Jon Lubwama
posted on Jan 9, 2023How African B2C Startups are Mitigating the Low Spending Power of their Customers
In 2023, the GSMA Mobile Economy Report forecasts 500m smartphone users in Africa. The penetration of smartphones and the internet is vital for the growth of the African startup ecosystem.
However, big telcos like Google, Facebook and Netflix struggle to make money from Africa. (Facebook makes $3.2 per user in USA & Canada, $1.6 in Europe, $0.56 in Asia and just $0.41 in Africa). The growth in smartphone and internet penetration rates has not translated into revenue for most tech companies across the continent.
This is because disposable income is still low in Africa. The World Data Labs put the average daily spend in Africa at just $9.8, the lowest in the world. Compare this to North America where the average daily spend is $82.7, Europe is $53.2, South America is $24.5 and Asia is $18.4.
With such stats, tech companies are competing with basic needs. (To pay for Netflix or pay rent, To buy Spotify Premium or add that to the food budget etc). This has made running a B2C startup one of the most challenging things.
A B2C startup will need to invest a lot of money upfront to acquire thousands of customers before it can even reach revenues of at least $1m. This is why a few foreign investors may not understand why a B2C startup with 5,000 users doesn't make $200,000 in annual revenue. But the dynamics of building in Africa are different.
What most B2C startups are doing to counter the low spending power across the continent is developing multiple services/offerings. For example, SafeBoda, a ride-hailing startup in Uganda has indeed morphed into a super app offering Fintech services, ride and car-hailing as well as delivery. This is something that other ride-hailing startups have done for example Yassir in Algeria and MNT Halan in Egypt.
Tubayo, another startup based in Uganda and Kenya, was originally a travel matchmaking site, and has delved into a B2B offering with Tubayo Market Day and also Tubayo Stays, an Airbnb-like offering. If a B2C startup isn't expanding its services, it is expanding geographically.
The logic here is that, if a user can not part with a reasonable fee (let's say $15 per day) for one service, it can be spread across three different services for example $5 for three different services gives the startup $15 per day.
