Africa e-commerce: Beyond the Hype

ecommerce(Electronic commerce or “e-commerce” is the buying and selling of information, products and services via the Internet.)

Now, if you have plans to start an e-commerce in Africa, or you have already invested in any e-commerce project in Africa, this article is for you.

A better title for this post would be: “Why you should not invest in eCommerce in Africa before 2020?” or “Africa is not ready for eCommerce … Wait”.

What is the status of e-commerce in Africa?

eShopAfrica.comThe oldest and most successful African eCommerce company is eShopAfrica.com, from Ghana, started in 2001, selling arts and crafts from Ghana, Ethiopia, Zimbabwe and Mali to consumers in USA, and UK. Products are made in Africa, and sold to fat-wallet middle class consumers in developed world, who can pay with credit card, Paypal and can access Internet at any time.

The second most successful African eCommerce company is Skinny laMinx, from South Africa, which sells highly designed crafts to consumers abroad. 80% of  “Skinny laMinx” sales comes from USA and Australia. To accelerate their growth, they moved their shop to etsy.com, and recently opened an offline boutique in in central Cape Town, at 201 Bree Street.

The third most successful African eCommerce is again a craft company, Rwanda Partners, which sell hand made baskets and jeweleries from Rwanda in the USA market. I love Rwanda basket, and the quality of their products.

Obviously, the handmade and crafts segment is the most successful eCommerce segment in Africa, and here a list of other popular sites:

Paper Craft Africa and Banana Boat (Uganda)
African Craft Market (SouthAfrica)
African Artists (United Kingdom)
Zawadi (South Africa)
Africa Creative (South Africa)
Botswana Craft (Botswana)

Iroko-tv-logoThe second most successful eCommerce segment is online entertainment like the Nollywood movies distribution company IrokoTV, or the African shows and music distribution platform TruSpot,  and the myriad of “Pay TV” subscription services like Canal+, DStv, Vodacom, BSKyB, Viasat, etc.

The third most successful eCommerce segment is made of “hustlers”:
– Betageeks using average computer programming skills to make money form platform like guru.com, elance.com, etc.
– copywriters and translators for foreign websites or local agencies
– Forex traders
– and the notorious Nigerian Scammers using dubious schemes to steal money from greedy foreigners.

We can conclude from above that Expect the Entertainment segment (online movie and Pay TV) which have African as customers, the only successful ecommerce in Africa are targeting foreign customers. “Your goal should be to try and sell your tech skills (including your English language skills) to Americans or Europeans who are looking for cheap labor. i.e. outsource your skills to those who already have credit cards and disposable income and try and get their money. Why look for water in the desert (Kenya) when there’s a whole ocean out there? (aka America, Europe, etc, etc)” Kenyan Entrepreneur

Any other ecommerce company you have heard about is either struggling or is operating at loss. Here are few of the most hyped:

Traffic sign for Winners or Losers - business conceptDealDey (Nigeria Groupon clone)
Rupu (kenya Groupon clone)
Kalahari (Kenya Amazon Clone)
Jumia (Nigeria Amazon clone)
Ushop (Zambia online grocery)
Atsoko (Tazania beauty and cosmetics)
YuppieChef (South Africa Kitchen tools)
DealFish (Dead pole, ex-Kenya Groupon clone)

There are now hundreds of other online websites claiming to bring African retail online. But how could they? Most of them don’t make any money or are losing money.

Ecommerce became successfully around the world for 3 main reasons :

1. Convenience (You decide when to buy, how to buy, from the convenience of your home or office, at your own pace)

2. Lower Price (Consumers usually get better price than going to a local store)

3. More choice (Online stores usually carry more inventory than their traditional store)

Why-people-shop-online

Unfortunately, African ecommerce can’t enjoy those conditions:

red-cross-symbolRegarding convenience: Most African simply do not see the value of e-commerce. Just think of the typical working class in Nairobi or in Lagos. He has his job in town, how could buying something over the internet (from a Kenyan or Nigerian retailer) benefit him as opposed to his usual methods of solving buying needs?

Also, most folks don’t have access to Internet when they want or have very limited time access.

The biggest medias that reach African people are Radio, TV, and Mobile phones. Access to Internet is expensive, very slow, time limited, and not available when you want. Access to Internet via mobile phones is 2.5m/s to be exact. And, shopping using mobile phones is rather difficult though apps have been created to make it easier.

