the new business

Platform Economy Revolutionizing Business Sector

Ermias MulugetaApril 15, 20204825

Ethiopia has embraced platform-based businesses very recently. Though late, many platform-based tech businesses, including taxi hailing apps, mobile money operators, and e-commerce apps, have opened over the past two years, thanks to the growth in the number of internet and smart phone users. This has connected buyers with sellers and facilitated transactions and communications amongst individuals and groups. But government’s failure to understand tech disruption is costing developers and holding the sector from growing, as EBR’s Ermias Mulugeta reports.

When QENE Technology presented a gaming app to Ethiopian audiences exactly four years ago via its pioneering gaming technology in the east African country, it has made history. It has become a point of discussion among techpreneurs, all the while winning the hearts of youths within a short period of time. The developers of the social gaming platform did not at first have the intention to create a furnished game development center. Rather, their plan was to create a platform that would allow developers to work at ease.

“Coming up with a gaming app was not our interest, But global dynamism, coupled with the growth in demand for such products, prompted us to immerse ourselves in the development of apps,” says Dawit Abraham, CEO and co-Founder of QENE. Dawit and his fellow dreamers had to pass through undiscovered routes to flesh-out their dream. Mesmerized by their potential, funders agreed to finance their projects, allowing Dawit and his 15 colleagues to get USD75,000 in seed money to develop the gaming app.

“We were impassioned to snatch our Ethiopian target groups from western game influencers and introduce a game wrapped in Ethiopian cultures. We were, however, expecting that there would have been more demand for our product internationally than locally. But we were wrong as the reverse turned out to be true,” said Dawit, whose gaming app has now been downloaded more than 30,000 times and has 10,000 active users.

With the growth in number of internet users, especially in urban areas, the demand for apps has exhibited a drastic growth over the past decade. As of now, there are 22.7 million internet users, up from 15.7 million four years ago. Smart phone ownership has doubled to more than 12 million. So far, 250 Ethiopian apps have been uploaded to the two app stores—owned by Google and Apple.

Though small in relation to the whole population, app-based businesses in Ethiopia, particularly in the capital Addis Ababa, are booming. Online shopping, logistics, delivery, and transport are the main business sectors capitalizing on these opportunities. Such realities have paved the way for app-based businesses to thrive and secure a source of revenue, as their basic design enables the scaling-up of transactions in a way that traditional businesses cannot.

With the rising expectation that tech platforms can solve different problems and situations, they have become the norm of everyday life. The past decade, in particular, has witnessed a drastic rise in platforms that have become an integral part of people’s everyday lives. Whether it is Apple, Google, eBay, Amazon, Android, Facebook, Microsoft, Alibaba, Uber, PayPal, or any one of the numerous others, they have become some of the most preferred companies that consumers value.

They have built out their businesses on powerful platforms based on what people value, while allowing them to connect. They also have power to bring together consumers and buyers, thanks to their two main assets: interactions and information. Furthermore, they facilitate an easily accessible networking of users, services, devices, and intermediaries. In fact, experiences of developers indicate that the more users engage, the more dynamic the platform gets, offering a self-reinforcing cycle of growth.

There are different types of platform-based businesses. But the major ones are transactional, like Uber, Google, and Alibaba. Another is innovational, featuring the provision of technological building blocks for collaborators to come together and use their platform to expand the innovation potential of individuals in new ways. Both types of platforms exist and are increasingly becoming popular in Ethiopia. In this regard, it is worth mentioning the success of taxi hailing apps, which have mushroomed over the past two years, reaching as much as 15 at the end of last month, and revolutionized the transport sector in Addis, while creating thousands of job opportunities for youths.

Platform-based businesses have also changed the prospects of delivery businesses with the food industry being the major beneficiary, amongst other sectors, giving consumers the opportunity to place orders in a flash. The same is true for digital banking. Understanding the value of platforms, banks are now increasingly focused on developing mobile money apps to facilitate transactions, attract new customers, and mobilize deposits, while attempting to build a cashless society. Despite such progress in terms of the transactional value of platforms, however, capitalizing on the demand existing in the international market is still unthinkable.

