I have written extensively on the implications of Internet on businesses. We are enjoying the tremendous productivity gains which technology has made possible. But in the future, Internet will cause massive economic dislocations in markets and economies. Yes, at maturity level, Internet could enable seamless linkages between sellers and buyers in many industries: the implication is that many companies will disappear. Who needs an accountant when all transactions are powered by blockchain? Many areas we see in fintech (financial technology firms) will go.

While ICT provided unprecedented productivity in the Nigerian banking sector, Internet is seriously “destroying” value. This is a “problem”. ICT made them, Internet could destroy some of them. Internet is bringing the construct of creative destruction in the Nigerian banking sector where values are destroyed and new opportunities unlocked. But those new opportunities are not going to be, exclusively, within the controls of the banks.

What Internet is doing today is expanding distribution of banking services thereby putting pressure on banks to control pricing on their own terms. Before Internet, they could charge huge fees to transfer money for clients to foreign accounts via their treasury departments, but today, with internet, there are options. The customers could simply use their debit and credit cards to settle the bills without first spending money on bank fees.

That future is not going to be very far: IBM has started building the infrastructure, at scale, of the 21^st century banking: the blockchain banking. Yes, IBM and its partners have started making a business on what most thought was just an idea. It is now making it possible to move money across borders, seamlessly and efficiently.

In a breakthrough for payments technology, IBM and a network of banks have begun using digital currency and blockchain software to move money across borders throughout the South Pacific.

The significance of the news, which IBM announced on Monday, is that merchants and consumers will be able to send money to another country in near real-time, accelerating a payments process that typically takes days.

The banking network includes “12 currency corridors” that encompass Australia and New Zealand, as well as smaller countries like Fiji and Tonga. It will reportedly process up to 60 percent of all cross-border payments in the South Pacific’s retail foreign exchange corridors by early next year.

The news also comes as an important validation of blockchain technology, which has long promised enormous efficiencies for the financial sector, but has been slow to move from the concept stage to the real world.

Blockchain, which relies on a disparate network of computers to create an indelible, tamper-proof record of transactions, is most famously associated with the digital currency bitcoin. But it can be used in many other applications such as tracking shipments or, as in this case, to record a series of cross-border transactions.

If IBM gets this right, every bank in the network will be paying IBM tax to use its solution. This also means that the remittance business will likely collapse for most African banks. The very product which no fintech or bank in Africa has been able to build will now be made possible. I have discussed of the need to build a truly pan-African digital remittance/transfer banking product which is agnostic of location or currency in Africa. None of the products we have today meets that standard. Largely, I envisage a situation where all you need to buy and sell across Africa is one bank account in just one African Union country. With that, you do not have to even think about the specific currency of that account as technology will seamlessly make it possible to access other African markets for payments, transfer etc. The banks or fintech companies must still comply with all regulations related to inter-national transfers, forex etc. The only difference is that customers will not see them as they will be hidden with technology. What IBM is doing could potentially fix that friction and that means it will take major revenue base from African banks.

 The IBM Banking

IBM has moved into banking without necessarily being a bank. That is a very good position to be. If it can pipe transactions across its systems, the real banks will pay taxes to use its networks. IBM will become the 21^st century SWIFT (society of worldwide interbank financial telecommunications), a global payment network, assuming that the international payment network and enabler does not evolve.  Many have written on the power of Amazon on consumer commerce, and the implications to markets.

But Amazon’s unprecedented logistics and delivery infrastructure, paired with access to personal data about Americans’ purchasing habits, means it is unique in the history of global commerce. No company has ever wielded this combination of consumer insight and infrastructure, say historians and legal analysts, which means the company grows stronger and less assailable with every purchase.

But what Amazon is doing will be small if IBM can make itself the category-king for blockchain banking. In other words, if IBM can build a system that essentially makes SWIFT irrelevant, IBM will have the highest impact in modern banking and commerce. The influence of Amazon in America cannot even come close because the implication is that IBM can just provide the infrastructure and over time move into other areas like insurance, legal contracts and more. The key thing is becoming #1 to enjoy the network effects and the benefits of invertibility construct.

All Together

This is a total redesign in the structure of digital commerce. Blockchain will have consequential impacts. There is nothing that it cannot power including making it possible for Finnair, an airline, to weigh its customers in Helsinki airport to ascertain that its estimated total weight, fuel, and safety are accurate. Of course, banking is going to be the first area that will be affected because that is where the money is. I do think African banks should work hard to form their own consortium with local technology leaders for intra-African remittance, at least, and get the African Union to charter that blockchain network. We need the regulation that makes transactions on blockchain to be legally enforceable and binding and that means governments may need to make that clear to avoid any uncertainty. This becomes necessary because at the onset of the web, most banks were not accepting email documents as legally binding. But over time, nations upgraded their laws to make it clear that emails and digital documents are valid in courts. We need same for blockchain and I hope Africa Union leads there. If they do, local banks will have the opportunity to build the capacity before the foreign ones define the markets.

