Why a Safaricom Online Store Makes Sense

This week it was announced that Safaricom would be launching an online marketplace. I sat back and wondered why. “Is this Little Cab all over again?” You see, I hold the view that Little Cab got into the market a little late. To compete, it would have to offer outrageous benefits to customers, drivers or both, with the effect of squeezing profit margins and cannibalising the business. In time, such a strategy could smoke out weak competition from the market, but one wonders whether Uber or Taxify really can be considered weak
After a few days of ruminating on the “Masoko” matter (this is name I’ve come across for the e-commerce platform, I could be wrong), I hold the view that Safaricom’s foray into e-commerce (i) could work, and (ii) could be the new offering Safaricom has been sorely looking for. Here’s why. Potential

  1. Infrastructure
    The established online stores operating in Kenya rely on a strategy of “home” (office) delivery. You look at products online, you move to transact (you can pre-pay or pay on delivery), and the product gets delivered, usually to an office building or nearby landmark. While Masoko can (and should) have a delivery service, they have the distinct advantage of being able to allow customers to pick-up their goods at Safaricom’s already-established retail outlets. Ideally, all 45 Safaricom Shops in the country can become pick-up locations for customers, giving Masoko instant economies of scale when it comes to countrywide distribution. Because the road infrastructure is less than superb, they can avoid the cost of investing in last-mile delivery through motorbike riders, and simply leverage on what they already have (a huge distribution and retail network that works) and let the customers go to them. Or do both.
  2. Brand
    Safaricom is easily among Kenya’s most recognisable brands. We can pretty much all agree that we trust the company to offer reliable service. Masoko can (and should) be built on this foundation of brand recognition and customer trust. The more the Masoko marketplace can be associated with the Safaricom brand, the better. A goal for success can be reaching for a mental association in the customer’s mind between Masoko and Safaricom that is close to that of M-PESA and Safaricom. If customers can skip past the part of wondering if a company will fulfill its promise, and get straight to using it, that would be a major tailwind.
  3. Cash
    For Masoko to succeed at a scale that would make sense for Safaricom to keep it going, it will take a lot of cash. Cash for a massive marketing push over the next year. Cash to build a customer funnel by offering exclusives that customers want (e.g. a line of Huddah Monroe lipsticks can be sold exclusively on the platform, tickets to the next big Jameson concert could be sold exclusively on Masoko, etc.). Cash to be able to absorb the negative cashflow from the first 2 or so years of operations and still offer a great service. Cash to buy and stock hot consumer products (e.g. the iPhone X, or the Nintendo Switch). Fortunately for them, Safaricom has that cash by the bucketload. If the company can loosen its purse strings and give the startup the cash it needs to grow, Masoko stands a real chance of being a billion-shilling business (I really think so!).

10 years after M-PESA was launched, Safaricom badly needs its next new thing. With its size (~KES 1 trillion in market capitalisation), it needs its next new thing to be big. Acquisitions would only make sense in the billions. For perspective, a KES 5 billion shilling acquisition would be about the equivalent of the average net profit earned in one month. Greenfield initiatives must have the potential to grow into behemoths within a few years. For perspective, a KES 10 billion shilling new business would be the equivalent of about 1% of the company’s current market cap. From the get-go, Masoko can (depending on its strategy) enjoy the economies of scale and branding that Safaricom has already built. Network effects can be gained by offering a great market-beating service, a large variety of products and desirable exclusives. And with these 3 ingredients, the final recipe could (should? 🤔) be delicious.

 

PS: It is obvious that the Masoko website and apps must work well, have excellent UI (look and feel), intuitive UX (be easy to use), have a simple and reliable payment system, et al. This article assumes that.