Simply put, Internet is not a convenience yet in Africa, and additionally it’s not a trusted media. In the current stage, I’d rather invest in a company that will invent a convenient way to sell through SMS, Radio, TV, than Internet.

red-cross-symbolRegarding lower price: Most Africans don’t shop in supermarket or the new modern shopping centers, but in the informal market, where the prices are 2 to 3 times lower. Why would they go to Internet stores, which are just trying to be an extension of modern supermarket?

Additionally, the African middle class which can afford to shop online don’t buy commodities, daily food and house needs from supermarket but from local informal markets. Also, most of this middle class employ cheap home servant which care about daily food and household needs.

AS described by Kenyan Entrepreneur the “fundamental problem still exists and it is that the middle/upper middle class numbers are still too small to really give your online business a boost.

For instance, I’ve been seeing a lot of Kenyans in Kenya now buying airline tickets from American websites and sidestepping travel agents in Kenya who they say are too expensive.

So, for example: My cousin recently bought an airline ticket for his mum to come and visit him in Washington, DC. and what my cousin did was go online to expedia.com and use his credit card to purchase the ticket for his mum (from his end). Then, when his mum landed in DC, she simply gave him the money for the price of the ticket.

I also know middle class Kenyans who are doing this for clothes. i.e. going online (b/c they have access to the internet) seeing what they want (from American retail stores) then telling a trusted family member in America to buy the clothes for them(online) and then they simply wire what you owe back to them.

In other words, those who have access to the internet are not waiting for a “kenyan” site. They can already get what they want if they have to.”

red-cross-symbolRegarding choice: Most of African ecommerce website sell products you can find by yourself on Alibaba, Amazon, ebay or any branded online store and get delivery in Africa for less price. They are not selling African made products. And when it comes to Africa middle class which the current ecommerce website are targeting, those folks travel quite a lot, and will buy computers and smartphone in USA or UK where they are much cheaper and with more choice. Otherwise they ask friends abroad.

In countries where ecommerce is already well developed, the top-performing online product categories were: Digital Content & Subscriptions, Consumer Electronics, Event Tickets, Apparel & Accessories, and Computer Software.

Top-products-sales-ecommerce-usa

Top Ecommerce website
Top-ecommerce-websites

Top Ecommerce by region

Ecommerce-by-Region

Top payment solutions

Top payment solutions

Sadly, most discussion about the development of eCommerce in Africa is too much focused on the eCommerce infrastructure (Terminals, Internet access, payment gate, delivery, logistics, Trust, etc.) , but before any discussion relating to eCommerce infrastructure, we need to check, like any sound business plan,  what is the market and who are the customers we want to bring online.

The business model discussion in necessary because “Most are confused about what E-commerce actually means. E-commerce is not about putting up a website.  Anyone can do that with the kind of software that is available today.  E-commerce is like any other kind of commerce.  The only exception being, it is done online as opposed to being done via a brick and mortar store.  Therefore, because E-commerce is like any other kind of commerce, in order for it to succeed, the ingredients of basic economics need to exist wherever you are” Kenyan Entrepreneur

5 questions needs to be addressed:

1. Where does African buy now?

Most of the retail commerce in African happens inside the huge African informal sector. Bringing the African informal sector online will be THE real innovation, not copying Groupon, Amazon, Craiglist or Alibaba. Stop the Laziness!

2. What are they spending their money on?

How a typical African household revenue is Spent

– 30% of any African household revenue is spent on health care
– another 20% on housing needs
– 15% on Energy bills
– 15% on Food
– 10% on transportation
– 8% on clothing and fitness
– the remainder on leisure and social obligations

These numbers are from a survey I’ve done in December 2012 among my middle class African friends.

eCommerce should go where the money goes! or perish!

3. Who are the buyers, and what are their habits?

If you target African middle class, the buyer is the cheap-uneducated-servant most of them employ for house works, buying food, paying energy bills, etc.; or their wives who’d prefer social shopping (or shopping in group with friends), not lonely shopping in front of a computer or a mobile phone (Africans are not lonely people forced to live all day long inside their house or apartment by life threatening weather conditions, and fragmented social life conditions, like Americans or Europeans).

4. How do they buy now?

Most folks buy from a central or neighborhood informal market. Modern supermarket are kind of curiosity center or a Disneyland for most.

