Notes

Online Classifieds Portal in Uganda Who would like to Be a Millionaire?
Outside Looking In

I was minding my very own business as usual on Facebook (liking every random comment and reading every link) and I saw an advert on my side bar for an online classifieds portal called dealfish.co.ug. I clicked on the link and it took me to the site which said I possibly could post a free advert. I immediately created an advert because of this website. I got one message: "Sorry www website addresses aren't allowed." I was very upset and sent an email to them querying this and they told me they don't accept the classified adverts to include a website reference. Well unlucky for them, I discovered Kampala mart.com It's when I realised that finally the web revolution is taking place in Uganda. Online classified portals like eBay.com and gumtree.com, the biggest in the UK have been around for quite a while. In Uganda, these are starting to remove big time because of two very important things:

1) Africa is needs to finally get connected to all of those other world via huge fibre optic cables being laid under the sea all around Africa.
2) Mobile telecom companies continue steadily to provide cheap internet with their customers on their cell phones including using 3G technology.

Internet and the opportunities available to an internet entrepreneur are so serious that it is being projected that according to articles I read at wired.co.uk ("get rich move to Africa")] Africa may soon have its first internet billionaire, I agree and immediately tell you why to purchase this sector in Uganda but first;

THE CONS(needless to say)

1. Internet stability and usage in Uganda

Usage and computer illiteracy

Whilst it is well and good that our internet usage keeps growing increasingly each day, there still remain thousands of people that are below the poverty line, are computer illiterate and/or cannot afford to possess internet. A large part of people still access internet from office instead of home that may hinder the convenience aspect.

In the UK for instance internet usage has ended 82% of the population. Almost everyone has internet in their home. By comparison in Uganda, it is about 10%, nonetheless it is growing significantly because as per ITU statistics, internet penetration in Uganda is continuing to grow in leaps in bounds. In 2000 only 0.1% of the populace had access to internet. It had been still low in 2007 where only 2.5% of the population had internet but this has since then significantly increased to over 9.6% in 2010 2010!

Stability and cost of internet

Internet stability in Uganda is quite tricky. Many times internet is slow and where it is not slow it really is expensive. This of course is changing but till then, this remains the primary hurdle for potential users. I however expect that with increasing internet on mobiles particularly with the telecom companies rolling out 3G, then this shouldn't be a problem especially if the online classifieds portal invests heavily in a mobile version, that is, one that is very easy to take on mobile phones and not just the smart phones. That is critical because mobile phone usage including internet is most likely going to function as next revolution in Africa and Uganda specifically. It already is under way anyway.

2. The little fish will be coming after you....

I later on lay out the cost of start up for a significant online classifieds operation but the reality is that kind of business can be done from the laptop in someone's bedroom. This can be a typical "briefcase" type of business.

Low cost These days so many website hosting companies will give you free website and also permit you to host your website free of charge say for 6 months. They will in addition supply you with a free domain. The cost of this all? �8.99 for 6 months. 1and1.co.uk for example offer just this type of package.

Therefore with a little assistance from a programming friend when you have no IT knowledge, you can set up your website and also have it hosted for free!

As for advertising the website to reach Ugandans, easy! There is an advertising revolution going on and it is no real surprise that Capital FM, the leading Ugandan FM station is losing advertising revenue [if you're to trust a 14 September 2011 Redpepper article on the same.]

I cannot touch upon the accuracy of the figures in the Redpepper article but they are certainly right in the sense that worldwide advertisers are shifting from traditional advertising of radio, TV and newspapers. Associated with simple; with online advertising, you can measure just how many folks are "seeing" your advert. You therefore can set an advertising budget and only pay for those who are interested in your advert because if they are they will click on it, hence "ppc". In get more info didn't know this, you're years late to the party! This is one way Google has been making its money and it is likewise how Facebook makes its money.

Now how will you advertise your website to Ugandans? Well Facebook has a "clever" computer. It knows where a user originates from and so when you elect to advertise with them, they will tell you just how many "Ugandans" you'll reach with the utmost advertising budget. In addition they provide you with a rough estimate of an excellent minimum advertising budget you can set. It is possible to however choose everything you can afford.

