in Nigeria. Many things will align by then. But the companies which are in the market now, they need to find how to survive until market indicators improve. But doing that will not be easy. Kalahari, founded by Naspers, Africa’s most valuable company, exited the ecommerce sector because it felt that it could not be losing money for long, even though it knew that the moment would come one day.

According to the Quartz link I referred above, Konga has about 10,000 merchants. Let us assume that 20% will subscribe and pay annual fee of N50,000 ( a very tough challenge in Nigeria when OLX and Jiji are far cheaper or even free), the total revenue for Konga will be N100 million. Even after firing 300 people, Konga has close to 250 staff remaining. There is no way this model will not call for another mass sack in coming months as the revenue growth will not be substantial to cushion loses.

Simply, Jumia is not making money. Konga is not making money. I think Konga should sell itself to Jumia. There is nothing wrong with that, peers do combine when markets stall: Elance/Odesk (now UpWork),  Groupon / LivingSocial,  Sirius / XM and  Rover / DogVacay did that. And in near future, Uber and Lyft will merge, I have predicted.

No one has to wait any longer to know the grand plan of Jumia. Simply, Jumia wants to build a massive market share. That market share comes first before any push for profitability. In one of the most candid comments in the industry, Jumia revealed that it is yet to attain profitability.  The Global CEO, Jeremy Hodara, made that revelation during a press conference where Jumia announced that it would be making loans to some of its Nigerian partner-vendors.

Because of Jumia’s ambition, Konga could be attractive. Konga has been severely wounded for any further fight to make sense. I do think the best for Konga is to sell itself now that it can generate higher value. To win in this market, it needs not just revenue but manpower since it is running a logistics business, despite the pivot to subscription classified model. By constantly cutting down manpower, it means it is not taking the fight to the traditional stores like Shoprite and supermarkets. That is weakness that will further erode its capacity to generate more value to shareholders. It can save itself from these challenges by selling to Jumia.

The way we spend money has been evolving for years. In our contemporary time, we are not just spending more on or for things: we want experiences around our spending interactions. Digital technology is shaping this paradigm and opening up new vistas for entrepreneurs to create value. When technology enables new changes in behaviors, what follows are opportunities. In this video, I explain how spending is largely anchored more on experiences than the actual things we are buying. And the company that provides a better experience will win. Yes, one of the best moments for most is the discovery process during (digital) pre-shopping.

For some users of Venmo,  the fintech which PayPal acquired, it is not the splitting of the bill that drives the usage, but the ability to share the split receipts with the location where it happened on Snapchat or Facebook that is driving the growth.  You went to concert; good. But I went to concert and I am sharing the experience live; priceless.  The concert has become more valuable due to the ability to share the experience live.

If your brand or ecosystem does not provide that experience, the Buy moment may not happen in your platform.  In a boundless web with many brands, the Experiences Effect is very catalytic.