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.

I do not have a Facebook account, though you may see some with my photos. I used to have a Facebook account. But I also wanted to share about my businesses on my account. In my Facebook connections are families, relatives, friends and others. I knew I wanted to share about my businesses, but I was concerned that it was not really appropriate for families to wake up only to read feeds about business and strategies. I had assumed that Facebook is for family moments and touting business there may be non-optimal, especially to kinsmen and close families. Since I could not manage the conflicts, I deactivated the account (temporarily).

But in LinkedIn, I felt we all come there to do business. It is a professional ecosystem, and we try not to add personal elements to it, unless on professional settings. While it is fine to share pictures of your baby learning to walk on Facebook, on LinkedIn, that may not be well received, unless in a closed group. Most people come to LinkedIn for business and professional connections, and discussing business strategies is certainly appropriate.

My business has business accounts (the pages) in Facebook including one for Tekedia, this blog. We automatically sync contents published on Tekedia to Facebook. Usually, when we login to Facebook account of Tekedia, we see the contents. However, few weeks ago, we noticed that Facebook had redesigned its algorithm making it impossible for others to see the contents. But when we manually share the contents on Tekedia Facebook page, it would be visible to other Facebook users.

Technically, Facebook was not really interested in web robots sending contents to its platform. It wants people to come in person and share. Contents which are automatically sync’d to Facebook cannot be boosted (or promoted through advertisement). You have to manually post a content on Facebook before Facebook will allow you to boost the content.

Small Experiment

When we noticed the absolute suppression of sync’d contents, on Facebook, my team decided to post contents, on Facebook, from Tekedia manually for some weeks.  As they posted, they tracked impacts. Then after days, it was clear that Facebook was not distributing the contents extensively: sometimes, Facebook puts the contents in the feeds of only five users. In other words, Facebook is not crazy in distributing the contents. But when the same contents are shared on personal feeds of my colleagues, Facebook distributes them to more users. Quickly, we noticed that Facebook prioritizes friends’ shares over those shared by media or company pages. Immediately, we stopped paying attention to Facebook from Tekedia account.

Sure – Facebook works, but for it to work on a company Facebook page, the users have to come to the page to read the content and where possible share it. Facebook by itself does not distribute contents from company pages that much. Where the users do not come, posting on pages may be a waste of time.

This Facebook experience is typical with LinkedIn. LinkedIn company posts are not well positioned. Fewer people see them compared to personal posts, other things being equal (similar number of followers, type of contents, etc).

The Emerging Model

Both LinkedIn and Facebook expect the company pages to pay so that their contents can be massively distributed. But since they need users, they still allow the personal connections to deepen as that is the business (both the company pages and personal accounts are run by humans, who make decisions). Yes, they cannot afford to annoy the users if they want to remain in business. So, the personal sharing and connections work well, even as they frustrate businesses, especially small ones that cannot afford to pay.

It is highly unlikely that you will get any attraction on Facebook and LinkedIn these days,, from company pages, without investing money. Even if your contents are great, they will stall. One has to improve the game considering that even social media entities have digital marketing for law firms and other domains.

But put $100 behind those (company page) contents on LinkedIn and Facebook, within hours, thousands of people will see them, as they will massively distribute the contents. Suddenly, the contents which have been ignored are now popular. There is nothing wrong with that: it is their business systems under free enterprise. But I want you to understand this as you structure your digital marketing engagement. Opening company accounts on social media networks like Facebook and LinkedIn and expecting that posting contents there (without ads) will do the magic is an illusion.

Snapchat Comes Clean

I have never used Snapchat to know how it works. But I liked this content from TechCrunch newsletter:

In an op-ed for Axios, CEO Evan Spiegel said, “We are separating the social from the media.”

More specifically, the redesign will place all messages and Stories from friends to the left of the camera (with content from your closest friends prioritized), while message and Stories from publishers and celebrities will show up on the right.