In fact, most Ethiopian app developers have the potential to penetrate the international market, but are unable to do so owing to the absence of internationally-linked electronic payment systems. “Even if international marketers are willing to buy into tech platforms developed in Ethiopia, there are no payment options available to secure this,” says Dawit, who is pushed to only focus on the local market despite having the potential to reach the international arena. “Keeping in mind that the average price to download an app is around two US dollars, we would have brought considerable amounts of forex into the country.”

Furthermore, making money through advertisements, the main source of income for app developers and platform owners, is also unthinkable in Ethiopia. Internationally, platform-based businesses are categorized as lucrative. App developers or owners collect revenues by taking a cut from transactions that they facilitate and from advertisements displayed on the application. Companies that want to advertise their merchandise deal directly with Google, who then deal and decide on behalf of the app owners. Doing so is not easy, however, partly because of the lack of payment options, but largely due to the unwillingness of multinational companies to promote their products on apps or tech platforms developed in Africa.

This has pushed many to focus on in-app purchases—the buying of goods and services from inside the application—though the amount is very insignificant and not sufficient enough to run the platform. For instance, QENE gets ETB200 to ETB1,000 monthly from in-app purchases, hardly enough to take their gaming app forward. Another method of making money for developers is sealing a deal with publishers, which either buy the platform’s license from them or pay a constant amount monthly for an agreed period of time.

“By securing an agreement with an international publisher called Global Eagle Investment, we are now able to make between USD10,000 and USD20,000 a month,” says Dawit.

But few are able to reach this point. Developing a platform, be it transactional or innovational, demands human resource and capital requirements. “Having all the necessary inputs would have been easier if the investment policy was not an obstacle to foreign investment,” Dawit adds. “For international investors, a minimum of USD50,000 paid-up capital is required to start a business, a criteria that has discouraged many from investing in platform development businesses.”

Depending on its complexity, app development requires having two to six highly-engineered gaming computers, software engineers, coders, and programmers, among others. As it may take months, sometimes years, having a workplace with a fast internet connection is very crucial, according to developers. Even after being finalized, the upgrading stage requires having an IT professional and uninterrupted investment to make the platform continuously comfortable for users.

Although all of the requirements are important, developers, the majority of whom are young, don’t have such types of access. Here, comes the place for incubators, who buy up to 10Pct in shares from developers and facilitate all required governmental processes (like patent right registration) and prepare a workplace in exchange.

In Addis, incubators like IceAddis provide quiet workspaces with high-speed internet for developers. As an incubator, IceAddis, founded a decade ago with USD10,000 in financial assistance from Google, has worked with 45 app developing companies. Among its products are, a pioneering platform that puts agricultural products on the electronic market, and, the widely used electronic car marketplace app. Both apps have now been downloaded 70,000 times, while having an aggregate 40,000 active users.

“We either buy 10Pct in shares from the developers or apply a venture capital model, which involves providing assistance until the business prospers and then move out,” says Markos Lemma, CEO and co-Founder of IceAddis, which now has total revenues of as high as ETB10 million per annum. “In doing so, we have led the development of platforms that connect customers and clients efficiently and in a real time, while spurring innovation and fostering more efficient ways of working.”

Despite the success of such models, winning the hearts of incubators is not easy. As most incubators are market-oriented, more attention is given to the amount of money the platform can generate, no matter how much of a problem-solver the platform is, according to some developers.

“There is a tendency to emphasize on cash crop platforms, even though equal focus must be given to their impact,” Negassa Birhanu, a Developer who has produced three apps so far. “This being the unfortunate reality existing in the country, many are forced to focus on Addis Ababa, where most tech platform-based businesses are found, and solving the problems of those individuals that are identified as relatively high- and middle-income earners.

Moreover, the immature abandonment of apps without releasing updates for long periods of time is also preventing the market for platforms from growing. The theft of ideas because of weak enforcement of patent rights is another problem developers are forced to endure with. This is proof showing that Ethiopian laws still do not understand the nature of platform-based businesses, while signaling the need to speed up regulatory framework in order to ensure ethical competition in the market. EBR

9th Year • Mar.16 – Apr.15 2020 • No. 84

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