OoTheNigerian

sometimes, I make a lot of sense.

Category Archives for: Nigeria

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: , , , , , , ,

Value Creation, Capture and Nigerian Music (File) Startups

05 December 2013 by Oo

I have always wanted to publish my ‘thesis’ on music (file)  startups especially as it concerns Nigeria. I still do not have the time to do something comprehensive. However, as someone that spent quite a few years in this industry, anytime I hear another iTunes for Nigeria launching and relaunching, I get distracted mentally.

I am hoping by writing this long rambling  thesis, that distraction will go away.

Please note that this was written in one go this morning. No time for edits or ‘cohesive writing’. I have Fonenode business pulling my ear. Sorry

Let’s go.

  1. Doing a pure download/file startup (ala itunes) is a mistake.

  2. Creating a successful Nigerian streaming startup is kinda late now.

  3. The only opportunity is focusing on discovery and ancillary unpiratable business models.

With all politeness, Nigerian music startups in general have added practically zero value to Nigerian music therefore it is going to be extremely hard to capture value where you have not created it.

A model that depends on extracting money from from an artist after (s)he has become popular is quite wishful thinking.

The central revenue model of most music file startups is selling downloads (If you have no transactional revenue plan, and hope on advertizing to make it big, LoL). Asides the fact that the approach to selling (by Nigerian startups) the music adds no value, it is anti to the success of the artist.

(Let me get this out of the way: iTunes has half a billion STORED credit cards and offers insane convenience. You are NOT iTunes)

Yes, I am saying selling music especially singles works against the interest of the Nigerian artist even the ones that have ‘made it’.

Take a look at this tweet by Don Baba J below

He is giving actively giving away his latest hit track. Begging people to take it for FREE. Is that what you hope to sell? You may think is is mad and leaving money on the table. But my simple chart below explains why he is doing it.

SOURCE : Pulled out of me ass.

My interpretation

In the first chart, the artist makes a higher percentage of revenue from the sale of his tracks. However, because of the friction caused by focusing on selling music, the artist did not get popular. But did some shows though. Big share of small pie.

In the second chart, the artist did a Don Jazzy, pushed his music for free but still offered it for sale to those who want to buy via iTunes and other channels. As a result the artist got popular did lots of shows, performed at weddings and most importantly got paid to perform at the birthday party of the wives of the governors. How can I forget the endorsement revenue. (Small share but mighty pie)

“But we will sell albums!” I hear you cry.

Yup! You will sell albums. How many non singles from albums have made it big?

Fun Facts:

  • Nigeria is the only market where an artist re releases a track from a published album as a single)

  • Our Artists sometimes release three singles at one go.

  • Davido released about 6-8 singles before launching his album.

Ok, I’ll make it a bit more sad. You definitely have heard of the long tail.

I stole the chart from here

What the chart means is that a few hits drive most of the sales/interaction/traffic. In the case of Nigerian music startups, very few songs will make all the money and these are the very songs that are given away for free! *sigh*.

We have seen instances where artists were paid quite a boatload of to distribute the songs via a particular channel (iRoking and Spinlet come to mind). It was good for the artist though in the short term. Not so sure about the distribution platform.

For Spinlet, it can be argued that the money paid was a marketing cost in trying to get people to download their app. For EME though, it was also kind of a win as they put together a bunch of songs which may never have been released and got good money from it. Of course they still released it in the open market. I’m not sure how many career defining hits came out of that album.

As for purchasing music and hoping to profit from the distribution like they do in Alaba, that is a really bad idea. iRoking did that and stopped. There are no guesses why.

(Supplier power for music in Nigeria is so low so they cannot go after hulkshare and co even if they wanted to. how much is the value of music you are going to court for anyway. And the artist will still give it away for free. I think iRoking tried the legal method at a time)

Streaming/subscription:

Now, let us assume you want to go the streaming/ subscription route for the library of music. How do you undercut Deezer, Spotify, MOG, Grooveshark who can give you the latest Olamide and Eminem on the same platform. In Grooveshark’s case, it is free albeit a bit backward compared to Spotify and Deezer.

The awesomeness of those platforms is the tail end asides the terrific experience of having access everywhere.Having everything is what gives them the most value and without 100 million in the bank, you cannot even begin thinking of playing that game. Grooveshark began and got big before the labels tried to take them down.

Besides all the space for that model has already been taken. Even Rdio (backed by men who sold Skype 3 times!!) are finding it insane to crack.

So if you cannot exclusively distribute music, how do you want to make any serious money from it?