5. How much money do the buyers spend, monthly or yearly?

The African Development Bank says: 34%, or 313 million Africans are now middle class (living on $2-$20 a day). Most of this so called $2-a-day-middle-class is located in North Africa. Tunisia ranks top with 45.6% of its population falling into the middle class category, followed by Gabon (37.8%), Egypt (31.6%), Botswana (29.3%) and Algeria (27.3%). At the bottom end, Liberia is the country with the smallest middle class – only 1.9% of its total population.

I’d say the real African middle class monthly revenue is about $800 a month, and in any given city, you can count them on the fingers of your hands.

Anyone considering investing in eCommerce in African should check the Forester study on the 4 stages evolution of eCommerce:

Phase 1: Connecting and Entertaining. In this phase, consumers are starting to go online and connecting with others through the online channel. Some 10-15 years ago, consumers were likely to go online and engage through email or chat; today, social networking has joined the ranks of one of the early activities of online users. Socialbakers’ estimates of Facebook users by country indicate that the network’s top five markets outside the US are Brazil, India, Indonesia, Mexico and Turkey – in such markets, the number of Facebook users today often surpasses the total number of online users just five years ago.

Phase 2: eBusiness Basics. In this phase, consumers are comfortable enough online to start engaging in activities such as online banking, and are starting to purchase early-stage categories online like travel. In places like Southeast Asia, visits to online banks are reported to be increasing steadily. Online travel, too, is booming in areas where online retail is still nascent: A 2011 report by India-based investment bank Avendus, for example, estimated that online travel purchases represented 87% of the eCommerce market in India.

Phase 3: Comparable Goods Purchases. In this phase, consumers start to shop for goods online that can be easily compared across sellers, e.g. consumer technology purchases or books and media. In a report my colleague Sucharita Mulpuru wrote back in 2008, she identified the categories with the most tenured buyers in the US as books, software and music purchases. Today, these categories – alongside others with tenured buyers like consumer electronics and computer hardware – dominate sales in many emerging eCommerce markets.

Phase 4: Subjective Goods Purchases. In the last phase of eCommerce adoption, consumers’ online purchases start to include those where there is traditionally a strong desire to touch, test or try on the items prior to purchase. This phase tends to include categories such as apparel, beauty and grocery. Today, consumers can turn to more sophisticated website tools – as well as extensive customer feedback – to make more informed purchases online. However, issues like inconsistent sizing and a lack of a returns culture have prevented apparel sales from shifting online in certain markets. In the grocery sector, there are many countries in which few online options even exist for those interested in buying.

While there are certainly exceptions to this linear progression, we see this framework applying across a variety of markets.  Clients interested in more details – and in which countries typify each phase – can read our recently published report on The Evolution of Global eCommerce Markets.”

In a next post I’ll address the Infrastructure requirements for a sustainable eCommerce in Africa.

 

Related Post

mm

About Mawuna KOUTONIN

Mawuna Koutonin is a world peace activist who relentlessly works to empower people to express their full potential and pursue their dreams, regardless of their background. He is the Editior of SiliconAfrica.com, Founder of Goodbuzz.net, and Social activist for Africa Renaissance. Koutonin’s ultimate dream is to open a world-class human potential development school in Africa in 2017. If you are interested in learning more about this venture or Koutonin’s other projects, you can reach him directly by emailing at mk@linkcrafter.com.

21 Responses to “Africa e-commerce: Beyond the Hype”

  1. Mark Kwesi

    I must confess Mawuna that your Article is quite detail and rich but however very misdirected.

    You sounded like a dooms day prophet canonizing his prophesies of a “E-commerce Armageddon ” in Africa.

    M-pesa, Mixit, 2Go, IrokoTV for example are successful African web services with a huge following.
    Facebook Users in Africa now account for 65% of Internet Traffic.
    Google Africa has an impressive localization service that has seen them start Classified Ads and directory listing services in most ccTLD domains they have localized to
    You have asserted to Africans using eBay(which i doubt), Amazon(which only 2yrs back didnt take African orders) and Alibaba(China’s Amazon)

    ALL THESE POINT TO THE FACT THAT E-COMMERCE & INTERNET DRIVEN DECISION PURCHASES ARE BECOMING THE NORM IN AFRICA.
    So please, dont make Kenyan based comparisons to other African climes you have lived in.
    I personally made online purchases from Ghanaian & Nigerian sites selling services to the tune of about $3200 for 2012 alone.
    I had a few complaints here and there but i got value for my money and i know they would improve on their short comings.

