In the technology pyramid, more value is created at the top: the upstream level has more value than the downstream level. There are more participants in the downstream than the upstream. Companies that play at that upstream have accumulated more capabilities which help them solve key frictions in the market to be in those positions. Because they are fewer, they control pricing more efficiently, and earn better margins.

In the technology arena, many downstream players look for opportunities. In Airbnb, people rent their free spaces in their homes to strangers and make small money. Airbnb is the upstream participant while those renting their spaces are at the downstream players.  In Uber, people drive: Uber is the upstream player while the drivers make up the downstream.

I see Airbnb as a better opportunity, if you indeed have that space, than Uber. Why? Uber ties your time, which means when you are driving, that is the only thing you can be doing at that time. So, that is the job, at that moment. But in Airbnb, the money can be flowing even when you are busy pursuing other things: you do not need to be fully engaged to make that money.

Then, the economics do not really work for Uber in the long-term. Uber drivers will deal with the laws of supply and demand, and must reach price equilibrium point. That equilibrium point will never move to higher-paying drivers, in the long-term. In other words, over time, the value Uber creates for its drivers will drop, at individual level, even though it may be paying more collectively. This working paper explains:

Using a city-week panel of US ride-sharing markets created by Uber, we estimate the effects of sudden fare changes on market outcomes, focusing on the supply-side. We explore both the short-run dynamics of market adjustment, as well as the eventual long-run equilibrium. We find that the driver hourly earnings rate—essentially the market equilibrium wage—moves immediately in the same direction as a fare change, but that these effects are short-lived. The prevailing wage returns to its pre-change level within about 8 weeks. This return is achieved primarily through permanent changes in driver “utilization,” or the fraction of hours-worked that are spent transporting passengers. Our results imply that the driver supply of labor to ride-sharing markets is highly elastic, most likely because drivers face no quantity restrictions on how many hours to supply and new drivers face minimal barriers to entry.

But for Airbnb, you do not have that problem since you can continue doing whatever you are doing as it does not tie up your time. The Uber example is even clearer in this piece from QZ.

Here’s the logic: Imagine Uber normally charges $1 per minute and $1 per mile, and it increases that to $2 per minute and $2 per mile (these numbers are obviously made up). In the short term, drivers will earn a lot more, because, well, both rates have doubled. But over time, a couple things happen. One, because Uber suddenly lets them earn more, drivers work more hours. Two, because Uber is now more expensive, people order fewer Ubers.

That brings me to the discussion when Uber drivers in Lagos say they are running startups. I used some of them. I simply commended them for finding a way to take care of family. There was no need of going into deep argument or explanation. But ideally, there were not running any startup: there were small businesses. There is nothing wrong with that. We want people to go out and take care of families. It is free enterprise.

Anyone driving for Uber should not see himself or herself as running a startup since that business is not scalable from the drivers angle. You can only drive one car at a time. The business does not have the organic capability that can make it grow. But of course if you focus on buying cars and deploying many people to drive Uber for yourself, then you have a business, and you can be called an Uber-dependent startup.

But irrespective, market pricing equilibrium will make Uber drivers to struggle in making decent income, over time. When the rates for Uber drivers go up, more drivers will be available.  Those drivers can make good money, in the short term. But over time, riders will reduce the number of rides because fares are now high. When that happens, using dynamic pricing, Uber will have to reduce the rates for drivers to jumpstart more rides. That will push the price to low-price equilibrium. Unless during emergencies or special occasions, this equilibrium should hold up over long term, meaning that price will be low. So, driving for Uber means you must be open to go with low rates. It is not really the fault of Uber; rather, it is the high price elasticity of the product.

Italy, yes, the Azzurri, will not be playing in the 2018 World Cup in Russia. That will be the first time that Italy would fail to qualify since 1958. In a match that decided its fate, the four-time world champions could not overcome Sweden. Sweden will be in Russia while the Italians will enjoy their coffee and pizzas as they watch the games on televisions and online video streams, at home.

Few weeks ago, U.S. Soccer team also failed to qualify: Trinidad and Tobago knocked out the U.S. team.

United States is a brilliant nation. It has the capacity to connect its citizens to a shared vision. From science to technology, literature to military, America has always set the global benchmarks. But in one specific sports, soccer (yes, football in anywhere else), America continues to struggle. This year, a very small country, Trinidad and Tobago, extinguished the U.S.’s plan to play in Russia 2018 World Cup. That is it: U.S. Men Soccer lost to Trinidad and Tobago and will not play in the next World Cup.

But my favorite sports team in America, the college football undisputed king, the Alabama Crimson Tide of the University of Alabama Tuscaloosa continues to perform. The Crimson Tide is so consistent that you know what you are getting when they march into the field against an opponent. As the Tide rolls, expect people living longer in Alabama (oh yes, football is a religion in Southern America!). With no top-four professional leagues (National Football League, Baseball, Hockey and Basketball) in that state, the Tide and the Tigers (The University of Auburn) are all that the citizens have as top-grade sports.