Re: creating value:

To know if a Nigerian music file startup gives value, which one would die today and have a dent on listening or revenue for artist?

None.

But some people create value. The bloggers, especially NotJustOk have added the most value to Nigerian artists. Without them, there is absolutely no way any Nigerian artist would attempt to tour UK/US/Malaysia etc. Unfortunately, they have not been able to capture the value they have created.

Sorry guys.

So how can money be made at all by the music startups?

Any music startup that wants to succeed, has to be at scale, and create something that has to do with network effect. For instance, if your startup has the best way to efficiently reach all the reggae lovers in Lagos, then you can tap into that because you would make it possible to have a successful reggae concert. Without you, it would have been impossible.

Can you make an artist get endorsement? Sell tickets, merchandise? Then you can tap into the value you create.

There are other unpiratable business models like caller back tunes which gave Inyaya 5 digits in dollars monthly for many months. Unfortunately, all the value of CBT is created and consumed by the telcos. If Kukere was sold exclusively there will be no Iyanya. Period.

But one thing is certain, you cannot pay for most of the music if you are to make any money. In theory, COSON would try to convince artists otherwise. I will take them a bit more seriously when I see any currently successful artists endorsing their shakedowns. They will not and they know it. They need radios and blogs to spread the music far and wide. The day Wizkid (who is insanely massive) decides to cramp down on the playing of their music in hotels, radio, public places, you will see enough people replacing them overnight.

This is because there is no short supply of great music. With a laptop you can create what can become a hit song in Nigeria.

(Fun experiment:  9ice has banned his music from blogs. Let us see how that turns out Lol)

More bad news.

For those monetizing via say YouTube, the artist will go with you until he becomes big enough. Olamide is now on Vevo and you cannot match Vevo. Why? adding an Olamide increases overall value of their assets on a higher magnitude than yours. So you cannot match their offer.  It is a global game.

You too yarn. What was the plan for GBEDU.FM?

Those who interacted with me 4 years ago know that I had a time frame for GBEDU.FM before it would become too late. I know if I was not already BIG by last year, it was over to go through the streaming route. The time has passed.

Of course I had (have?) other ideas on how it could still work and I will give away just a little. Any Nigerian music startup that wants to make it somewhat big (> $2million.year revenue) cannot buy music first of all.  Secondly, they MUST align with a brand that will carry most of the operating cost in exchange for marketing exposure (meaning you must be big). Then focusing on creating value and sharing with the artists AFTER the value has been created. Alternatively, align with an organization who you will add value to even if independently, you cannot be profitable. e.g Like Spinlet is with Etisalat.

Other

I heard Michael Ugwu has focused on adding value in another way by making music distribution more efficient with Freeme Digital (I love the name!). I like seeing cashflow positive stuff. There is also DistroKid  (affiliate link. Feel free to go straight)  and another launching soon in that space.

I do not know how big that opportunity is but is a great way to be in the music business. Michael’s relationships with the artists gives him a head start and competitive advantage. Especially with back catalouges

My advice?

Don’t enter the space now. It is too late. Except you are neck deep already or you have a completely different angle. Your effort will be rewarded better elsewhere.

I love this quote on music startups so I will end with it again

“Music startup” is a misnomer, most music startups are actually music file startups.  If you want to actually create a music startup you have to combine cultural understanding of music + identification of new acts/trends that haven’t been picked up by existing labels & media, with a deep understanding of new media technologies.  Basically, think of the Web 2.0 equivalent of a Suge Knight.  Nobody has ACTUALLY started a music startup yet — probably because it is hard to have both cultural and technical sophistication.

If someone creates a really authentic new digital space with authentic new artists, and uses the new digital medium to deliver the close personal relationship today’s music fans / etc want out of their bands and personalities, they are likely to make a fortune.  Redistribution of existing content owned/controlled by labels and (equally evil) rights agencies is an epic failure of a business model, and does very little to address the massive thirst in the marketplace for new, interesting, authentic culture

- Numair Faraz on why it is difficult to build a music startup

There are many things I left out and could have made this shorter. Sorry, I did not have time.

I’d love your comments.

PS: GBEDU.FM is still there but it is now my expensive hobby. You have a new iPhone? Cool. I use an old phone but I have my personal music player. The  domain name costs $100 a year.

PPS: I will edit later when I have the time (I lie)

BTW, Do check out Orin for mobile . It is theoretically a competitor but the lad is someone to watch out for.

2 comments | Categories: Commentary, Digital Media, GBEDU.FM, Nigeria, Technology | Tags: , , , , , , ,

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