OLX: Reality of an online market that is too small for too many players

The underbelly of e-commerce platform has hit OLX operations in Africa which is forced to fire workers and close offices in Kenya and Nigeria to stay afloat.

A notice of termination to staff has been issued with exits expected to begin in March, followed by for the management team in April. The firm fully owned by South Africa media giant Naspers since 2010, has been struggling to make its businesses in Kenya viable. It has also quit Nigeria and the company is now expected to put its full focus on South Africa.

“We made a difficult but important decision in Kenya and Nigeria to consolidate our operations between some of our offices internationally,” OLX communication team said in a statement.

Funding for OLX in September 2007 was $10 million from 5 investors but in 2011 only one raised an unknown sum of money.

The problem with e-commerce websites is that they are betting on future of e-commerce industry in the country where there will be a time that everyone will be equipped with internet on computer and mobile phone and would be addicted. However, in the short run, they have to deal with stiff competition deeper pockets and losses against huge overheads.

In Africa especially, the internet penetration rarely goes beyond the capital cities which means a tiny pool of customers with deep pockets being fought for.

With the planned entry of Alibaba, the introduction of Safaricom’s Masoko, Sky.Garden, Jumia, Kilimall, Pigiame, and others the market has been thinned further. Logistics is also an added expense as well as processing cash payments, which entails more overhead than digital methods.

Their models where they procure and stock all items and then sell them on the website at a markup or where they just create an online ecosystem and sellers can sell their products for a margin have not proven rewarding yet and need quite huge volumes. The firms may be forced to shrink and wait for the markets to expand or finance their way to monopoly while swallowing losses.

“Our marketplace will continue to operate in Kenya and Nigeria – uninterrupted – as it has since 2010. We remain committed to the millions of Kenyans who use our platform to buy and sell every month. We continue to be focused on constantly innovating to make sure that OLX remains the top classifieds platform Kenya,” OLX said.

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