Amazon plans to dominate the retail world by using its best product: the e-commerce operation. This product will be accumulating losses even as it takes retail market share from physical stores and malls. The strategy is that over time, Amazon will deliver fatal wounds to many physical stores that few will exist.

But that is just part of the equation. As Amazon bulldozes and dismantles physical stores, more of them will move online. Amazon hopes to provide the platform through its Amazon Web Services for most of these companies. Yes, Amazon has the best solution for these physical stores to operate online, after they have lost any relevance in the physical domain.

Simply, Amazon’s ecommerce operation can make losses, provided that incurring the losses will create new business opportunities for the AWS which will have more customers as offline retails move digital. With this model, it does not really matter if the e-commerce ever makes profit since its impacts are generating businesses for another unit of Amazon.

Amazon has no choice: if it does not pursue its loss-enabling market share against physical stores, they will not move online to require the services of the AWS. (Of course, I am exaggerating here. There are many other areas AWS can make money, including supporting non-retail businesses. But I hope you get the point.) So, there is a big correlation: the more businesses move online, the more potential opportunities for AWS, the cloud services industry leader. It does not matter if the ecommerce makes any money as it causes havoc in the markets.

This Amazon’s strategy is the reason why any African ecommerce company that is copying it will likely struggle.  None has a unit that can deliver this kind of reverse gain that Amazon enjoys with AWS despite its losses in the ecommerce business. Without an equivalent of AWS, any Amazon’s cloning strategy becomes half-baked because the strategy will fail to have the profit-enabling element.

Dangote plans to invest billions of dollars outside Africa to have a geographical diversification.  When you have most of your assets in one region, you open up yourself to risks. Sure, Dangote knows that Africa is not blowing apart, but he does not want to take the risk. Besides, when he does that diversification, most investing models will remove geographical risk as they evaluate his stocks. The end game is possible positive movement of the stocks.

The Dangote Group plans to invest up to $50 billion in U.S. and Europe in coming years, according to Bloomberg.

Africa’s richest man, Aliko Dangote, plans to invest $20 billion to $50 billion in the U.S. and Europe by 2025, in industries including renewable energy and petrochemicals. The 60-year-old Nigerian cement tycoon aims to move into these territories for the first time in 2020 after completing almost $5 billion of agricultural projects and an $11 billion oil refinery in his home country, he said in an interview with Bloomberg Markets Magazine this month.

But diversification goes beyond geography.  Most times, firms build multi-product lines with defenses that deliver assured survival. If Samsung does not have a semiconductor unit, it might have collapsed under the weight of its mobile devices catching fire. But with the semiconductor business, it overcame that problem and returned with record profits.

The same can be said of IBM which saw its hardware business shrank within years. But with its services and consulting, IBM had the opportunity to remain as a business while it worked on fixing anything that was broken. The company continues to find that path, and new businesses anchored on its Watson AI solution will play a major role.

One company that went through the wilderness, lost focus and was internationally beaten down was Sony, the Japanese electronics giant. The camera business was decimated when the world moved from thin film to digital photography, reducing margins. The smartphone unit was an also-ran in the age of iPhone and Samsung Galaxy.  But Sony relied on other products and businesses to remain relevant while it turned itself around.  The revival seems near: products like high-end TV, image sensors, Spiderman, and PlayStation are doing well in markets. The market has responded, pushing the shares to its highest in nine years. From Fortune Newsletter:

As Reuters explains, Sony predicts its profits will mark a peak for the first time since 1998, when its PlayStation first appeared and when its film unit struck gold with Men in Black. Like much of corporate Japan generally, Sony, its home country’s global champion, went into a multi-year tailspin. Sony’s problems were many: brutal competition for its once-dominant television group; being bested by Apple’s iPod, a humiliation for the Walkman pioneer; high-cost manufacturing in Japan; a failure to seize the music-streaming initiative despite years of trying

Sony did many things to get to this level: it restructured the business and redesigned its operations. It also fired many workers in Japan which is not always common. Above all, it refocused by killing many multiple product lines. Today, the revival is evident: “Sony reported a blow-out quarter and said it was on track to post its highest-ever annual operating profit. Its share price has more than doubled in the past three years.”

But most times, you do not even need to be in trouble to redesign a business. Even Samsung Electronics thinks it needs new ideas. It wants a diversified insight into the future of competition.

