Computer Village, Lagos’s famously overcrowded tech-retail centre, a Samsung smartphone wholesaler receives an email telling him a buyer in the neighbouring Ogun State has placed an online order. The Samsung device is delivered three days later and the buyer pays the deliveryman. The key to the whole transaction? A website that hopes to become the eBay of Africa: www.kaymu.com.ng.
Kaymu, a subsidiary of Africa Internet Holding (AIH), hopes to take its online marketplace for retailers and entrepreneurs continent-wide, on a model already established in North America by eBay, in China by Alibaba Group’s TAOBAO and in Latin America by MercadoLibre. Unlike conventional brick-and-mortar retail, the online platform offers storeowners a freesales consultancy. It also increases theirnumber of sales and marketing channelsand in some cases, helps them save onshop rent and electricity costs. A businessthat does well on Kaymu may not evenneed a physical store.
Setting up Shop
In 2012, Kaymu established its flagship operations in Nigeria and Pakistan. The venture has since grown to cover seven countries in Asia and 10 in Africa, including Morocco, Rwanda and Tanzania, and there are plans to expand into five more African countries during the first quarter of this year. Kaymu Africa’s managing director, Elias Schulze, says the company’s entrance into new markets is heavily driven by fairly simple but meaningful metrics such as increasing internet penetration, GDP, GDP per capita and population size. Management is bullish about the important pockets of opportunity to be found in virgin markets and encouraged by an improving economic outlook and renewed government efforts across Africa to expand broadband infrastructures and develop favourable information and communications technology (ICT) policies. The company’s biggest operation, Kaymu Nigeria, records thousands of sales monthly and has a staff of well over 50 people. In some markets the company charges commissions, though it does offer “grace periods” to first-time sellers in order to woo them and deepen its consumer base.
Schulze argues that although the market conditions may not always be perfect, the timing is. “It’s of course much better to establish an online marketplace before the crest than five years later. It’s better to be an eBay in 1995 than in 2005,” he says in support of the company’s early-mover competitive advantage.
EBay: the Inspiration
On 3 September, 1995, in the early, feverish years of the dot-com bubble, Iranian-American computer programmer Pierre Omidyar founded AuctionWeb, a site that enabled sellers to auction rare and niche items online. Initially, he ran it in his free time. With hardly any competition – or government regulation of its business – the site quickly gained traction and expanded into travel and product sales. By 1997, with dozens of workers and millions of completed auctions, the company received $6.7 million in venture capital funding from Benchmark Capital and rebranded itself eBay. The following year, the company went public, Omidyar reportedly becoming an instant billionaire. With a sturdy capitalisation, eBay expanded its product categories beyond collectibles into general items and acquired the likes of PayPal, Skype, and StarHub. The company has a current market value of $69 billion and is considered one of the most successful internet multinationals in the world.
Schulze says that time will tell whether Kaymu can become Africa’s eBay, though he is confident in the company’s abilities. “It’s a question of our ability to crack Africa’s code and how long it will take per market but there is no doubt that each market will eventually boast a successful and booming marketplace,” he says.
While internet penetration currently stands at 16 percent, it is growing steadily. However, the continent is largely still wary of internet business models. According to a 2013 McKinsey report entitled, Lions Go Digital, 16 percent of Africa’s 1.1 billion people who are online contribute to just over one percent of its total GDP. In contrast, internet penetration contributes 2.2 percent of GDP in other emerging markets and 4.2 percent of GDP in developed markets.
An amused Kaymu Nigeria managing director, Massimiliano Spalazzi, reveals that sceptics living in Lagos – where over 50 percent of the population is online – often place test orders using the payment-on-delivery option with no intention of paying as a means of testing whether the website’s distribution system actually works. “They laugh and send the delivery man back,” Spalazzi says, smiling, “but we call them and seize the opportunity to educate them.”
