Many have asked me to project the best possible acquisition Amazon could make in Africa. Of course, no one knows the grand strategy of Amazon in Africa except that it runs a lackluster e-commerce operation in South Africa. I had noted that Amazon is not in South Africa to win in e-commerce, but to use the goodwill associated with its ecommerce operation to sell cloud computing services across Africa. So, Amazon is not thinking of profitability in South Africa’s ecommerce, provided its presence there makes it easy to corner all the startups to become customers to Amazon Web Services. That is the One Oasis Strategy.

But with Alibaba showing signs that it will play in Africa with recent visits by Jack Ma, Africa is now part of the big equation. The implication is that Amazon may like to play to win in our continent. Alibaba had noted that it would be investing billions of dollars to develop new businesses and markets. Africa is certainly part of that new market.

But while we discuss how these companies will enter, I do think none is coming to buy any ecommerce operator. Recent changes in the industry show that market is moving seriously and winning in ecommerce will depend on doing well in the physical space. I will explain what could happen, in Africa, by examining what Amazon is doing in India, which mirrors to a large extent the African market.

This is the Amazon strategy in India: forget big ecommerce acquisition, buy/develop and deepen the offline business. The company understands that having a website and listing items without how to move them will not drive growth. India does not have a great postal system that rivals what Amazon depends on in Europe and North America. So, there was no need of buying big ecommerce operators, especially if they do not solve the logistics problems. What did Amazon do?  It went into buying supermarkets and physical stores to improve its distribution and pickup locations. Yes, Amazon has been buying supermarket chains, focusing on the offline in India, even when developing its ecommerce operations, largely organically.

The African Strategy

I do think Amazon will execute the same strategy in Africa: it will be more strategic to acquire pockets of supermarkets and integrate them into one brand across major African cities than buying any ecommerce operator. There are few supermarket chains in Africa. Only South Africa with Shoprite and others like it has developed top-grade supermarket chains. In Nigeria, nothing like that exists: we have supermarkets but they are not chains.

In Nigeria, we are talking of supermarkets like H-Medics (Abuja) and others of its size. These shops will be integrated into one brand, and then linked to others across cities. By the time you have them in 30 cities, you have a solid chain. Those shops will reduce costs of distribution by serving as pickup and collection centers. Under one management, you will see massive benefits from economies of scale.

Offline is part of Amazon’s vision for the future of commerce. In U.S. where it is doing all to win in grocery, it has understood the limitations of online-only business model. Yes, for Amazon, having physical stores will be a huge offense. If Amazon does not develop the physical space, in most sectors like grocery where the money is still domiciled offline, and those offline competitors move online, any current advantage Amazon enjoys could be neutralized. You do not want the players you disrupted in books to disrupt you through grocery, the largest of sectors in consumer buying. With the money in the physical domain, Amazon going there makes sense. Its acquisition of Whole Foods is part of executing that offline strategy that strengthens the online business.

Even Alibaba has the same plan as I noted earlier today. Alibaba is investing in Sun Art, the largest retail chain in China; call it the China’s Walmart. In Africa, I expect these offline players to dominate how Alibaba and Amazon will compete in the continent. Largely, owing to the need to scale, with lower marginal cost, my prediction is that Amazon will be pursuing deals in physical stores, in Africa, even while growing its ecommerce operations organically, when it does decides to massively pursue African market.

All Together

This offline trajectory will play out in Africa. If Alibaba and Amazon come, they will focus on building supermarket chains, from the disparate small stores we have across our cities. They will integrate them into one brand. Using the one-brand operation and economies of scale associated with such integrations, they will reduce the distribution costs which will make their online products more price-competitive. Once they do that, they will improve their scalable advantages. The electronic (i.e. website customer acquisition and on-boarding) part of the business will be grown organically.

I visited an Amazon local store in U.S. You can call it a pickup location. Interestingly, that is the very reason that makes it a brilliant idea. Amazon is trying to flip the logistics burden: instead of going to your house to deliver, it offers you the choice to come to its store and pick up your purchased items. In that store, you cannot buy anything physically. Largely, people come there to pick up items.

