OoTheNigerian

sometimes, I make a lot of sense.

All posts by Oo

Xenophobia vs. Protectionism: How should local Nigerian startups compete with ‘foreigners’?

20 January 2014 by Oo

 I read a post that would not be too out of place if it came with the byline of BNP’s Nick Griffin.

The crux of the post is that we should be afraid of the foreigners coming to Nigeria to take it all from the Nigerian tech scene and “forcing them back into the Lagoon” is the way forward.

I suggest you read it

Ideally, it would not have been worrisome but the fact that it was written by a poster boy for the Nigerian internet space and wholly endorsed by Sim Shagaya, CEO of Konga who called it “words of wisdom” makes it so

If people do not state early, their opposition to such xenophobic (irrational fear of foreigners) thinking, it could easily be misconstrued as a true representation of the view of Nigerian tech ecosystem.

This is coming on the heels of a Nigerian commentator/activist advocating that foreigners should not be allowed to run malls in Nigeria

Interestingly, Nigerians are particularly known for traveling far places to do business and are usually on the receiving end of “these foreigners are our problem” thinking.

Why the fear of Rocket Internet?

Rocket Internet is an Incubator funded by 3 German brothers, the Samwers. Their business model initially was copying businesses that had gained traction in USA but yet to enter Europe then sell these companies to the original US companies when they are ready to tackle Europe.

Version 2 of their current business model is aggressively building ecommerce verticals in Africa, Middle East and South East Asia.  They centralize and reuse technology in Germany and then hire a person to lead the operations execution in the country they are tackling. They sell and leave as quickly as possible

When they come into a market (it is rumored that operation leads on the ground, aka co-founders, are given $1million to check out the market) they move aggressively, hire and quickly spend lots of money (in the local ecosystem) in a very short time.

This of course causes a mini inflation in the local tech scene as they poach staff, cause an increase in the ad buying cost etc, mainly making things much more expensive. No local startup certainly likes it since it makes business unnecessarily more expensive to run

My views on Rocket Internet have evolved over time. Before, I thought they were a net negative to our ecosystem since they play the pure extraction short term game. Meaning, they build solely to sell and when they sell, they take the money out and move to the next area to extract from; leaving a wake of over stretched local startups and questionably self-sufficient businesses.

But that was one dimensional thinking on my part. Rocket internet is majorly responsible for the urgency we have in our local tech system especially in the ecommerce space. Alongside stretched startups, they leave in their wake human capacity trained on their dime a more developed market and of course a new investor holding the bag. I’m certain the local advertizing companies are also not complaining.

A negative remains though. In other successful tech ecosystems, local money is a major part of the tech scene so when there is an exit, the money is poured back to the local economy and it gets bigger. With the Rocket model, nothing like that happens.

How do you solve a problem like Rocket Internet? Protectionism or Xenophobia?

What is worrisome in Jason’s post is the fact that a legitimate problem (the Rocket extraction model is not the best for a fledgling ecosystem) is muddled with the xenophobic “stop the foreigners” solution.

What is bad for the Nigerian ecosystem is the extraction game irrespective of who plays it.

[Side note: Interestingly, Nigerian politicians and to a large extent ‘business men’ are guiltier in playing the extraction game. They take money from Nigeria (usually foreign loans) and go and develop Dubai. At least Rocket is bringing in money before planning to take out their spoils.]

I’m in favour of protectionism to an extent.

Protectionism are laws created to protect local companies from foreign (company) competition especially if the locals are operating at a disadvantage. The value in protecting home companies is based on the assumption that they will employ residents, pay tax and limit capital flight. They more they succeed, the more tax they will pay and more people they will be employed locally. Local companies could be run by New Zealanders for all anyone cares. i.e citizenship of local company owners does not matter.

Hypocritical words

Jason states:

“We are at the cusp of losing the key internet 1.0 verticals to non-indigenous players. This is something which would be dire for the ecosystem at large.”

 

“My simple thought. Our fathers lost the Telecoms, PayTV and other technologically driven industries to foreigners. Let’s not make the same mistake and lose our internet industry.”

So what exactly is he arguing are we losing?

If he is talking of returns, shouldn’t those who take risk be rewarded? When Konga and IROKO eventually successfully create a massive liquidity event, who would win?

Well, their approximately 100% foreign investors.

Is he talking about losing by building foreign capacity as against building local capacity?

Jason’s Co-founder, first angel investor and IROKO COO Bastian (who runs the company) is ironically, German (same with Rocket’s founders). DealDey (Sim’s previous company) is run by a foreigner. Konga and IROKO have foreigners in leadership positions.