    FACT COUNTERS TO YOUR Points
    Income levels of Africans has risen since year 2000-
    (more disposable income has converted extra non-basic needs into necessary basic everyday needs of Africa).

    Goods & Merchandise E-Commerce thrives with availability of a rich variety of products, competitively priced, delivery systematically efficient, payment/billing multi-platform enabled and return terms/quality of service issues tackled.
    Not your perceived rational of apathy & distrust on the path of the African consumers
    Thanks for the Article

    Reply
    • mm Mawuna Remarque KOUTONIN

      @Mark
      The article is in 2 parts:
      1. things that work and why they work
      2. Things that are struggling, and would eventually fail, and why.
      I mentioned few e-commerce that are working in Africa.
      I hope the overall impression was not too pessimistic.
      My next article will cover questions related to basic requirements for success.

      Reply
  2. Jay Vee

    Hi Mawuna, your sources are outdated.
    Ecommerce in South Africa is picking up at an exceptional pace. If it can happen here, it can happen anywhere. Africa is on the verge of an unprecedented growth curve.
    You had better start your Ecommerce engines before foreigners lay claim to our gold and oil again…

    Reply
    • mm Mawuna Remarque KOUTONIN

      Thanks for your head up. Can you share more data with me please (mk@linkcrafter.com).
      I agree that e-commerce will pickup, and smart entrepreneurs will be wise to observe the change and take action when the conditions are right.

      Reply
  3. Steve

    I don’t know where you get your facts or how you measure success of e-commerce sites, but there are simple flaws in your post here. Definitely some good points in there, though I think more research would help you state a better case. For example in South Africa you have Kalahari, Takealot, Loot, bidorbuy (which by the way has been operating since 1999) which are all quite successful there. E-commerce in Africa cannot be expected to grow at the same rate as it has in Europe and America, but there is solid growth and good uptake.

    Reply
  4. Namoba

    1. Please learn the fundamental grammatical rules of the English language.
    2. Please learn to support your arguments with verifiable sources and references.
    3. Please learn how percentages work so that you don’t litter your articles with bizarre info-graphics such as the one suggesting sum totals of 220% for tangible goods !

    Reply
    • mm Mawuna Remarque KOUTONIN

      Hi, Namoba
      You are right about my English. I’m not native, and I learned most of it by myself while reading books or listening to music. I’ll do my best to improve in the next future, and I hope you’ll be proud of my progress.
      Regarding “verifiable sources”, I always do my best to reference my articles. Please let me know what I got wrong this time.
      Are you in ecommerce business? Maybe you could share some of your data and sources with us here.

      Reply
  5. Coolmoov

    Valuable information. When mobile phone started in Africa, everybody did not think it will work. How can someone living on 1$/day afford a mobile phone? Today Africa has more mobile phones than in the US. It worked because of the prepaid minutes and the alternative was too costly and inaccessible.

    The morale: not e-commerce but m-commerce can work. It needs to be adapted and specific to the needs of the target market. Yes there will be obstacle just like in any business.

    Reply
  6. Tolu

    Ecommerce is picking up in Nigeria. However, there are some obvious problems which will still take a while. I believe the major one is consumer confidence in online shopping. Most of us are still skeptical about the idea. The second most fundamental is the online security. Thank God for the use of bank cards, however, with the rate of online fraud coming from Africa, you cannot blame anyone for being skeptical. The truth is that the market is already growing and a few enlightened people understand the benefits. Some free classified ads websites like Roborebe are also getting acceptance bit by bit. Lets face the fact, the online market is going to explode in the next couple of years in Africa and the trust levels will increase. Lets hope we find ways to tighten security online and maximize the market.

    Reply
  7. Jeff Kahuthu

    E-COMMERCE WILL TAKE OFF IN AFRICA

    Hallo, Remarque

    I managed to read the two articles you published on siliconafrica.com on e-commerce in Africa (“Africa E-commerce: Beyond the Hype” and “Africa E-commerce: The Missing Ingredients”). I must confess that I was a little taken back by a number of your claims. So I took the time to write a response.

    Firstly, you asserted that no one should invest in e-commerce in Africa before 2020. That Africa is not ready for e-commerce. You then went ton to describe a number of African businesses that are doing it right and concluded that they are only profitable because their core customers are based on far more developed countries where disposable incomes are higher. You then explained why content distributors in Africa are making some cash and suggested that anybody still determined to make e-commerce work in Africa should focus on these same customer base.