Based on the above, you can therefore set your advertising budget in Facebook at even $2 (they will simply show your advert to less people). If you set your advert to run for 30 days, that is $60 which at an exchange rate of $1 = Shs 2,605 computes at Shs 156,300 a month.

You can therefore technically start ecommerce with your old laptop and only Shs 156,300!

That is a good thing right? Yes, but so is it for everyone else. You can therefore expect that there will be many of these in no time and I mean A NUMBER OF THESE ARE COMING SOON, YOU ARE NOT THE ONLY ONE WHO WANTS TO GET RICH (OR DIE TRYING).

Let's observe how many online classifieds portal I can find with Google search:

dealfish.co.ug
kampalamart.com
kwatadeal.com
classifiedsuganda.com
easyuganda.net/about-us.htm
tagsaleuganda.com/
majestysdirectory.com/
And counting!

Now the catch It means therefore that for the investor, you will need to ensure your site sticks out from the crowd to be able to attract both advertisers and visitors.

You will therefore need to employ various marketing strategies which means that your website has sufficient customers coming there and you can lure in the advertisers (where did you imagine you were likely to make money from duh?). Gumtree the leading online classified website in the united kingdom for example has clear statistics on their website to show their customer reach. These details ought to be sufficient to convince an advertiser.

Alternatively you need to consider creating a niche. autotrader.co.ug for example is one particular site. They will have focused solely on cars.

3......the big boys are coming too!

Unlike a traditional business design say farming or taxi business, online business are not location dependent and therefore as the buyers and sellers may be in Uganda, the business enterprise owners may be foreign. After all, hosting a website doesn't need a Ugandan presence and neither does "ppc" advertising. Being an investor in this sector, you can therefore expect that once you start, you can be competing with the truly big fish who in their global expansion will most certainly look to utilize this market. Can you for example contend with Craigslist or eBay should they choose to focus on Uganda? Think about Schibsted? Not heard about them? Well you ought to know them because in ecommerce, they're not sleeping, they're expanding.

Even dealfish.co.ug for example may be the "Ugandan" branch of the Dealfish brand which finally count is in 9 countries.

I will not be surprised if even local newspaper giants like The New Vision(with Government's deep pockets) and The Monitor (that is backed by the mighty Nation Media Group) soon venture into this sector. Additional info for example gets the enteruganda.com portal (under construction as at date of the article) which can easily be spun into an online classifieds website and the Monitor now comes with an online business directory which can easily have a classifieds section.

So the business is expected to be tight but could it be the real McCoy?

And Now the PROS

1. Excellent profitability and return on capital in under 1 year

And now you are about to determine why everyone is looking to go into this sector. I lay out below my projections of the estimated profitability, set up cost and return on capital which might be achieved because of this sector.

I've used the Kampalamart.com website as a model. Their model is this; Customers can post ads free of charge. Some can however elect to enhance the visibility of their ad to three locations on the website: The top most banner The medial side banner or A featured ad banner on key pages

These three prominent places unlike another ads within the myriad of ads in the categories cost money. These are the ones financing the company and it is this model I use to show the profitability of the sector.

You should of course be aware that there are other models of getting revenue:

You can for instance charge for several categories. For instance on gum tree.com where rentals and job postings(by employers) are charged. You can utilize a ppc concept whereby certain "adverts" are targeted to specific customers based on their online behaviour (behavioural advertising).

I therefore set out my analysis as below. In the model below I present two totals columns. The present position and the projected position.

I project that you will see a 60% growth in revenue and a 25% upsurge in costs. The growth in revenue is based on internet usage growth in Uganda between 2008 and 2010 according to ITU statistics.

Analysis 1: Profitability information

(exchange rate of $1=2,605 used)

Total revenue:

Current: 5,522,600. Projected: 8,836,160

(based on 6 top banners, 6 side banners, 16 featured ads each charged at $200, $100 and $20 monthly, respectively)

Expenses

1. Rent and service charge: Current:1,237,375. Projected: 1,237,375.

(Predicated on 25sqm in worker's house, a "grade A" building which charge rent at about $10-$18 per square metre(psm) and service charge of $2 psm.)

