Jumia can become Africa’s Amazon by enabling third-party e-commerce – Quartz

In 2012 when it was first launched, Jumia’s long-term goal was to become the leading e-commerce player in the continent.

It pursued that goal as typical ecommerce platforms do: acquire massive inventory, build warehouses, and strive to drive online sales based on the promise of convenience and convenience.

One of the company’s first steps was to hire account managers who were responsible for expanding inventory across a wide variety of categories, from cell phones and electronics to fashion, beauty and childcare. If customers wanted to buy it, Jumia – often referred to as the Amazon of Africa – wanted to be able to sell it. It was like the way Amazon itself started with books and CDs and eventually became an Amazon of almost everything.

But a billion-dollar IPO and nearly a decade later, Jumia is now pursuing slightly different ambitions. Rather than building a business based on direct involvement in consumer ecommerce by selling a huge inventory, Jumia now focuses primarily on switch e-commerce for other players in Africa.

The first marker of Jumia’s business model change came in 2016 when internal inventory was phased out and largely replaced by a supplier marketplace. After investing in marketing and building its brand, Jumia essentially began leasing digital real estate by allowing independent sellers to sell items on its website while making commission from their sales.

With this change, Jumia significantly reduced the underlying risk of holding stocks while democratizing the supply chain. The proposition also proved attractive to merchants who saw value in tapping into Jumia’s established e-commerce framework, from the online marketplace to the delivery and storage network.

Need driving invention

The changes in Jumia’s business model are the result of painful lessons from his experience as the continent’s e-commerce leader. One of the biggest early realizations was a lack of customer confidence, which meant selling the e-commerce dream would be more difficult than expected. With customer buying habits favoring offline retail over e-commerce and a preference for cash over digital payments, the company’s first task, alongside its competitors, was to drive a shift in user behavior.

It has tried to do this by building workarounds to the classic ecommerce model. For example, a preference for cash payments led Jumia to adopt a “pay on delivery” model, allowing customers to receive and view delivered items before paying. But that ran into its own problems with unsavory characters abusing to arrange raids on delivery drivers, including a tragedy that made national headlines.

In cases where customers chose to pay online, the early unreliability of digital payments in Nigeria meant that online transactions were as likely to fail as they were to succeed. And when all these hurdles were overcome, there was also the difficulty of making efficient deliveries in busy African cities with limited address systems.

Reuters / Jean Bizimana

The answers lay in building in-house solutions from the ground up. To solve customers’ online payment problems, Jumia built and launched JumiaPay, an exclusive payment service for its marketplace. In markets with low credit card penetration (outside of South Africa) and even low debit card penetration, enabling flexible digital payments is critical for any e-commerce operator. It’s also why fintech startups have been a vibrant part of the African tech ecosystem helping solve the multi-billion dollar opportunity of financial inclusion.

As a sign of the growing adoption of JumiaPay since its launch, 34.1% of Jumia orders in the third quarter of 2020 were paid for using the internal payment service. And to avoid logistical problems, Jumia also put 1,300 on it delivery and collection stations to alleviate delivery problems on the last mile, a network of more than 300 courier partners and proprietary technology for tracking optimal delivery routes and inventory.

Third party

After a decade of solving operational challenges plaguing e-commerce in African markets and building infrastructure, Jumia is now shifting its focus to outsourcing these solutions. After JumiaPay and Jumia Logistics are exclusive to its merchants and users in the market, they will be opened up to third-party e-commerce players.

While JumiaPay will likely compete for market share with an ever-expanding pool of competing fintech players across the continent, the spin-off of its logistics arm could quickly make it a market leader in several countries, given the major problem of logistics and -mile delivery for many other small and large e-commerce players.

With operations in 11 African countries, there are no other African-focused e-commerce players that can boast of Jumia’s pan-African operational knowledge on the continent, making it an attractive option for smaller players looking to join its network.

Jumia’s move is, of course, far from altruistic.

A long history of massive losses means the company’s leadership is increasingly focused on looking beyond e-commerce as a core offering. On the company’s latest earnings call, Antoine Maillet-Mezeray, Chief Financial Officer of Jumia said the company will “further diversify” its revenue streams by maximizing “untapped” revenue generation opportunities. “Payments and logistics have historically been the core infrastructure supporting the growth of the market. However, these assets in themselves have tremendous growth potential beyond reach in an e-commerce marketplace, ”said Maillet-Mezeray.

And so Jumia’s ten-year evolution goes completely to the next phase. Originally positioned as a retail-focused, e-commerce colossus, similar to Amazon’s original positioning, Jumia has grown into a B2B (business to business) facilitator of external e-commerce through its marketplace, payment service and logistics network.

But in many ways, the nickname “Amazon of Africa” is still relevant to Jumia’s journey. As a publicly traded company, Amazon famously suffered losses in its first 17 quarters, and even after turning profitable, it only offered investors modest returns for years. But today, the most profitable arm is the B2B Amazon Web Services company that houses many major clients, including Netflix, LinkedIn and Twitch.

As Jumia’s losses begin to recede, it is a path that the company’s leadership appears to be on. As the company continued to focus on supplier commissions and fulfillment revenues, which now account for 70% of market income, first-party revenues (i.e. revenues from goods purchased and sold by Jumia) declined 53% year over year in the third quarter of 2020.

The sharp decline was no coincidence: “This was in line with our strategy of achieving fewer first-party sales as we focus on running an asset light marketplace model where external sellers offer consumers an ever-expanding range of offer products and services “, read his income report.

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