    At this point, I think you made a classic mistake. Firstly, the reason why the “handcraft and crafts segment” is allegedly successful is not because they sell to Americans, et al. These web companies sell an experience, an experience that Africans are familiar with. Their unique selling point (USP) is they offer African craft to those that can barely acquire it without having to travel to Africa. The mistake you made was that you equated customer base with USP/value proposition.

    You then went on to list a number of other sites that have “cloned” “Western” models such as Kenya’s Rupu.

    Mistake #2: you equated “cloning” with lack of ambition/creativity/imagination.

    Copying is by no means a trait of the “lazy”. China’s economy has been built around it. The Industrial Revolution was built around the ability to copy technology and make multiple iterations. In fact, the windmill as we know it has undergone numerous iterations from its original concept. Certainly, you are familiar with the iPhone and iPad. These were not innovative products. They were evolutionary products, building on top of other products and features before them. In fact, “cloning/copying” is an important step in the entire technology transf process. Innovation is rarely “revolutionary”, it tends to be “evolutionary”, moving in small steps. Which is why numerous technical experts are coming to Kenya to undstands how m-pesa works, export the technolo to wherever they are from and continue building from there. If that does not convince you then this might p: “Good artists copy, great artists steal”!

    In fact you enforced this concept when you suggested people should sell their skills online. That single suggestion reminds me of TaskRabbit, a purely American startup doing the same thing.

    You went to make another false statement- convinience is not a 1st world problem. Everybody, everywhere wants things to be convenient. Never having to wait at the supermarket queue, etc. to give you a concrete 3rd world example, numerous shopkeepers and informal traders I know use their phones to schedule purchases and physical deliveries by motorcycle every single day. I have done it myself. This is not a working class challenge/problem.

    The article went on to clim that internet access is slow- you even gave a figure. This is spot on. However, there have been a number of advancement in this area. Opera Browser, Africa’s most popular Internet brwoser, compresses data by up to 90%. It is effective that I use it on my tablet. Lifesaver. In addition to this, I do not know if you are familiar with biNu. They have a very formidable system that builds on the years of research into algorithmic caching. biNu reduces data charges by a significant multiple and is in use across millions of devices around the world. Vascode also has a very innovate technology in the form of a clientless platform wher users can access the Internet through ussd. The technology to reduce, and in vascode’s case, eliminate data charges exists. Furthermore, investments in network infrastructure as well as the rise of a willingness by MNOs to share network infrastructure means that data support will only continue to grow.

    The article mentions the lack of consumer trust. I am Kenyan and can confirm that when m-pesa was launched, there were huge trust issues. Those issues are all but gone as MNOs have invested huge financial and brand equi to resolve this matter. M-payments are not only acceptable, they are part of day-to-day life.

    You went to say that “most Africans don’t shop in supermarkets”. That is also erroneous.

    In Kenya, for example, the wholesale and retail sector grew by 7.3% in 2011, beating manufacturing, building and construction, agriculture, and transport and communication. It was 2nd only to financial intermediation services. This is comparable to South Africa’s 7% increase in sales turnover for the same period. In 2012, wholesale and retail increased by 6.4%, compared to 6.5% in financial intermediation. All this despite strong inflationary pressures and reduced FDI due to the impending general elections. In fact, wholesale and retail are Kenya’s 3rd biggest contributor to economic growth. As a sign of confidence, Nakumatt are investing USD 20 million to expand into the new counties. People shop at retail! For real!

    You also suggested that regular African shoppers prefer the “informal market”. At this point, I couldn’t agree with you more. However, studies suggest that Africa’s informal market is becoming more and more formalized. In Kenya, for example, the greater ease of registering businesses and the attendant benefits (such as ease of securing financing), the rise of the SME counter at the Nairobi Stock Excahnge as well as the government’s ruthless drive to expand the taxation base means more and more mom-and-pops are become formal. I have witnessed it- it is real.

    But this line of reasoning fails to consider the fact that supermarkets and multi-chain retailers are beginning to compete with SMEs more effectively. Why? EAC integration and investment in transport infrastructure mean it is now easier to achieve a truly more effective and affordable distribution chain. The willingness of supermarkets to also offer “unitized” products to support the “kadogo” economy, more stable macro-economics, benefits of economies of scale, greater physical security, and access to quality goods means that supermarkets will continue to compete against the informal economy. After all, multi-retail retail is not called an SME killer for nothing.

