London — A range of stats show that Africa's digital content and services sector has grown and African consumers are using online services more than ever before. But the continuing high costs of consumer data and the challenges of e-commerce make it a far from easy road. Russell Southwood looks at what these two pieces of news - the Zinox deal and the OLX office closures - tell us about the developing digital services sector.
In retrospect, the sale of Konga was probably an inevitable consequence of Kinnevik deciding that Africa was not making enough money to justify staying there. Before this point, Millicom had been developing a digital strategy and Kinnevik had been investing in emerging digital services start-ups. For example, besides Konga, it also invested US$5 million in Deal Dey in 2015.
With the decision to pull-out, it has slowly been liquidating the portfolio of investments. Its free-to-air broadcast arm was sold to Econet Media with its CEO Joe Hundah at the helm. Recently MTG sold Trace TV, the global hip-hop and sports channel operator. It also sold its shareholding in Rocket in 2017.
It would have sold its African Tigo operations as one but there were clearly no buyers. It's the same problem Airtel has. So it has been forced to enter into two merger deals and clearly will look for more mergers or buyers in the future.
So the key question for anyone trying to read the tea-leaves is: is the lack of a perceived business opportunity in Africa something that is particular to Kinnevik's circumstances (and its rate of return) or a broadly correct commercial judgement. Is it just that Millicom has been a mobile loser or is there some broader lack of profitability about the emerging mobile and digital space in Africa?
When I spoke to Shola Adekoya, CEO, Konga (who will be staying on in the new company under Zinox) in July 2017 (see here) it was clear that original model was undergoing significant change. The sale of high-end electrical goods and mobile phones that had driven the first phase was no longer producing the return customers. At that point, 90% of its turnover comes from its Marketplace where individual merchants hold the inventory and 10% from direct sales (see also article).
In November 2017, the changes made clearly were not producing a sufficient turnaround so the company sacked 60% of its staff. Alongside that, it stopped its pay-on-delivery option mainly due to the frequency of cancelled orders and security challenges often faced by delivery personnel. It also shut its warehouse service and started changing merchants rental fees.
Local PC assembler and high-end IT solutions company Zinox bought the company for a widely rumoured US$10 million but Zinox spokesmen Gideon Ayogu told Quartz that the amount was "way higher". But whatever the price, the point is that Kinnevik was prepared to take a significant hit on the considerable sum it had invested to get out. Naspers, who will come to again below, also lost out. Among the asset portfolio sold is mobile pasyment platform KongaPay which has a reported 100,000 subscribers.
Zinox launched an e-commerce platform, BuyRightAfrica in 2008 but was probably too early to market and closed it in 2013. Zinox Chairman Chairman Leo Stan Ekeh told Technology Times:"It failed because I started too early and there was not the human capital to support it." It's probably not entirely coincidental that Zinox's Chairman Leo Stan Ekeh has a son Nnamdi Ekeh who owns an e-commerce platform called Yudala. According to his father the business is now averaging N50-100 million in daily sales and wants to get to N500 million a day by the end of the year. Ekeh senior said he can easily imagine N 1 billion a day when the economy bounces back. Zinox does not own the company but Ekeh is a personal investor in it.
Also this week Naspers shut down its online classifieds operation OLX in Kenya and Nigeria, which it entered in 2012. According to a company statement:" We made a difficult but important decision in Nigeria to consolidate our operations between some of our offices internationally."
"Our marketplace will continue to operate here - uninterrupted - as it has since 2010, and we remain committed to the many people here who use our platform to buy and sell every month. We continue to be focused on constantly innovating to make sure that OLX remains the top classifieds platform in the country." In other words, it would like to continue operating there but without the expense of local offices.
In an interview in Digital Content Africa Riccardo Pasqualotto, Founder and Sales Director, Mobi Hunter gave me OLX monthly reach page views for a range of African countries as someone advertising on the site: Nigeria (40 million page views); Kenya (64 million page views); South Africa (35 million page views); Ghana (23 million page views) and Uganda (7 million page views). The average time spent on the site was 19 minutes.
Two observations are worth making: Firstly, there is an increased level of competition with lots of classifieds-style sales being made informally off Facebook and indeed Facebook has recently launched a business sales platform. Secondly, although the Nigerian economy is better, the legendary "disposable income" of former years is less in evidence.
E-commerce requires time for behavior change and trust. Clearly the hybrid method used in Nigeria - where the customer pays on the doorstep is fraught with risks - may not be the way to go. People need to develop enough trust to make online payments . They have enough trust to use free services like Facebook and You Tube but it will take time for consumers to change their behavior in relation to paid-for services. Meanwhile cheaper and more reliable data services would also make things easier.