… the resignation l…of Kwon Oh-hyun, the influential CEO of the semiconductor business of Samsung Electronics. Kwon is 64 and did a couple of unusual things on his way out the door. He stepped down unexpectedly, and he also fired a public warning shot across his own company’s bow, saying the company “needs a new leader more than ever,” given the imprisonment of third-generation scion Jay Y. Lee. Kwon also said: “We are hard-pressed to find new growth areas right now from reading the future trends.” This a shocking admission that even as Samsung racks up impressive profits based on its past innovations, one of its top leaders doesn’t think the company is well positioned for the future.

Offline Diversification

I will be leading a Board strategy session for a client next week. My job is to shape the company’s strategy. In the brief I prepared last week, every Board member called me back: they were interested that I asked them to diversify by going offline in some synergistic ways to the online business. The digital business, from the performance numbers, has been on stasis. I did note that it would be a fatal mistake to give up on the digital-first strategy of the company. While digital-first strategy is sound, digital-only strategy in Africa is really an illusion unless you run a blog or facilitate payments online. To unlock growth, in monetary terms, not just clicks and user base, on time, we need to think beyond digital.

Sure, we will deepen our capabilities in the web, but we will find new markets offline to make money as that is where the money is at the moment in Africa. Digital is for the future, but today, the money is offline. We need that diversification. But we will not leave the web properties. Investment will be smarter but synergies with meatspace must be clearly established. I want atoms to fuse with bytes to provide possible revenue growth.

Also, I am a big believer that meatspace will continue to drive businesses in Africa. For all the talks of leapfrogging, the percentage activity online will be less than 10% of all trade even by 2030. Take a boat to Orom (Akwa Ibom) and explain to me how internet will help you buy crayfish better with no physical access to the market. The infrastructure challenges will keep commerce offline, for long. But yes, the digital ecosystem will grow, nevertheless. The Western world with infrastructure will make a faster digital redesign because infrastructures exist to close the physical elements of trade when they are finalized digitally.

Besides, if the structure of the web is redesigned with technologies like blockchain, most frictions on commerce will disappear. I do believe that most things online will become free in near future and if that happens, making money online will become harder, unless you are running a big platform with advertisers. The British company Circle, a remittance firm, facilitates remittance between U.S. and UK at zero cost. It uses blockchain and Goldman Sacks has invested in it. If that scales, simply, remittance will become free. This same trajectory will apply in other areas.

All Together

As the story of Sony shows, diversification is strategic. While geographical diversification has been moving to other countries and continents, today, it could be as simple as having web and offline businesses. The web is a continent of itself and it is important to understand that. A company that is digital-first could diversify by investing in complementary meatspace business that offers synergy online. For example, an ecommerce firm can invest in a logistics firm as part of business diversification. Your diversification needs the atoms and bytes to be balanced in this age.

Trust is important. I used to watch NEPA (an electricity utilities institution) workers in Nigeria mount high voltage poles to fix or install things. One of the engineers would climb the pole while another would hold the ladder. In that process, they will make sure that power was cut-off to avoid electrocuting the man on the pole. Watching the men, you will see a system that was built and designed on Trust.  Without that trust, the risks the men take would not have been possible.

Trust is not just for electricity workers: in our relationships, we cherish trust. Indeed, in everything we do as humans, trust is the key. The more trust you can build, the better people can believe you. As a young banker in Lagos, they introduced us to Trust Bank. They noted that you would have to keep depositing trust in that bank in order to make progress in your career. Any day you fail in that capacity, it was as good as running away from the banking career. They trained us on decency, honor and values. They pushed us to make sure that our words mean our words, not just to your colleagues but also to the customers.

Even professors have to trust their students. You want to be assured that the papers they have drafted are not plagiarized. If they do and you do not find out, your own career could be in limbo. So, life is really about acquiring, dispensing and managing trust. In commerce, it cuts across all sizes: from big corporations to startups.

The Amazon Trust

You might have read that Amazon, the e-commerce giant, has a smart doorbell. This bell will allow you to open your door remotely for delivery people to drop items you have bought from Amazon. It seems crazy that somebody can do that. What if they hack the solution and someone enters your house? It is electronics and it is IP-controlled which means that it works through the Internet. It is a risk indeed. Yet, people will likely get the device. The technology is not really the bottleneck, the issue is this: can you trust Amazon to have the capacity to make this happen without any level of mayhem. Yes, anyone that deploys this solution in his or her home is simply trusting Amazon. From Fortune newsletter:

Amazon is pursuing something called Amazon Key, which lets its couriers unlock Prime customers’ doors and deliver packages. It’s pairing the service, which it plans to make available in 37 cities next month, with a camera so users will have intelligence inside and outside their homes, presumably boosting trust and lowering creepiness.

If one trusts Amazon, a big if, it’s a pretty cool idea. The company already might be listening to everything my family says via our Echo speaker and its Alexa voice assistant. So it knows what I want, and soon it can deliver it without my having to be home. It reminds me a bit of the Chinese startups that’ll wash your car while you work.