In all these occasions, there is a business lesson: legacies mean nothing, what matters is what is happening now. Yes, IBM was a storied tech juggernaut but today we have the likes of Google and Amazon eclipsing it. GE was iconic, but GE has since lost what made GE supremely legendary. Markets do not care about legacies, they care about results. When the results fizzle, markets move to the next great firms.

The Systems

There are three things in football (soccer for Americas) as you build teams: recruit, train (or prepare) and deploy. You have to have the talent, and you have to train them. Then, you need to deploy them to go and win games. The recruitment means that you must have a pipeline of talent from which you can assemble those that will work with the coach. Where you do not have that, a great coach may struggle.

In a scenario where you have the team, the next phase is preparation. That is where the coach leadership and capabilities come into play. Lastly, after you have done preparation, you must condition the team to go out and execute the strategy. They need to play, as you have prepared them.

U.S. Soccer: Soccer is a new game in America. It is not attractive and the finest sports people in U.S. have better options. Why join a soccer league to be paid $40,000 per year when you can play American football or basketball and command millions of dollars? The U.S. Soccer does not have the talent and that is the biggest challenge today. Without that talent pipeline, the training and deployment fail. The problem that stifle progress there is Recruitment.

Italy Football: The Serie A, the Italian league, has since lost its shine, and evidently diminished compared to the glory days legends like Maradona, Lothar Matthäus and George Weah played in it. Today, Serie A is a shadow of its past.  The best footballers do not see Serie A as the top destination. So, with a broken local league, Italy faces a challenge on building national teams. Yes, they still have Juventus but that will not be enough. The problem with Italy is not lack of talent, but preparation. If the league is not strong, even the best talent may not flourish. The problem in Italian football is at the phase of Preparation.

England has the same problem few years ago when it also failed to qualify for World Cup and then instituted that Premier League teams must commit to develop local football even if they are not playing English players. England was addressing the Recruit issue, at least to develop the talent pipeline. England has a good league but continues to struggle with local talent.

Alabama Football: The Alabama football team is the most successful college football program in the last ten years in America. Its recruitment is legendary with some of the reserves very capable of being starters in some other college programs. Also, the coach of the team, Nick Saban, has developed a process which makes it easy to build a consistent system. College football is inherently challenging because the average duration for players is about 2.5 years since most do not start on first year in college and within four years they have to graduate. The very best do not even wait to graduate; they abandon school and join the professional league. The implication is that a coach will have to recruit new students to develop, constantly. That process of finding them is not easy. There is nothing like contract as the students can also transfer to other schools. So, Nick Saban has recruited right, prepared the players, and then motivated them to go out and execute. The implication is evident: the team is winning.

The deployment phase is critical. In most African national football teams, we do have talent though we struggle with preparation. But even when we prepare right, the deployment could be an issue.  Imagine in cases where Nigeria’s Super Eagles or Elephants of Côte d’Ivoire say they would not play unless their allowances are paid. With that challenge, these players are not in the best conditions to go out and execute anything they have been prepared for.

Business Lessons

Largely, running a sports team mirror how companies function. We compete for talent. We train staff and we expect them to perform their duties right. They need to execute so that we can win in the market place. If you want to start an AI company in Nigeria, you may struggle with elite AI talent, and that immediately puts you at a huge disadvantage to Silicon Valley. Also, in some sectors where you have seen the talent, but the training apparatus to develop them severely lacking, you can still struggle. Besides, there is the issue of staff motivation in order to execute the corporate goal and mission. When you miss any of those phases, companies struggle.

We talk of legacy, but truthfully markets do not respect such. There are constant disruptions happening and those disruptions are based on these factors of recruit, train and deploy. If you pay very close attention to them, you can get to Alabama Football quality. The Crimson Tide has mastered how to manage all the phases, and yearly, it presents to America a strong football team with potentials to win championships. It has a process, and there is something to learn from a team that remains consistent despite losing more than 70% of its players to graduations, professional leagues, etc yearly. If a sports team can work with that, it means companies with longer staff tenures should even perform better.

In baseball, double play is a defensive play where two players are put out. It turns out that the leading ecommerce companies like Amazon and Alibaba have such strategies in their businesses. Amazon runs an ecommerce operation, which largely loses money, but makes money via cloud computing services. In the world of Amazon, if it can destroy many brick and mortar retailers and force them to go online, it will have cloud services to sell to them.

For Alibaba, its double play comes from its asset-light marketplace and the Ant Financial which processes payments across its ecosystems. Besides the commission for selling on Alibaba, Alibaba takes another cut for handling the payment. When you examine these companies, one thing is obvious: no one makes good money by running just an ecommerce operation; you need a double play to supplement it.

Facebook runs the Free Basics which is an initiative through which it offers free Internet services to some selected websites including most Facebook products. In other words, when you visit the websites, your meter will not be running on your mobile devices. According to the company, it is a way to make Internet affordable. In Nigeria, that initiative partners with Airtel, a major telecommunication operator.