    Your observation that the middle class is too small is also correct, but once again, you fail to account for a number of trends, both in the long and short terms. To compound this, you went on to contradict yourself by sating that some of your friends buy airline tickets online as well as publishing an ad-hoc survey that I think should NEVER have gone to press.

    On the middle class, it is interesting to note that >40% of Kenyans spend >$2 a day. This is the highest number in East and Central Africa. In 2005, 27% of Kenyans were in the “true” middle class (spending less than 199,999 Kshs a month). That dropped to 18% in 2012. The Base of the Pyramid (spending less than 23, 670 Kshs a month) decreased from 12% in 2007 to 1% in 2011 while the wealthy (spending 200, 000 Kshs a month) was 3.6%. 75% of Kenya’s GDP or Kshs. 1.3 trillion (>$16 billion) in 2007 was represented by the consumer market. In 2008, in the lead up to Kenya’s violent general election and a traditionally inflation-heavy period, this figure jumped to 77.8% or Kshs. 1.9 trillion. a case in pint are the sales at multi-channel retail outlets. Nakumatt had sales of >40 billion Kshs, with 85% of those coming from Kenyan outlets. The projected growth is 20% YoY. Uchumi made >15 billion in sales in 2012, a 26% jump in pre-tax profit. Kenya has a significant mall culture. South Africa had 6.1 billion Rand in online sales ONLY in 2011 and is projected to continue rising!

    You suggested that e-commerce sites should offer greater variety. However, that goes without saying as any product outlet either has to offer exclusivity or greater variety with regard to their catalogues.

    You asked who are the buyers and claimed that it is the cheap, uneducated and illiterate servants to the middle class. Wrong again.

    The decision-making unit (DMU) cannot be the “slave”, real purchasing power rests with those that pay them.

    Secondly, Kenya’s literacy rate stands at 87.4% (males-90.6%, females-84.2%) against a global average of 84.1%. South Africa comes in at 86.4%. By 2008, Kenya had Africa’s highest computer literacy rate at 74% (Lagos-69%, Kampala- 68%).

    The article also goes to suggest that the most active shoppers are wives/housewives/females (true for certain product categories, but they are also the least active in general in net e-commerce transactions), that they wouldn’t fall in love with the idea of shopping in front of their computer screens and that they’d rather their girlfriends. You topped this up by claiming that Africans are intrinsically social.

    Once again, you may have been wrong. The myth that Africans are more social than Caucasians is just another myth, a stereotype. Social interaction is a need that runs across the board, regardless of race and culture. Philosophically, where Africans are more physically ready to interact Caucasians use technology to satisfy this need. But this too is changing. As we urbanize. Starting in 2014, the Middle East and Africa will have the 2nd largest social network audience after Asia, beating Latin America. This is despite a low penetration rate of 18%. We will also have the fastest growth in audience, gaining new users at 83.8%. 2go grew by 40, 000- 60, 000 news users a day in 2012, with 96% of those coming from African countries.

    You raised th pint of lack of payment enablers, but once again may have overlooked payment gateway providers like PesaPal, Kopo Kopo and the open source Pesapi. Mobile payment system are by themselves platforms as demonstrated by safaricom’s recent product, Lipa na M-pesa that lets SMEs receive payments from their customers.

    You may have struck gold with the part of fulfillment providers. Certainly, Africa has huge logistical and infrastructural challenges. It is heartening, nonetheless, that access to special economic zones in close proximity to cities where companies can establish warehouses (fulfillment center), bigger investments in infrastructure will lead to efficient distribution systems, reduction in corruption and bureaucracy , greater regulatory control of courier/delivery processes, among many other factors means that it will become incrementally easier to managem the logistical risk of last-mile delivery as well as provide an enabling and predictable environment for investing in developing an in-house logistics system.

    With regard to regulation, I think you may have sold governments short. Uganda too has an Electronic Transactions and Electronic Signatures Act. Kenya continues to lead the way with the Kenya Information and Communications (Revised 2009) Act, CAP 411A that was soecifically revised to support e-commerce, e-transactions, and e-signatures. Othe Kenyan laws are the Anti-Money Laundering Act (2009), Proceeds of Crime and Anti-Money Laundering Act, Arbitration (Amendment) Act, Kenya Constitution (2010). Following m-pesa success, a numbe of African countries are also willing to follow Kenya’s model of letting Innivation lead regulation i.e. “regulation following innovation”.

