Why Rocket Internet has been (very) good for Nigeria (YNaija Long Read)

by Seun Adegoke Oyeniyi

Nigeria business

Burning heavy cash on marketing and engagement to tear down market reluctance to e-commerce in emerging markets is the signature strategy which Rocket’s success is attributed to. 

It seems like ages now, but it has only been two years since Rocket Internet GmbH touched down in Nigeria’s e-commerce space with the launch of Kasuwa, an online general merchandise store, and Sabunta, an e-fashion store. Both were later merged in June 2012 to birth Jumia Nigeria, Rocket Internet’s largest African e-commerce operation. Since then, the internet multinational has launched six other internet franchises: Carmudi, an online automobile marketplace; Easytaxi, a Smartphone-powered taxi hiring service; Jovago a hotel booking portal; Lamudi, an e-marketplace for real estate property; Hellofood, a food ordering and delivery service; and Kaymu an e-Bay prototyped online marketplace.

The making of an e-giant
Rocket Internet, backed by Swedish investment firm Kinnevik and in strategic alliances with Millicom and MTN (under Africa Internet Holding), is without a doubt the continent’s most formidable ecommerce player. Unsurprisingly, Rocket’s valuable position has earned it the unpleasant moniker ‘Goliath’ among a crop of Nigerian competitors and tech enthusiasts. During a series of intense anti-Rocket media bouts early in 2104, the controversial iROKO TV CEO, Jason Njoku, aggregated Rocket’s contribution to the (Nigerian) ecosystem as “on balance…negative”, and by another account, the German startup incubator was described as a capitalist bully whose “business model involves entering a market with large sums of money, immediately creating a major barrier to entry and suffocating existing firms within that market”.

However, Kaymu Nigeria MD, Massimiliano Spalazzi, revealed in January that unlike Jumia Nigeria (which was reportedly founded with $10m), Kaymu and other Rocket-owned internet brands were not setup with heavy capital investments. He explained that this was primarily because these businesses neither keep inventory nor acquire multimillion dollar warehouses. Nevertheless, the Italian executive refrained from disclosing the specific sum of Kaymu’s founding capital. Nnamdi Okechukwu, chief executive of PropertyIndex, also debunks claims of Rocket’s tyrannous status.

“It’s not as scary as it initially seems when you hear the heavily-capitalized Rocket is entering your space,” the property entrepreneur said. “The truth is, apart from Jumia, Rocket’s holdings in Nigeria, aren’t exceptionally heavily funded, haven’t crippled competition, and their local competitors possess nearly as much funding as they do,” he explained.
Power to the underdog

In the e-marketplace for general merchandise, South African $18 billion group, Naspers’ OLX is most visibly present, currently ranking on website analytics provider Alexa as the 38th leading site in the country. Kaymu trails behind OLX in 77th place. Nigerian e-commerce leader, Konga, also recently entered into Kaymu’s field with the launch of its highly publicized ‘revolutionary marketplace’. Chika Nwobi’s automobile marketplace Cheki.com.ng – competitor to Rocket’s Carmudi – is backed by One Africa Media (OAM), a pan-African classified ads group which boasted a $100m valuation as at June 2013. According to Alexa, Carmudi ranks as 373th most visited site in Nigeria, while Cheki sits far ahead in 122nd place.

This ‘underdog’ leaning trails all of Rocket’s other ventures, save for Jumia. Lamudi competes directly with another OAM-backed venture, PrivateProperty as well as “three other multimillion dollar-backed property marketplaces,” according to Njoku.

PrivateProperty, which also dominates the Kenyan online real estate marketplace, occupies the 145th spot on Nigeria’s Alexa ranking, trumping Lamudi which sits in 398th position.

“Basically, you feel there’s competition, but it is not one that demoralizes,” says Okechukwu concerning Rocket’s presence in the local market.

Home of ecommerce rock(et) stars
The Berlin-based startup incubator is the world’s largest internet startup conglomerate with over 75 ventures across 50 countries, 25,000 employees and $3 billion in annual revenue. Recently, there have been heated debates about its impact on Nigeria’s nascent tech ecosystem, given its global weight and access to bottomless vaults. Early industry watchers believed that Rocket’s entry into Nigeria would lead to the reproduction of experienced local internet experts and the proliferation of e-businesses, and this expectation has begun to materialize.

Former Jumia Managing Directors, Tunde Kehinde and Raphael Afaedor, are two of Rocket’s finest products who have moved on to establish logistics solution company NewCo, and online grocery store Supermart, respectively. The Harvard MBA grads who were handpicked by Rocket without prior e-commerce experience, grew Jumia to unprecedented market penetration levels. Last year, the Nigerian and Ghanaian duo admitted that the German investors “shared” their vast network, expertise and operational experience, thereby propelling the former to “run faster against competition.”

Former Konga VP Marketing, Onyeka Akumah, was also a director at Rocket Internet Nigeria between 2012 and 2013 where he founded news aggregator mobile site, QwikGist. The online marketing expert announced in February that he was leaving the Konga team to focus on building his 200,000 user-base startup. Rocket’s Entrepreneurs In Residence program has helped breed local and foreign talents who have branched out to found local companies. Former Rocket Internet Africa COO Ercin Eksin now works in the Nigerian e-commerce space as a co-founder at NewCo, alongside Kehinde. Zando founder and Rocket staff, Manuel Koser, shuttles between South Africa and Nigeria while he runs Silvertree Capital, a major investor in sunglasses.com.ng and glamour.com.ng. Also, a founding team member of Kasuwa-turned-Jumia, Leonard Stiegler, currently sits atop entertainment and lifestyle site Pulse.ng. These are only a few ‘alumni’ from the pool of Rocket-educated entrepreneurs who now add to the critical mass necessary for the ecosystem’s maturity.