There is no noticeable difference between the citizen structure i.e the citizen composition of the employees of either Sim/Jason’s company and an average Rocket Internet company e.g. EasyTaxi and Jumia (until recently) are Nigerian run.

I have previously written about why we are losing the investment game to foreigners.  In summary, there is less risk and turnaround time in investing in traditional tangible opportunities like real estate. Only those who have made money via software can see the internet opportunity. Sadly, they are not much around.

Competition:

The absence of international competition is the reason why Nigerian payments infrastructure has been way behind. Without competition in PayTV, we would have been at the mercy of HiTV that broadcasted premier league matches without sound or halftime commentary.  Without competition the customers will lose.

The world is flat and companies can no longer hope to be protected by artificial political borders. From day one, you should build like the biggest player in the world is going to launch in your market tomorrow.

The sole reason Silicon Valley is the outright leader in technology startups globally, is the combination of the concentration of talent brought by the high priority placed on competence irrespective of origin and a lot of money.

What is the way forward?

Asides the xenophobic card, how do local ‘underfunded’ companies compete against the foreigners especially those playing the extraction game?

Ironically, Jason answered  this in the beginning of his post referencing the Alibaba movie

“a great company culture, locally focused product development and a fierce belief in your local market can withstand and defeat a massive global competitor”

In addition to the above the government has a role in ensuring local capacity is built. Local businesses are encouraged to  operate/employ locally,  Yadda.. yadda  yadda..

 

First they came for Rocket Internet, but I did not speak up because I was not German..

Then they came for the Kenyans, but I did not speak up because I was not Kenyan..

 

PS:

  1. I do not for one second think either Jason or Sim are xenophobic one bit. Jason is even arguably British. But playing the xen? card for short term individual business advantage is VERY detrimental to the general ecosystem at large in the long term.
  2. Make no mistake, I am a very biased man all things equal, if a local company is executing at 70% of their foreign counterpert, I will go with a local. Same with friend vs. non –friend, family vs. non-family. Etc. However, I will not go attacking the other.
  3. Being pro x is cool, being anti y, had better be justified and being foreign is the worst of justifications.
  4. Triple irony is that Alibaba’s major investor was Yahoo! - a foreign company founded by a Chinese immigrant who would not have founded an American company if Silicon Valley was anti-foreigner (this is getting too meta for me).
  5. Oh. The Alibaba story was told by a foreigner.

33 comments | Categories: Commentary, Nigeria, Uncategorized | Tags: , , , , , , , , , ,

With Konga’s 25 Million Dollar Raise, Here is the Bigger Story.

03 January 2014 by Oo

Techcabal just broke the awesome news that Konga just raised 25 million dollars.  That itself is a big story, but looking closer, what is the bigger gist.

Let us pay a little attention to the financiers. Here is a quote from the TechCabal story

Beyond the fact that the round is skewed towards Swedish Kinnevik’s lead, we could not ascertain the structure of the deal, nor the resulting valuation. Preceding cash injections saw $3.5 million seed (Kinnevik) and $10 million series A (Kinnevik, Naspers).

Kinnevik is basically the lead investor and has great control.

Let us move back a few weeks to the story of the MTN – Rocket Internet/AIH deal. The owners of Jumia and co via Africa Internet Holdings

The partnership will result in MTN, Millicom and Rocket Internet each holding a 33.3% stake in Africa Internet Holding (AIH).

So Millicom and Rocket Internet control AIH with 66.6% and in turn Jumia.

So why mention Kinnevik?

Well, Kinnevik practically owns Millicom and yes they are the largest investors in Rocket Internet.

Oh Shit! I hear you exclaim. Ah Shit indeed.

Kinnevik controls (technically you could argue) both Jumia and Konga and practically own ecommerce in Nigeria. That my friends is the bigger story.

Which brings me to a prediction for the next year I missed in my post yesterday. Konga and Jumia Nigeria will become one and will be run by Simdul Shagaya. With the co founders of Jumia rumored to have left, I do not think it is that far fetched.

PS. Let me introduce you to Cristina Stenbeck. The boss at Kinnevik. The most powerful person in the African Internet space.  She is 36 years old. *bows*

Cristina Stenback

17 comments | Categories: Commentary, Nigeria, Technology | Tags: , , , , , , ,

My 14 Predictions for the Nigerian Technology Space in 2014

02 January 2014 by Oo

I think it is a fun and useful exercise doing predictions. It is a way of documenting wishful thinking and testing your perception abilities. Looking back, it would show how far along you have come.