Essentially, Snapchat is going a step further by physically making it obvious on the prioritization of contents. The Left side contents are from friends and families while the Right contents are from companies/celebs. If Snapchat has company pages, similar to Facebook and LinkedIn, it would be expected that it would make contents on such irrelevant in its systems.

Understanding The Factors

You need a personal account to promote your business on social media. In other words, the best way to build organic social media marketing is to run it through personal accounts. The days of wasting efforts on branded company pages are about gone. One press release on partnership from your personal LinkedIn or Facebook account will likely get more traction than the one from your business social media page.

This observation is not new: most U.S. companies, upon hiring executives, ask them to surrender rights to their personal social media accounts or they will be given new ones through which they will “work” from. In other words, a CEO of company BBB will have a LinkedIn account with his name. But that account will not belong to him. Understand that the CEO will have staff working on his social media presence and the company invests on making sure it is right. If that CEO wants to leave, he/she cannot take control of that account. Why? He might have built 100k users but that was not because of his efforts: those users are for the company.

One CEO was fired and within minutes, he wanted to login into his LinkedIn only to notice that his password had been changed. Then he recalled that he waived the rights to keep the account, upon leaving the company. He had tens of thousands of users. The company will delete contents, and change the profile for the next CEO. For companies like CNN, they do create new accounts for staff. When a staff departs, CNN keeps the account: you do not move with the users.

If you have left the company, there is no need for contents shared in your capacity as CEO to be in your thread on that LinkedIn or Twitter account. (In some cases, part of disengagement negotiation can include leaving the social media account with the executive, but the company will wipe the contents).

Linda Ikeji: The Queen of Blog

Linda Ikeji is peerless in understanding how social media and blogging work. She is better than any Nigerian including those that work for Google and Facebook. I do not read her works because the focus is not my interests. Yet, I wanted to know why she was successful. Most Nigerian companies put Linda Ikeji on their tags to get traffic. I spent time and saw an interview where she explained her minor secrets. The key two points are:

• To succeed in blogging, you must reveal your identity.
• You must write on things people will be interested on.

These observations look common until you put them in perspectives. When she started blogging more than a decade ago, most people blogged with pseudonyms or simply ‘editors’: Linda used her real name, and went ahead to name the blog after herself. She brought authenticity and connected with people, as they knew who was writing.

In the interview, Linda made it clear that without that real identity, you lose authenticity. She explained that contents have values due to the creator and not just the contents; anyone that wants to do well in connecting with readers must be open. Her other point was self-explanatory. Of course, some do click-bait. Yet, every person must find ways to understand what the audience wants.

All Together

A social media account is a business tool and companies have understood that speaking from the human element is more impactful. A post shared from the personal account of CEO of BBB will get more traction than one shared by BBB. With that understanding, BBB will put efforts to nurture the CEO social media accounts.

For you, as a small business owner or entrepreneur, you need to evolve out of your shells. If you think you will hide and run a good social media marketing, you will not succeed. All those nice contents on your company accounts are there but people do not pay attention, because no one knows the human elements behind them.

How many times have you visited a blog, maintained by nobody or no-name? I do not think you waste your time reading such blogs. You want to know the person writing and the person must disclose his or her identity before you care what the contents say. That is the same algorithm they have automated in Facebook and LinkedIn: there is the supremacy of friend connections over company contents. Linda Ikeji had implemented that algorithm in her business model a decade ago: she made everyone a “friend” by revealing her identity when others were hiding on the web.

This is a question from Tekedia Forum. I like it and posting it as a piece here. Someone asked how she/he could put N20 million into work in Nigeria in 2018.

I have N20m which I have in Union Bank for treasury bill. The money was payoff from previous job. But unlike in the past where TB instructions could be in perpetual, now the bank does not reinvest automatically. I can’t be doing same monthly. I want to move the money and invest in something else. Any suggestions on good options in Nigeria. I look for max of 3 years with highest safe returns. Prof help

My Response

I am deleting the response here. Please visit the Tekedia Forum page to read it. I updated some minor typos and would want to maintain one version to save my time.