Breaking through barriers
Japhet Lawrence and Usman Tar, authors of ‘Barriers to e-commerce in Developing Countries’ state that “most cultures in developing countries do not support e-commerce”, and the conditions are not “ripe” because of lack of confidence in technology and online culture. In the light of Lawrence & Tar’s research – as well as recent historical evidence – it is easy to see why Rocket Internet became popular for splashing wads of cash on marketing over long periods, to break down consumer resistance and drive e-commerce adoption.

Naspers MIH, a major owner (over 33 percent) of China’s largest online gaming company and social network, Tencent, and the first major foreign internet player in Nigeria, couldn’t convert the local market to online consumers. The South African group set up shop in the Nigerian online market with the launch of Kalahari.com.ng in January 2010 and subsequently launched Mocality and Dealfish. However by late 2012, all three ventures had been shut down due to poor performance and “unforeseeable profit in the near future.” According to reports, Kalahari Nigeria had burned through an estimated $10 million in the virgin market and was unwilling to risk any more losses.

Burning heavy cash on marketing and engagement to tear down market reluctance to e-commerce in emerging markets is the signature strategy which Rocket’s success is attributed to. Contrary to Kalahari’s experience, anecdotal evidence shows that Rocket has immensely contributed to the adoption of e-commerce in the market largely through its risky willingness to stay for the long haul, aggressive marketing campaigns across the media gamut, strategic government collaborations and focus on service delivery. The company has achieved this primarily through Jumia, Nigeria’s largest e-commerce company. According to a former employee who spoke on condition of anonymity, Jumia’s daily ad spend “runs to the tune of tens of thousands of dollars.”

“It is mind blowing,” he said.

To fund this capital-intensive gamble, Rocket successfully helped Jumia Nigeria raise over $50 million from an array of investors including Millicom, JP Morgan and Kinnevik (who also has a $17.6m investment and 46 percent equity in Konga, Nigeria’s second largest e-commerce player). Going by reports, Rocket’s calculated risk is beginning to pay off. Rocket’s AEH (Africa e-commerce Holding), operator of Jumia and Zando brands, “reported net revenue of €18m ($25m) for the first nine months of 2013 compared to €2m ($2.8m) in the same period 2012,” a Kinnevik source revealed.

Furthermore, given Rocket’s global popularity, Okechukwu believes the German’s entry into the Nigerian Internet market has “definitely stirred foreign interest” in the massive West African space. Since Jumia’s launch, Nigerian e-commerce has enjoyed increased international media exposure with features appearing on Wall Street Journal, CNN, Bloomberg, Mashable, and more, with reference made often to Jumia, amid the gospel of Nigeria’s increased internet penetration and rising middle class. In addition, the likes of iROKO TV, Wakanow and Konga, got breakthrough multimillion dollar investments after VC executives saw their features/ mentions on Techcrunch, CNBC and Twitter respectively. Industry enthusiasts believe the cumulated foreign attention would attract more foreign VCs to drive the promising Nigerian tech industry.

Burn, baby, burn
In spite of all its achievements, Rocket is infamous for its ruthless and sometimes unethical approach to handling competitors and employees. Jumia’s leading competitor, Konga said in January it would take legal actions against Rocket Internet over allegations of cyber squatting after Rocket’s Berlin MD Arnt Jeschke registered Konga domains across 10 African countries. In November 2013, June Ujene, a former top management Jumia staff who was allegedly unlawfully dismissed, in a rare and embittered disclosure of Rocket’s employee maltreatment, disclosed he would also be suing the online retailer to court.

“If you have ever heard about Oliver Samwer’s famous blitzkrieg, trust me, the things that happened in Jumia Nigeria were worse,” June wrote in an email. “First in 2012, 50 members of staff were fired, then more were hired, then more fired again, the total number of staff fired in this period was over 100. One of the most annoying things was having to take pictures and smile when members of the press came visiting! Lies! All lies!” June exclaimed.

Rocket’s trail in the ecosystem has left a plethora of disgruntled talents who have decided to keep mum, with a few looking the way of labour laws and the justice system for respite. The ecommerce giant is also said to embark on activities which are directly beneficial only to the company – training only its entrepreneurs, investing exclusively in its portfolios, and deploying massive marketing budgets to drive adoption essentially because it can’t make profit without doing so. The German company’s self-centered approach has flared tempers among local tech enthusiasts who are of the opinion that Rocket is present only to build companies, then cash out via lucrative exits, without much care for the condition of the ecosystem. When asked about the company’s exit strategy, Rocket Internet Africa MD, Sacha Poignonnec, replied: “It’s not that I don’t want to tell you. I honestly do not know. Those are my shareholders decisions.”

According to Millicom’s 2013 financial report, MTN’s cash investment for 33.3 percent of Africa Internet Holding (AIH) has reversed Millicom’s previous agreement with Rocket Internet to exercise options for the total acquisition of the German company’s equity in AIH. AIH holds a 51.47 percent interest in AEH, and controls all other Rocket verticals on the continent. MTN’s partnership now presents Rocket with an immense opportunity to increase market access across the telecom’s majority 49.3 percent share of Nigeria’s 114 million subscribers.

Columnist and tech pundit Oluwole Leigh, also suggests that Rocket Internet, via its verticals, should engage members of the Nigerian ecosystem or roll out CSR initiatives targeted directly at the local tech community to endear itself to its members and demonstrate commitment to the development of the industry. Tech giants such as Google, Microsoft and Intel regularly convene workshops, hackathons, give support, sponsorships and grants to local tech entities to the catalyze development of the industry. Rocket should take a cue from them.

 

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