Here is my attempt 3 years ago http://oonwoye.com/2011/01/04/10-predictions-for-the-nigerian-tech-scene-in-2011/

For the coming year, here are my predictions it is a combination of positives and negatives. Nothing outlandish as we are predicting only one year out.

  1. Payments solved: Nigerian tech companies will have their payment problems solved (most likely NOT by a Nigerian company). i.e stored card data will enable reoccurring billing which is the lifeblood of software startups. Paypal will arrive. Finally.
  2. Major exit: There will be a massive exit for a Nigerian startup (not Rocket). Massive meaning over $80million. I have no idea of the space.
  3. Major casualty: Likewise, there will be a massive failure of a funded company. A bankrupt startup or a founder kicked out of his/her company. Lots of media startups will close their doors.
  4. Tech will go mainstream: Tech founders will get the recognition that has been missing. Red carpets and magazine covers for our sector will become commonplace.
  5. International companies will come: Facebook, Twitter et al will set up proper shop in Nigeria.  Google will go beyond their sales cubicle. Hello Deezer!
  6. Cash will flow in: There will be a lot of inbound money invested in the technology space. $100million at least will come in. The low amount is because of the uncertainty of the Nigerian elections coming up
  7. Rocket will Exit Africa: They are done with here. But they’ll be dusted as they sell off everything they have and move on to other things.
  8. Corporate venturing will take off: MTN has shown the way. We love to copy. Do not shut down that your streaming app just yet, the buyers are looking out.
  9. Incubator time: Many commercial play incubators will begin to sprout. There will be at least one foreign one that will be for Nigerian startups (as against the Rocket model)
  10. Tech + Politics: Technology and social media will dominate the political landscape. This is fairly obvious but it will be on another level far beyond SMS broadcasts
  11. Global Nigerian Startups: We’ll have our Representatives in Y Combinator, TechStars and 500 Startups. Of course we will start appearing on TechCrunch, Pando, Re/Code. #Primetime.
  12. Broadband: Everything will change with the sale of 2.3MHz spectrum.
  13. Live streaming: The plummeting of broadband costs will mean a lot of live casting will take off this year. Video will be big.
  14. Education: This is the next ecommerce for Nigeria. Everyone will do an education startup this year. At least two will have the same name ;)

Bonus:

Swift – Visafone:  There will be an acquisition and/or merger involving these two.

Nigerian Sex tapes: They will go mainstream. Tonto Dike mainstream ;)

What are your predictions for the Nigerian tech space in 2014?

PS: Please forgive the typos. I did not predict I wilt be typo free.

15 comments | Categories: Digital Media, Nigeria | Tags: , , , , , , ,

Why the MTN – Rocket Internet Deal Worries Me.

17 December 2013 by Oo

When I read about the Rocket – MTN tie up, I thought “WOW!” for a second. Then was a little puzzled as to how a deal between the telco giant and an eCommerce juggernaut made any sense. I slept woke up and my eyes opened literally and figuratively.

I sent out a tweet to which Eghosa responded quite accurately

 

My main worry stems from Net Neutrality or  more accurate the possibly death of it and the implications

Net neutrality (also network neutrality or Internet neutrality) is the principle that Internet service providers and governments should treat all data on the Internet equally, not discriminating or charging differentially by user, content, site, platform, application, type of attached equipment, and modes of communication – via Wikipedia

Last year, Pando covered a company, ItsOn that makes it easy for web/mobile companies to pay for the cost of interacting with their application. I did not think it was a good thing then

Under this deal, Rocket Internet is financially aligned with two telecom firms MTN and Millicom (which also owns part of Rocket Internet and which is in turn funded by Kinnevik) that have access to over 200 million subscribers.

So how does his affect competition and consumer choice?

What if for MTN/Millicom subscribers to browse/shop on Jumia does not cost you any bandwidth/money and opening the Konga.com homepage wipes out 50MB? Where do you think people will go shopping? What about Movies/Media?

This no longer becomes a level playing ground.  With this deal, “level don change”.

Of course, I will have to fearfully salute the Rocket guys and their obviously forward thinking backers for blowing up the ecosystem upping the stakes so drastically in less than 3 years on this continent. Can you blame them if they are within the law?

I don’t

The way forward?

Those that are policy experts are better versed on how to allow the ’free market’ operate within the context of avoiding monopolies that harm the consumer.

Interestingly, net neutrality is at an important turn in the US and the result will change EVERYTHING

I’m worried.

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6 comments | Categories: Uncategorized | Tags: , , , , , , ,

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