It offers deep convenience as it solves the problem of delivering items when people are at work, and away from homes. It also reduces costs for the shopper since you do not have to pay shipping cost. Generally, Amazon will save money doing this. It plans to have many of them across American cities. The implication is that Amazon will increase its real estate or rent expenses. Sure, the stores are very small, and rent cost will not be that significant, when compared with the savings for not sending people to homes to deliver items.

Leaving work at 5pm, place the order at 1pm and on your way home, you can pick up the items at Amazon Store. This is one way Amazon is showing that the “e” in commerce is all but gone. We are in the age of hybrid-commerce because winning this will involve winning on atoms besides conquering all the competitors in bits and bytes. I have written extensively on the marginal cost element of ecommerce and how the logistics component dominates that. So, Amazon is doing all necessary to reduce that cost with these pickup stores.

[Updated this section Nov 20th with news of this Alibaba deal] Alibaba is also betting big on brick-and-mortar retail. The Chinese e-commerce giant paid $2.9 billion for a 36% stake in Sun Art, the largest operator of Walmart-style stores in China.  These firms are pushing into offline shopping.

Alibaba Group Holding Ltd.’s $2.9 billion deal to buy a slice of China’s largest hypermart chain pits it against Wal-Mart Stores Inc. in the world’s largest retail arena.

China’s biggest e-commerce company agreed to acquire 36 percent of Sun Art Retail Group Ltd., which operates about 400 hypermarkets under the Auchan and RT-Mart banners. As part of the deal, France’s Auchan Retail SA will raise its stake in the Hong Kong-listed company to a similar level, and form an alliance with the internet giant to tackle the same Chinese food retail sector Wal-Mart’s targeting.

The physical world is where the money is: “The U.S. online grocery market is estimated to generate sales worth of about 14.2 billion U.S. dollars in 2017, with sales forecast to reach 29.7 billion U.S. dollars by 2021.” But “in 2016, U.S. grocery store sales amounted to about 626.98 billion U.S. dollars” . Simply, to win in grocery, you need a physical element.

I predict that within the next few years Amazon may offer coffee and tea in these local stores with devices where people can order things while they drink!

Nigerian local entrepreneurs should consider how the market is changing and adjust. It may be time for them to start striking partnerships with local stores. Amazon bought a local Indian supermarket primarily to have pickup locations to reduce delivery cost. That also helps it to mount more pressure on the physical competitors. Alibaba has been operating supermarkets for three years now, and opening new ones. If U.S. and Chinese markets are not easy to deliver great value via pure ecommerce, Nigerian market should not be expected to be different. Konga and Jumia should study these elements, even as they roll out their own pickup stores, to explore if they need to move into the physical commerce with more vigor.

Nigeria spends billions of naira fighting malaria daily. Our fight, unfortunately, is at the downstream level with no impact on the upstream level where we can achieve more. Drug companies sell their drugs to citizens brought down by malaria. It is a vicious circle because no efforts are made to eradicate the mosquitoes which cause the malaria. For decades, malaria has been a common ailment across communities. We lack the capabilities to deal with malaria in a way that will make it history.

Companies must develop and accumulate capabilities in order to compete in the market place. In this video, I explain how any firm can do that and why accumulating capability is very strategic. From Google to Dangote Group, when companies accumulate capabilities, they see themselves operating in the segments of markets with higher value (usually upstream) compared with where their competitors operate (usually downstream).

Contrast with news that U.S. wants to take out any mosquito in its land. The US has released an army of “mosquitoes” which has been weaponized to deal with the bad mosquitoes that cause malaria. The Environmental Protection Agency (EPA), a regulator, is allowing MosquitoMate, a company, to release its lab-grown, bacteria-carrying male mosquitoes (who don’t bite) to infect females and reduce populations of mosquitoes across America. The goal is to make sure mosquitoes do not bring pains to people.

The US Environmental Protection Agency has given its approval for MosquitoMate, a Kentucky-based biotechnology company, to release its bacteria-infected male mosquitoes in several parts of the United States.

The EPA approval was first reported by Nature on Monday (Nov. 6), and confirmed by the company. The EPA said it registered MosquitoMate’s mosquito as a new biopesticide on Nov. 3, with a five-year license to sell in 20 different states. (Here are the EPA’s risk assessments and public comments.)

