Detailed analysis of various business sectors in Uganda

Online classifieds website/portal? Who wants to be a millionaire?

Outside Looking in
D E Wasake, FCCA [With Guest Writer]

About my guest writer:

Christine S. Kadama is an IT consultant in the Washington D.C Metro Area. Her specialisms include Project Management, Process Improvement, Business Development, Content Management Systems, Web 2.0 technologies, Collaboration, Information architecture, Requirements Analysis, Technical writing, Product development, SharePoint 2003/2007, Training and Presentation.

Christine has previously worked as an IT consultant-TGSIM at the International Monetary Fund. She studied at The George Washington University- School of Business.

About the writer:

For over 8 years I have worked with several clients in Uganda, The Bahamas and the United Kingdom in providing audit, tax, accounting and advisory services. My sector experience with clients in various sectors including IT related services enables me have good understanding of this sector. To see the full depth of my experience, Please see my profile

Article summary

Internet usage in Uganda is still low at only about 10% of the population (compared say to 70% in the UK) but this is rapidly changing as it was for example only 2.5% in 2007. This presents new business opportunities including an online classifieds portal. The estimated profitability is Shs. 12m from a Shs 20m investment hence getting the original capital back (return on investment) in about 1. 6 years.

To achieve this profit, some “advanced thinking” tips however include some smart marketing including pay per click campaigns and focussing on getting it on a mobile phone platform.

I was minding my own business as usual on facebook(liking every random comment and reading every link) and then 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 could post a free advert. I immediately created an advert for this website. I got an error message: “Sorry www website addresses are not 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 web address reference. Well unlucky for them, I discovered Kampala mart It’s when I realised that finally the internet revolution is taking place in Uganda. Online classified portals like ebay.com and gumtree.com, the largest in the UK have been around for some time. In Uganda, these are starting to take off big time because of two very important things:

1. Africa is starting to finally get connected to the rest of the world via huge fibre optic cables being laid under the sea all around Africa.

2. Mobile telecom companies continue to provide cheap internet to their customers on their mobile 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 this article, Africa may soon have its first internet billionaire, I agree and immediately tell you why to invest in this sector but first;

THE CONS(of course)
1. Internet stability and usage in Uganda

Usage and computer illiteracy

Whilst it is well and good that our internet usage is growing increasingly by the day, there still remain millions of people who are below the poverty line, are computer illiterate and/or cannot afford to have internet. A large portion of people still access internet from office rather than home which can hinder the convenience aspect.

In the UK for example internet usage is over 82% of the population. Almost everyone has internet in their home. By comparison in Uganda, it is about 10%, but it is growing significantly. It was for example as per ITU only 0.2% in 2000, only 2.5% in 2007 but since then grown to over 9.6% in 2010!

Stability and cost of internet

I have touched upon this in several articles. Internet stability in Uganda is very tricky. Many times internet is slow and where it is not slow it is expensive. This of course is changing but till then, this remains the main hurdle for potential users. I however expect that with increasing internet on mobiles, then this shouldn’t be a problem especially if the online classifieds portal invests heavily in a version which is very easy to view on mobile phones and not just the smart phones.

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

I later on set out the cost of start up for a serious online classifieds operation but the reality is that this kind of business can be done from a laptop in someone’s bedroom. This is a typical “briefcase” company type.

Low cost

These days so many web hosting companies offer you a free website and even allow you to host your website for free for 6 months. They will in addition provide you with a free domain. The cost of this all? £8.99 for 6 months. www.1and1.co.uk offer just such a package.

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

As for advertising the site to reach Ugandans, easy!

There is an advertising revolution going on and it is no surprise that Capital FM is losing advertising revenue if you are to believe redpepper per this article.

I cannot comment on 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. The reason is simple;

With online advertising, you can measure how many people are “seeing” your advert. You therefore can set an advertising budget and only pay for people who are interested in your advert because if they are they will click on it, hence “pay per click”. In case you didn’t know this, you are years late to the party, this is how google has been making its money and it is 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 choose to advertise with them, they will tell you how many “Ugandans” you will reach with the maximum advertising budget. They also give you a rough estimate of a good minimum advertising budget you can set. You can however choose what you can afford.