2.Website hosting: Current: 36,859. Projected: No change

3.Salary: Current: Shs. 1,800,000. Projected: 2,250,000

(3 staff comprising of manager/IT personnel and office administrator)

4. Marketing: Current: 656,300. Projections: 820,375

(including Facebook advertising and other marketing techniques)

5. Transport, communication along with other: Current: 800,000. Projected: 1,625,000

(Estimated)

Total Expenses. Current: 4,530,534. Projected: 5,969,609

Total Monthly profit (revenue less expenses). Current: 992,066. Projected: 2,866,551

Total Annual Profit. Current: 11,904,792. Projected: check here : Set up capital information

1. Website development: 3,907,500

(estimated at $1,500 for an excellent website to support online classifieds and e-commerce)

2. Rent(6 months beforehand): Shs 6,642,750 3.

3. Office equipment: Shs. 8,495,000

(computers, office desks, UPS, internet installation, multi purpose machine, legal costs, signage) 4.

4. Miscellaneous: 849,500

Total: Shs. 19,894,750

Return on capital (Total set up capital/profit): Current: 1.67 years. Projected: 0.57 years

2. Gain on eventual sale

A savvy investor will let you know that if you intend to get wealthy quick, take up a business with the end in mind. Quite simply, prepare for once you will eventually sale it. Once you eventually sale the business you have successfully built, you'll make money from the acquirer who'll most likely be one of those big boys like Schibsted? Not heard about them? I told you, you should learn about them!

3. Low set up costs

I did mention among the pros the low start up cost having the ability to result in a large amount of competition. Should you be one serious investor, this however shouldn't deter you. It will only spur you into action. The reduced costs can be to your advantage.

You therefore don't necessarily need to focus on the Shs 20m according to the information above. You can begin like I mentioned with less than Shs 156,300 and continue to become successful so go on, what exactly are you waiting for, do we not all desire to be billionaires so freakin' bad?

SUMMARISING AND THE FINAL WORD

First the numbers.

Based on my analysis:

Capital investment(A): Shs 19,894,750

Profit each year (revenue excluding all expenses) (B): Shs 11,904,792

Return on capital(years to obtain capital back or A/B) is 1.67 years

If you look at 60% growth, it is possible to however turn to recover the investment in 0.57 years!

Now the basics you need to get before investing.

Excellent website design. You need to invest in a good website that may make it easy for users. You should remember that few Ugandans have internet in the home and so will most likely be browsing in office, within an internet cafe or on their phone and so a straightforward design that may support mobile phone browsing is most probably

Appropriate aggressive marketing. You will have to move fast or best if you capture the market with different marketing techniques otherwise your website will get drowned in the crowd. I'm not necessarily saying splash from huge newspaper adverts(which we realize cannot necessarily be measured for success). There are many methods for example a free press story, interviews, article marketing, Facebook advertising et al. A clear target market. Who do you wish to reach? You have to know who you're targeting and then go on to develop your service with that client at heart. An example I gave is auto trader.co.ug.

FINAL WORD

Despite the risk of the big competitors coming, that is truly one of those sectors where even the tiny guy can win and continue to be the next Google, the next Facebook. You don't need to capture a huge part of the market to reach your goals. Kampalamart.com for instance at the date of this article had about 388 Facebook fans. If this represents their market share of around 304,000 Facebook users in Uganda[early 2011] then this represents only 0.13% of the marketplace BUT from the analysis above, they might already be profitable! Need I say more, go on GET RICH (OR DIE TRYING).

And now the disclaimer: While I've taken steps to research this information as well as predicated on my experience, you should not rely on the info given here to base your investment decisions. You need to seek business advice from a professional knowledgeable of one's specific circumstances. I will therefore not be held accountable for any loss you may incur when functioning on this information.

For over 8 years I've worked with several clients providing audit, accounts, tax and advisory in sectors which range from agriculture, mining, entertainment, financial services and technology. My client portfolio in Uganda, The Bahamas and The Channel Islands, UK has equally been diverse which experience has given me a "well rounded" view of business.

In addition I have already been involved in advisory projects and general management. I'm able to therefore take a commercial view of business and not just sound like an "academic who doesn't understand business".

It is possible to read more about me and my writing experiences on investing/doing business in Uganda at http://investinginuganda.yolasite.com/
Here's my website: https://thegadgetflow.com/user/lawrencecoyne559