The best marketplaces are the ones that improve an existing behavior between the supply and demand side of the market or make it more efficient. They ride on an existing behavior without trying too hard to create a new one.
Since the internet became ubiquitous, marketplace platforms have been a quintessential part of the business model deployed by online entrepreneurs. It’s one of the best examples of the use of technology to aggregate supply, enable visibility of product and create transparency of services and transaction. The key challenge, however, is that marketplaces are quite foreign to the way Africans normally transact. An open market system is quite dominant, where transaction and communication are done directly between both sides of the market.
And so, to build a successful marketplace in Africa, there needs to be demonstrable value beyond just connecting both sides of the market via an online platform.
Therefore, when you ideate in Africa mimicking a foreign culture you start having problems with educating the market on the need for that marketplace and educating the supply side about the need for them to give you value out of what they are selling. The assumption is that the internet will change people’s behavior but on the contrary, the internet enables an existing behavior. On the flip side of that is creating a marketplace with unique value. Take, for example, Iroko. Before Iroko, movie producers sold directly to retailers and video marketers but Iroko created value through an online channel without having to buy the product physically.
But in a marketplace for artisans, for example, it is harder for the suppliers to see value because they believe they can acquire customers directly and do not see the need for paying transaction fees. So, they turn the marketplace into a discovery platform, and successful marketplaces are not discovery platforms — they draw financial value from all transactions that are going on on their platform. That is how they get lifetime value, data economics, and continuously retain both sides of the market.
When you focus on creating value, or a new value system rather than enabling a transaction, then you start doing something that’s different.
Two things to make marketplaces work: an existing platform that does something similar and a cultural antecedent for that market. These two elements seem to be lacking sometimes in marketplaces in Africa where companies think they can put themselves right in the middle of a transaction just because they have created a platform online.
Right now, VP shies away from marketplaces because it takes a lot of money to validate it at scale — anywhere. Especially in Africa where internet penetration is low and customer acquisition cost is high. And it is difficult to pull in demand and supply and get them to pay in a way that you can draw value from. Except you are creating a value that is very sticky and viral i.e the product itself is inherently viral such that users are incentivized to tell other people about it.
The path to profitability is long for marketplace business requiring a constant injection of capital. The best marketplaces offer end-to-end experiences and they play such a critical role in the commerce experience that buyers often don’t perceive the company as a marketplace.
- Kayode will be in Nairobi on the 8th for Village Capital’s Fintech Africa cohort demo day.
Kola will be speaking at the Africa Tech Summit London on the 16th. The summit showcases opportunities and connects investors & diaspora in Europe/US with African tech.
Accounteer emerged the winner at the #MestLagos challenge and will pitch in Cape Town at the Mest Africa Summit.
NESA by Makers has partnered with Tech Advance to provide full scholarships to 10 aspiring developers. [Link] + On May 16th, their CEO will be discussing Africa’s social, political & economic future at the African Business Day in the Netherlands.
Links from the Internets
- The most famous quote about Facebook isn’t actually about Facebook — it’s about television. [Link]
- Are high standards intrinsic or teachable? [Link]
- A dent in the universe is plenty. Curb your ambition. [Link]
- Entrepreneurs think they are better than their resumes show and realize they can make more money by going it alone. And in most cases, they are right. [Link]
- Here’s an interesting research by Ventures Platform Foundation for Google [Link]
Have a great day!
Thanks for reading. Did you like this post? Have Series V delivered to your inbox every Thursday. Subscribe here.