When a company is loved, it can use that grace to open new opportunities. Alibaba, the Chinese ecommerce pioneer, is becoming a global darling. It plans to spend $15 billion over the next three years on R&D in places like Russia, Israel, China, Singapore and U.S. When you hear that an ecommerce firm is spending $15 billion on research and development, you will ask yourself what they are researching on. How people can click faster and spend? The fact is this: Alibaba wants to penetrate markets outside China and wants to build trust by demonstrating that it can deliver the best possible experiences and products. When you spend $15 billion, new partners will come, governments will give you respect, because everyone now understands that you are for excellence. This research will cover ecommerce, logistics and cloud computing, with artificial intelligence (AI), financial technology (fintech) and quantum computing at the heart of the plan.  For cloud computing which Alibaba is pushing aggressively, the imagination that it will spend this much will give many partners more comfort to work with it. It is building trust that a Chinese firm wants to invest in the future.

Besides Alibaba, Microsoft is doing well on cloud which has been a growth area for the firm, helping to boost its earning. Amazon makes most of its profits through the cloud solution named Amazon Web Services. Even companies like Intel that supply the technologies that make building those cloud systems possible have great quarters. So, this is a growth sector. Alibaba wants to come big and now everyone is thinking: what will be the next phase after this $15 billion had been spent. You trust firms better when they invest in R&D. Till today, IBM touts its R&D and patents, reminding you that it puts efforts to get the best technology. It is simply telling you that it wants your trust because it makes the best technology. And once you succeed, the trust level is elevated in the minds of customers.

Your Startup Trust

It is not only Amazon that is testing this weird solution: Walmart is working with NEST, acquired by Google, to test a similar tool. If these companies succeed, it is because customers have built trust around their products. There is no other explanation: you have to trust the brand and the company to put the trust of your safety in their hands. That level of trust is also expected from startups.

First, a startup is just coming up and does not have a history any customer can look back to. So, buying your product will be correlated in the customers’ capacities to believe that you will execute and deliver as you have promised. If you do not put that level of trust, you will struggle on customer acquisition.

Sometimes, founders simply discount their products, making them cheaper to incumbents’ so that even if customers do not trust the products, they can try them without much risk. And of course, when they do try and find that the products are good, the startup can easily upgrade pricing over time. That discount on pricing is actually a way of reducing the burden for the customer to decide to buy: you are lowering the trust barrier where even if the customer does not believe that this product will work, the cost is not that much to not take a risk. So, they take a little risk with you and their experiences will determine how far you will go.

That first experience becomes critical: they are taking many burdens, despite the reduced cost, to give you a chance in the market. If you blow it (the product is crappy), you might have lost them for a very long time. That is why you must be sure that you are ready to hit the market at your best, in terms of product quality and service support.

The biggest challenge you have as a startup at the early phase of your market introduction is trust. You have to lower that benchmark that flips the decision from not-to-buy to buy. Once you do that and then maintain that, you have a customer, not just a consumer, with a relationship that no matter what you throw at the market, most will buy. Amazon is reaping its excellence and tradition of giving customers great deals. It demonstrated that it has the ecosystem where people could buy the most affordable books and other things on America. It continues to mine that trust, utilizing it in many areas. It now plans to make its own sportswear, putting Nike and Adidas on notice. Customers will trust Amazon because it will provide the best price.

The fact is this: when a company has established that high level of trust in the minds of its customers, many good happen: Our social media destination site, Facebook, plans to get into food delivery business. The network has a feature that will make it possible for users to order meals in selected restaurants or through third-party delivery services. Facebook wants you to do more on its platform and it does not even want you to leave to order your lunch. It thinks it has earned your trust in that space. It wants to follow the path of WeChat, a WhatsApp equivalent in China, by building an ecosystem in the lives of people. From Bloomberg: “deals in China are done over WeChat. Bankers in using personal accounts on WeChat and QQ — apps owned by Chinese tech giant Tencent — for everything from distributing research to soliciting orders. The practice is flourishing in the world’s second-largest economy.”

These companies have one thing in common: they have built trust in the lives of the customers and they are simply monetizing it.

All Together

Business is not a vacation enclave. It is a contact game – you hit someone, someone hits you. It is a world of competition. For products you have on the market, success could be correlated to your brand which pushes out an image, defining if people should care on what you do. Building trust and nurturing it is something every startup must work on. When you do that, you build customer loyalty and that always opens moments of glory. For fintech (financial technology) and medtech (medical technology) products, the trust bar is even higher. But the good news is that once the customers have tested you and you are real, they will become fans. Apple in the eyes of its fans will do no harm. Amazon believes that its customers are now pals, giving it access to their homes even when they are not around. You need to have that level of relationship with your customers to succeed at a higher level.