It is very hard to ascertain how that service has worked in Nigeria. By that I mean if people are making decisions to buy Airtel SIM cards for the ultimate access to the Free Basics. In Lagos and across Nigeria, I did not have that feeling. MTN has remained the largest network, with Glo coming far behind. Airtel is #3 and remains so even after striking the partnership with Facebook on Free Basics.

Besides Airtel, other telcos across Africa now support Free Basics. Facebook pays the mobile operators since the customers do not have to pay for the data. That means that Facebook is the paying customer. Facebook through its balloons and other tools provide the broadband services which the telcos “retail” free for the end-consumers to use to access the chosen websites. If Facebook does not pay the small fee for the operations, the telcos ideally will not bother.

Also, there is the possibility that some telcos can use that as a consumer acquisition strategy, getting customers to use their SIM cards, knowing well they will stick with them when they need to enter the open Internet, which has to be paid for.

The Problem with Airtel and Facebook Partnership

A major problem with Free Basics is that the chosen websites are largely not for productivity. While Wikipedia is a good website, the fact remains that if you are restricted on the site, even the site you have access is diminished. There is always a feeling that the other site is better.

Imagine a scenario where a student is chatting with a friend on Facebook via Free Basics, and the friend tells him that the professor has posted a homework available in the university portal. The student wants to access the school portal but Free Basics does not support that site. The option for the student is to buy credit to have access to the real open Internet. When that is done, the student can see the assignment. This experience will surely diminish the Free Basics before the student.

The implication is that the best way to run Free Basics is to partner with companies that understand how to offer Internet free, even if it means watching adverts, to do so. People watch the adverts to have access to the web. So, when they are on Free Basics, they access the available sites, but when they want to access the open web, they watch adverts to do so. The Facebook-Tizeti partnership should be anchored on that framework. But that is not what we are getting.

The Facebook-Tizeti partnership

Tizeti, which manages Wifi.com.ng and Flobyt, a free WI-FI  service, would have been a natural partner. It can offer end-to-end experience on totally free service for Free Basics website and the open Internet for users. That means, what Facebook supports get delivered and the other websites can be accessed by watching adverts. That was possible in the old Tizeti; not anymore.

Tizeti Network Limited is a fast growing Wireless Internet service provider in Lagos, Nigeria, delivering high-speed unlimited wi-fi Internet access to residential and business customers. Founded in 2012, the Company has established wi-fi networks all over Lagos. The Company was the first ISP to deliver unlimited internet using wide area wi-fi in Nigeria and is now offering its services all over Lagos and the South.

Yes, after Tizeti raised money from global investors, it pivoted from its old business model of offering free WI-FI services. Now, you need to pay to have access to its WI-FI services. Nonetheless, on this Express WI-FI, you can still access the Free Basics part free on its network. From Facebook and Tizeti press release:

Tizeti … announced a partnership to expand Express Wi-Fi by Facebook in Nigeria, …, this initiative supports Facebook’s and Tizeti’s shared goal of connecting more people to the internet in a cost-efficient way.

A fast and affordable public wi-fi hotspot service, Express Wi-Fi in Nigeria is focused in areas where people gather and work, including markets, cafes and public outdoor spaces. Using affordable internet through Tizeti’s wi-fi technology, anyone with a wi-fi capable device and the ability to receive a one-time SMS will be able to use Express Wi-Fi without switching SIM cards or having a data plan. People can connect through Express Wi-Fi on most Android and iOS phones, tablets, and laptops.

{…}

Our Express Wi-fi plans are affordable and range from N50 for 100MB to N2,000 for 10GB.

In addition, anyone connected to an Express Wi-Fi hotspot can access Facebook Flex and Free Basics, which offers people access to impactful local services, including health resources, education and business tools and more.

From the press release, you can get the Facebook Free Basics via this partnership. But if you need the open web, you have to pay. The cost of 10GB of data is N2,000 which is really cheap; 9Mobile would reduce your pocket by N7,000. Yet, it did not solve the pain point even though it has lowered the cost of broadband. A free win would have been if Facebook has pushed Tizeti to adopt its original free WI-FI service, supporting it with funding to make up any revenue from advertisements. That is when we will know great things will happen.

All Together

Free Internet has emerged as a stunt which entrepreneurs use to get free media. Once they start operations, they begin to charge customers. Most of them that promised free Internet are now charging customers. Of course, it is not an easy business model to run free WI-FI because it costs money to build the infrastructure. The Free Basics remains limited, because offering one part of Internet free and other parts paid will always create poor experiences for most people.

A company that can use advertising to support the cost of the open web will be a natural partner to this initiative. They can cap the maximum data usage for the open web while Free Basics remains unlimited to the chosen websites. That way, people will know that even though I do not have money, I can be in Free Basics contents, and if something triggers me to go to the open web, I can watch ads and access the contents while making sure that I do not exceed my available data allocation. Not doing that weakens Facebook vision and India was right to have banned it outright: it is a distortion of the mind.

That inability to find a way to get people to the open web remains the weakest link of this initiative. I will never encourage a family member to use such a service because it rewires the brain on the possibilities of the web. Facebook can fix this with its money. Yet, I respect that the firm has to execute its business model on its own terms.