Why African tech companies are struggling to monetize data

In 2016 alone, Google generated $79 billion and Facebook $27 billion in ad revenues.

Google and Facebook alone account for 20% of advertising spend globally. In 2016 alone, Google generated $79 billion and Facebook $27 billion in ad revenues.

These tech companies are fundamentally advertising platforms that were allowed to hemorrhage unfathomable amounts of cash for years before “flipping the switch” and charging thirsty advertisers for access to their massive user bases.  And advertisers are happy to pay for space because they see those paid ads convert into sales. For instance, Google AdWords has a median conversion rate of 2.35 percent, but the top 10 percent of advertisers experience conversion rates of nearly 12 percent.

Advertisers are steadily moving away from display ads (static banner ads you see on the margins of news sites) to native content, which looks just like every other post save for a small note indicating that it is sponsored content.

Somewhere between stalking the banal life of your secondary school classmates and liking your cousin’s body transformation post, you’ll click on a sponsored post or, increasingly, pause to watch a promotional video.

And so the tech greats were born - by bored people clicking on links and making splurge purchases.

Firstly, people use the Internet differently than other markets. So much of data use, especially on mobile, comes from a place of scarcity. Every click, every pointless video watch, every diversion eats into your bundle and therefore costs money - a significant departure from the unlimited data plans offered in other markets. The average monthly data use of a U.S. smartphone user is 1.8 GB, compared to 270 MBs in Kenya. In Kenya, only 13% of Internet users watch online videos everyday, compared to 36% in the United States.

So Kenyan Internet consumers are almost surgical in their Internet use - get in, get done what you came for, get out.

The other challenge of monetizing pure tech plays is lowering the barrier to sale. In the US, for example, if someone clicks on an ad, they are likely brought to an online store, where they can immediately purchase and ship to their home. In Kenya, they may be brought to a Facebook page or website detailing the shop’s location and operating hours, requiring a much heavier lift on the consumer side to make a purchase.  This is reflected in the CPM (cost per 1,000 impressions) charged by local versus international media sites. Tuko, the most popular online news platform in Kenya, charges a CPM of 150 KES, compared to YouTube’s 800 KES.

Perhaps because of the two conditions above, investors will also not allow pure-play African tech startups years of high burn before they monetize their product.  The existing model of paying per MB of data used and ushering people to physical rather than online stores creates ample opportunities for startups trying to solve these problems.

For instance, companies such as poa! Internet are revolutionizing the technology required to profitably offer unlimited home Internet to low-income consumers.  Or companies like Hivisasa, a county-level news website, has partnered with BetPawa, to have a widget that allows live betting without leaving the Hivisasa site.

It will be fascinating to follow other innovations in the adtech space in sub-Saharan Africa.  Now, get back to your YouTube videos.

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