Schulze points out that it is this skepticism which makes educating the consumer base so imperative. To spread its message, Kaymu has deployed an aggressive team of sales foot soldiers and callers. Representatives educate small- and medium-sized enterprise (SME) owners, wholesalers, niche product peddlers and university students about running and promoting their own online stores. “Though apprehensive initially, the moment sellers record a sale online they excitedly embrace the approach and spread the word,” Spalazzi says. On Fridays, Kaymu also holds Kaymuversity, a crash course to nurture its sellers’ online business management skills.
AIH: Pushing for Success
Even as Kaymu finds its footing, competitors are springing up and jostling for market share across several of its operating countries. Schulze says the New York and Buenos Aires-based multinational internet company, OLX, could be perceived as one rival though he insists it fails to offer the same platform, security or services that help grow successful local businesses. In Nigeria, Kaymu’s biggest market, leading e-commerce companies Konga and Kaymu sister-company, Jumia, have both recently expanded and competition has become fierce. Kaymu may also have trouble raising sufficient funds quickly, which could slow its growth. Given current market perceptions of e commerce, the company will not raise billions of dollars from an IPO as did eBay. However, its backers, Rocket Internet, Millicom and MTN, under the holding group AIH, have access to heavy capital. Schulze, a former McKinsey consultant from the Lagos office, says he has “never met any group of people so bullish in Africa as the guys who run AIH.”
Rocket Internet is a billion-dollar German start-up incubator with over 75 companies scattered across the globe, while Millicom is a multibillion-dollar-backed developer and operator of cell phone networks in emerging markets. MTN recently joined the duo, following an announcement in December 2013 regarding an undisclosed cash deal for one-third equity in AIH. Millicom said in a statement that the “investment will fast track the development of AIH while ensuring the company is fully funded until break-even.” In less than two years, the aggressive team at AIH has founded seven ventures with 50 offices across 15 countries employing an estimated 2,000 direct and indirect staff. Its largest business, the Amazon- like Jumia Nigeria, has raised millions in capital, skyrocketing into one of the country’s five most-visited sites, and has led e commerce adoption in Nigeria.
AIH operates a bit like a factory, studying proven and successful internet business models and hiring well-trained executives to replicate them in emerging economies. But AIH co-CEO Sacha Poignonnec explains that the businesses aren’t “copy and paste” products. “The innovation is in the execution; understanding market peculiarity, making consumers trust the model, devising safe payment methods, [and] ensuring smooth delivery despite peculiar logistics challenges,” Poignonnec says.
Understanding the Market
McKinsey estimates that by 2025, internet penetration in Africa will have reached 50 percent, changing how public services and businesses operate and contributing $300 billion to total GDP (compared to today’s $18 billion). Similarly, Kaymu anticipates that its business and revenue in Africa will grow exponentially as internet penetration on the continent increases and e-commerce becomes more common. Schulze says that success is not likely to happen in the same way or to the same degree in all of its African markets. “Each market has peculiarities and requires a different strategy. As soon as you paint Africa with one brush, you might as well close shop. You haven’t understood anything,” he says.
Schulze appears notably upbeat about Kaymu’s potential in markets like Cote d’Ivoire, with its strong middle class and private-sector-reliant economy that is finding resurgence after the most recent civil conflict. “We hadn’t even started marketing and orders are roaring in,” he says. But smaller markets like Rwanda aren’t overlooked either. He explains that Rwanda’s internet users, at roughly 7 percent penetration, are concentrated in the country’s capital, Kigali. The Kagame-led government is very focused on ICT expansion and the Rwandan market is witnessing a surge in SME owners and entrepreneurs – Kamyu’s target customers.
Although Kaymu Pakistan gets more site visits than Kamyu Nigeria thanks to Pakistan’s superior internet infrastructure, the Nigerian arm records a higher conversion rate. This, according to Poignonnec, has to do with Nigerians’ economic power and entrepreneurial spirit. “Everyone here is trying to sell something,” he says. That’s a good thing for Kaymu. In the end, it will be only the sum of all the entrepreneurs who use its platform.
