I invite you to read the one oasis strategy in Tekedia store [PDF]. In that piece, I used Amazon as a case study. Reading from that piece, you will get a good idea on how to run an ecommerce company especially in Africa to make a profit. Sure, I have noted some challenges with this sector in an article in the Harvard Business Review. But that does not mean one cannot built a thriving business therein.
The One Oasis Strategy is the proposition that if the best product drives key investments in a firm, it has the capacity to help other products in the business. Other products would feed from the best product, and on overall, the company would flourish. By removing the inherent risk of external markets, the best product becomes the first and the most important customer for that new investment and in the process eliminates investment risks. It makes firms move very fast because you do not have to even consider external customer opinion since the products are not made for them. Indeed, the time wasted on surveys, focus groups and market research works are eliminated because there is a customer right inside the firm.
Once done, I invite you to read this extract from Fortune newsletter.
It’s a well-known fact that restaurants make their money on marked-up cocktails and other libations, not the food they serve, no matter how tasty. It’s a similar story for auto dealers, whose margins are slim on hunks of steel even as their vigs are fat on warranties, financing fees, and car mats. (I fell for that one in 1997, and I’m still annoyed.)
Now we see Amazon has pulled off a similar feat. Its barely-break-even retail business was all it had for years, and for eons Amazon didn’t make money. Just wait, the company’s fans would say. Eventually Amazon’s hugeness will pay dividends.
And it has, but not because the business of traditional retailing suddenly got better. Amazon, instead, is now oozing profits because of the services it has built on top of its something-for-everyone merchandising. It takes a cut from other merchants who sell on its platform. It charges brands and others to advertise on its sites. And its best services business of all is AWS, the online business that rents computing power and software programs to the commercial masses. Fortune Newsletter
As Fortune notes, Amazon does not have to make profit in the best product. It simply needs the best product to ensure it can make the supporting ones work out. The oasis, the ecommerce business, drives payment, advertising, etc. And on those ones, Amazon is finding profitability. This is the winning strategy for ecommerce even in places like Africa.
---Visit our Store for my books, cases, notes, etc. Now, enjoy our consolidated subscription for all contents (past, present and future).
-- We offer Advisory Services (tech, strategy & Africa).