On the basis of 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 works out at Shs 156,300 a month.

You can therefore technically start this business 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 MANY OF THESE ARE COMING SOON, YOU ARE NOT THE ONLY ONE WHO WANTS TO GET RICH (OR DIE TRYING).

Lets see how many online classifieds I can find:

www.dealfish.co.ug

www.kampalamart.com

www.kwatadeal.com

http://www.classifiedsuganda.com/

http://easyuganda.net/about-us.htm

http://www.tagsaleuganda.com/

http://majestysdirectory.com/

And counting!

Now the catch

It means therefore that for the investor, you have to ensure your site stands out from the crowd so as to attract both advertisers and visitors.

You will therefore have to employ various marketing strategies so that your website has sufficient customers coming there and then you can lure in the advertisers (where did you think you were going to make money from duh?). Gumtree the leading online classified website in the UK for example has clear statistics on their customer reach which should be sufficient to convince and advertiser as you can see here

Alternatively you will need to consider developing a niche. www.autotrader.co.ug for example is one such site but they have focused solely on cars.

3. …..the big boys are coming too!

Unlike a traditional business model say farming or taxi business, online business are not location dependent and therefore whilst the buyers and sellers may be in Uganda, the business owners may be foreign. After all, hosting a website doesn’t need a Ugandan presence and neither does pay per click advertising. As an investor in this sector, you can therefore expect that once you start, you will be competing with the really big fish who in their global expansion will most certainly look to tap into this market. Can you compete with craigslist or ebay should they choose to focus on Uganda. What about Schibsted? Not heard of them? Well you should know that they mean business, they are expanding. See this article.

Even dealfish.co.ug for example is the “Ugandan” branch of the dealfish brand which at last count is in 9 countries as per this link.

I will not be surprised if even local newspaper giants like New Vision(with Government’s deep pockets) and Monitor (which is backed by the mighty Nation Media Group) soon venture into this sector. New Vision for example has the www.enteruganda.com portal (under construction) which can easily be spun into an online classifieds website and the Monitor now has an online business directory which can easily have a classifieds section.

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

And Now the PROS
1. Excellent profitability and return on capital in less than 1 year

And now you are about to find out why everyone is looking to go into this sector.

I set out below my projections of the estimated profitability, start up cost and return on capital that can be achieved for this sector.

I have used the Kampalamart.com website as a model. Their model is this;

Customers can post ads for free.

Some can however choose to enhance the visibility of their ad to three locations on the website:

The top most banner

The side banner or

A featured ad banner on key pages

These three prominent places unlike the other 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 this sector.

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

1. You can for example charge for certain categories. For example on gum tree.com where rentals and job postings(by employers) are charged.

2. You can use a pay per click concept whereby certain “adverts” are targeted to specific customers depending 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 there will be a 60% growth in revenue and a 25% increase in costs. The growth in revenue is based on internet usage growth in Uganda between 2008 and 2010 as per ITU statistics.

