Africa Tech Bytes: Unlocking the Potential of Platforms in Africa

Part 1: Network Effects

I thought I’d start a short series on digital platforms to break the norm of what I used to write about (updates on the tech and startup ecosystem) . Why is this important? They have the potential to connect businesses and customers across vast distances, creating new opportunities for entrepreneurs and innovators. Understanding how these platforms work and how to leverage them can help our African businesses and entrepreneurs to take advantage of these opportunities and succeed in the digital economy.

Today, we’ll be discussing an essential concept for businesses operating on digital platforms — Network Effects.

But first it would be important to define what a “Platform” is. It is a digital business model that connects multiple groups of users and enables interactions between them, creating value through network effects. Unlike traditional. businesses, platforms do not create and sell products or services directly to customers. Instead, they facilitate transactions between users, generate data and insights, and enable third-party businesses to build on top of the platform to create additional value. Think?M-pesa, Jumia, Uber, Airbnb, Twiga,?etc.

It’s important to understand how network effects work to ensure the success of your platform, especially in the African market. In simple terms, network effects refer to the phenomenon where the value of a product or service increases as more people use it. In the context of platform businesses, network effects can be positive or negative, depending on whether more users increase or decrease the value of the platform.

For example, ride-hailing companies like SafeBoda or Bolt or even Uber experience positive network effects. The more drivers and riders using their platform, the more valuable it becomes to customers. As more customers use the platform, it attracts even more drivers and riders, leading to exponential growth in value. Think about M-Pesa as well, would it be of value if only 2 people had M-pesa where only they would be transacting with each other ? Or even the invention of the telephone, whereby only the inventor (Alexander Graham) only talked to their mother or friend. However an increase in the number of users and players within the value chain adds immense value to the platform itself.

On the other hand, email spam is an example of negative network effects. The more unsolicited emails users receive, the less valuable the email platform becomes to them.

Understanding network effects is crucial for businesses operating on digital platforms. It helps them create platforms that are valuable to their users and attract even more users. This can lead to significant growth and success in the digital marketplace, especially in Africa where the market is rapidly digitizing.

If you want to learn more about network effects and platform businesses, I highly recommend reading “Platform Revolution” by Geoffrey G Parker, Marshall W Van Alstyne, Sangeet Paul Choudary. It’s a great resource for anyone interested in understanding the world of digital platforms.

Otherwise that’s it for todays read. Next time I’ll touch on the age old question , what came first , “ the Chicken or the egg” ??. I hope you found this post informative and helpful. Stay tuned for more insights on digital platforms and feel free to comment below or provide feedback.

By Jesse Muraya