    The lack of a buyers’ agent network is of very little consequence. Product review networks have little effect on influencing consumer purchasing decisions. Family (34%) and friends (21%) are the most trusted sources of recommendations or orders and services, whether they are sold online or offline, hence the term social shopping. Celebrities, strings, and ads are the leat likely to influence and least trusted sources of recommendations in that order, at 30%, 19%, and 15% respectively.

    In my opinion, you may have made the biggest mistake of them all by claiming that affiliate marketing is the “lifeline” of e-commerce. By saying that, you effectively reduced e-commerce to customer acquisition machines. But that is self-defeatist.

    You are familiar with the formula CAC 2.5, enough to handle overhead expenses and leave you with enoug to wet your beak!

    In this equation, CAC has a disproportionately huge effect on the value. The more you can reduce CAC (e.g. By eliminating affiliate marketing payouts, optimizing checkout flow, incepreasing the viral co-efficient, etc) the more favorable the margin will become. But this raises the question of how exact you are going to be business without acquiring customers. Vpceratinly, the logical conclusion would be retain existing customers for longer. Remeber that it is also more expensive to attract “old” users sometimes by factors of up to 7X. This brings us to another metric: PAYBACK PERIOD, the time it takes for a customer to be profitable. Ideally, it should be less that 12 months, but some e-commerce subscription startups have achieved that in 1.5 months. On averages traditional e-retailer has to wait 89 days before a customer comes back for a second buy so the target should be to make buys make more frequent purchases. Group buying sites like groupon have second purchases at 48 days. Due to this quick turnaround, the LTV increases by an additional 385% in the customer’s first year. This way, they are hugely profitable even though they have smaller average order sizes than traditional e-tailers ($61 vs $105).

    The point here is that the only 3 most implant goals for e-commerce startups is to aim for a higher LTV (meaning great investment in customer retention) a shorter PAYBACK PERIOD, and a lower CHURN RATE.

    Affiliate marketing comes into play when one has achieved significant scale. Nonetheless, it’s NETWORK effect can be beaten by the VIRAL effect of social network.

    In fact, the following equation holds true for social network and goes ahead to merit of my argument: CAC<LTV X (1+ V), where V is the viralit co-efficient (i.e. how many users an average user brings to the site).

    Another colossal misconception is your advice for startups not to attempt to change customer habits, that startups should rise on it. I can't let that go uncontested.

    Startups are by their very nature disruptive and bold, but there is a method to all that madness. BJ Fogg's Behavior Change Grid has been critical in teaching the methods of matching target behavior with solutions for achieving them. It teaches the systematic process of designing "persuasive" technology, how "interaction design/thinking" can help us design technology that enforces, modifies, and/or changes a user's behavior in a on-obtrusive manner. This is an industry standard.

    The biggest challenges I see with regard to e-commerce is as follows:
    Developing mobile apps that migrate "desktop commerce processes" to
    the world of mobile, with it's small real estate. This is a design and UX
    challenge
    Creating trust despite a rand vacuum
    Overcoming the numerous logistics challenges
    Finding a behavior model for user design and customer experience

    Reply
    • mm Mawuna Remarque KOUTONIN

      Do you have personally an online shop? (if yes, what is your real world experience?) or if you are consultant for ecommerce, do you have some success stories to share?

      Reply
  8. Kesington

    Hi Mawuna, Thank you for your article…!!!! I think that you made some very valid points that your critiques are over looking… From my perspective of someone who is interested in starting and ecommerce site, I found it to be interesting and very informative. Everyone has a perspective and an opinion, but not everyone has the courage to express and help others through sharing information and so for this I commend you. I am even more taken aback by your humility to the responses that you received from your article. Clearly you are trying to learn/grow and inspire others and even though I do not know you, I am filled with pride that an African man can see past negative unproductive comments!!!! I pray that God continues to bless and shower you with his love so that all you do may glorify his name. Kind regards Kesington.

    Reply
  9. Marcelitte Gallian

    Why are you referring us Africans to white owned companies? Rwanda Partners and Skinney Laminx are White companies –Are there any African Companies we can spend our funds with ?? Thank You and Best Regards

    Reply

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