If you are looking for business idea in Nigeria and you have elite skills in biotech, this is an open opportunity. But it may not be easy as biotech can turn out to be evil if your agents begin to ravage communities due to a mistake in your compounds (think of bio-weapons). For U.S. to have approved this, they must have conclusively ascertained that these weaponized mosquitoes are safe. I will not want them in my village, but I cannot pass the fact that America attacks problems from the upstream level: kill the mosquitoes and malaria will be history. That seems like a better idea when compared to making drugs for malaria!

NB: I’m not sure if malaria, specifically, is included in this U.S. govt project . But the theme remains. The company does mention malaria but it is not clear if the U.S. government included it in the approval.

ICT brought productivity gains across industrial sectors, delivering immense values to companies. However, Internet is going to destroy the values in many sectors. The transfer of most of the values, from the physical world to the digital one, will not be optimal. Some values will be “dissipated” during the “transduction”, the process of converting energy from one form (meatspace) to another (online).

At the early phase of Internet publishing, many digital publishers made money when Google AdSense (Google product that helps websites show ads) made much sense. But over time, it has become increasingly difficult to earn any decent income on digital publishing, especially when your contents are not premium to command subscription. When you engage in click-bait, people can live without you unlike WSJ which drives news that move billions of dollars around the world. So financial and business journalism will be fine in the age of digital subscription, but generalists will be totally commoditized. Even fighting for more users will not save the generalists. Why will you pay subscription to read Punch Nigeria when more than 80% of the contents are in either Sun or Vanguard?

Some brands are going through what I have called the Diminishing Abundance of Internet. I explained: “It is a construct that some companies become poorer even when they are growing in numbers of customers reached. That applies to industrial sectors like publishing and telecoms. The lesson here is that risk, in any business model, must be examined from the lens of this mirage abundance, which Internet has provided in some sectors”. One company that is going through that at the moment is the very popular Mashable which has evolved as a technology blog to anything-blog platform.

Yes, Mashable has agreed to sell itself to trade publisher Ziff Davis for $50 million, compared to its earlier $250 million valuation.

Digital-media firm Mashable has clinched a sale for the company — and it’s not for a price that founder Pete Cashmore or investors including Turner were looking for.

Ziff Davis, a tech, gaming and healthcare publisher, is buying the New York-based company for about $50 million, the Wall Street Journal reported, citing anonymous sources. That’s 20% of Mashable’s valuation of $250 million following a $15 million round of funding last year led by Time Warner’s Turner.

Mashable has been trying to sell itself or raise additional outside capital for months

That is a very small amount for a digital blog pioneer. It used to have so much influence until Facebook started abstracting publishers in the consciousness of readers.

The Transduction System

When meatspace systems and processes move online, value is always destroyed. When we started chatting via WhatsApp over using SMS, value was destroyed for companies like telcos that used to make money via SMS. When Skype took up the telcos, the same happened. The only good news is that the customers save, even when getting better experience. But the enterprises at the centers always struggle. You can call this disruption.

Yes, something is destroyed and disrupted. But most times, the company destroying does not really make so much money while redesigning the industry: it simply destroys values for the enterprises in the sector, as you do not pay Skype for the money you did not pay the telcos for the one hour Skype call from Lagos to New York.

Note that Mashable is not losing readers, at scale. Unfortunately, more users may not help it. The ad revenue model does not just add up any more unless you have a big syndicated ecosystem like the type Ziff Davis commands which allows it to push adverts across its platforms. That scale helps it win contracts from advertisers. And that is why they are looking for properties.

Yahoo, TechCrncuh and HuffPost parent, AOL, enjoys the same. The old era of one popular blog in the general category with strong revenue base is challenged. Those sole blogs decimated print publishers, but the unconstrained and unbounded Internet is now after them. In the unbounded Internet, aggregation becomes critical. Selling to enterprises like AOL and Ziff Davis is a quasi form of aggregation as that helps abstract the platforms, focusing on the gatekeepers who have scale.

Everything goes back to Facebook and Google which have emerged as top publishers without budgets for contents. Any digital business that does not examine how Google and Facebook will affect it does not have a comprehensive strategy. What happened to Mashable will keep happening. Gizmodo has since sold to Univision which added six to help it has scale to command ads. You just wonder how this transduction process from the physical world to digital will play out in ten years, even for the digital natives.