Table 1: Profitability
Revenue Quantity Rate
(USD)
Amount Exchange rate
(Nov 11)
Total (current) Total revenue (60% growth projected) comments
Top banner 6 200 1200 2605 3,126,000 5,001,600 Assuming 60% growth
to reach full capacity
on basis of ITU internet
growth rate between
2008 and 2010 in
Uganda.
Side left banner 6 100 600 2605 1563000 2500800 As above
Featured Ads 16 20 320 2605 833600 1,333,760 As above
Total revenue         5,522,600 8,836,160 Total
monthly
revenue
Expenses Quantity rate
(USD)
Amount Exchange
rate (Nov 11)
Total Total comments
Rent 25 17 425 2605 1,107,125 1,107,125 estimated at 25sqm of
office space. Workers
house is a class A
building and rent is
between $10 and $18
per square metre.
http://www.ugpulse.com
/business/office-
exodus-offices-being-
pushed-to-kampala
-suburbs/ 257/ ug.aspx
service charge 25 2 50 2605 13050 130250 Allocated to all tenants. Property agents will usually charge this to cover electricity, utilities, security, maintenance
Web hosting     8.99 4100 36,859 36859 From www.1and1.co.uk a business package is 0 for 6 months and £8.99 thereafter. I however keep the full price
sub total(a)         1274234 1274234  
salary              
Manager/ marketing officer(s)         1,000,000 1,250,0 00 estimated to increase by 25% as revenue grows
IT personnel         500000 625,000 estimated to increase by 25% as revenue grows
office administrator         300,000 375000 estimated to increase by 25% as revenue grows
sub total(b)         1,800,000 2250000  
marketing (face book)     60 2605 156300 195375 estimated at $2 per day for a month as minimum budget for “pay per clic”k on facebook is $1. Projected to increase by 25%
marketing other         500,000 625,000 estimated to cover say radio and other advertising avenues. Increase of 25%
sub total(c)         656,300 820,375  
               
transport and communication         5000000 1250000 Estimated , increase of 25% as revenue grows
office expenses         3000000 375000 Estimated , increase of 25% as revenue grows
sub total(d)         800000 1625000  
Total monthly expenses (a-d)         4,530,534 5,969,609  
Monthly Profit (revenue less expenses)         992,066 2,866,551  
Annual profit (monthly profit * 12)         11,904,792 34,398,612  

 

Table 2: Start up cost and return on capital
Start up costs Quantity rate
(USD)
Amount Exchange rate(Nov 11) Total(current)   comments
website developmen     1,500 2,605 3,907,500   estimated on basis of cost for an online classifieds portal which supports e-commerce(credit card payments) and can be viewed on mobile devices
Rent(6 months)   6 425 2,605 6,642,750   it is common to pay in advance between 6 and 12 months.
office equipment              
computer equipment 3 1,115,000 3,345,000 1 3,345,000   Acer CPUs and Dell flat screens as well as accessories
Reception counter 1 400,000 400,000 1 400,000   estimated
telephones 1 50,000 200,000 1 200,000   estimated
computer table 3 100,000 300,000 1 300,000   estimated from Malaysian furniture
reception chairs 3 35,000 105,000 1 105,000   estimated from Nakumatt
reception table 1 100,000 100,000 1 100,000   estimated from Malaysian furniture
chairs 3 50,000 150,000 1 150,000   estimated from Nakumatt
anti virus 3 45,000 135,000 1 135,000   estimated
UPS 1 220,000 220,000 1 220,000   MTA computers
router 1 300,000 300,000 1 300,000   Microtech computers
switch 1 190,000 190,000 1 190,000   Microtech computers
internet installation 1 700,000 700,000 1 700,000   UTL
Multipurpose
machineprinter
/copier /scanner
1 1,350,000 1,350,000 1 1,350,000   HP CM1312 from Microtech computers
legal costs 1 500,000 500,000 1 500,000   estimated
sign age 1 500,000 500,000 1 500,000   estimated
sub total     8,495,000   8,495,000    
               
Miscellaneous (10%)     849,500 1 849,500    
Total         19,894,750    
Return on capital(years)         1.67 0.5784  

As you can see from table 1 and 2 above, you can get your capital back in 1.67 years or even 6 months!

2. Gain on eventual sale

A savvy investor will tell you that if you want to get wealthy quick, start a business with the end in mind. In other words, prepare for when you will eventually sale it. When you eventually sale the business you have successfully built, you will make money from the acquirer who will most likely be one of those big boys like Schibsted? Not heard of them? See this article.

3. Low start up costs

I did mention as one of the pros the low start up cost being able to result in a lot of competition. If you are one serious investor, this however shouldnt deter you. It should only spur you into action. The low costs can be to your advantage.

You thererefore don’t necessarily have to start with the Shs 20m as the tables above. You can start like I mentioned with as little as Shs 156,300 and go on to become successful so go on, what are you waiting for, do we not all want to be billionaires so freakin bad?

My guest writer muses. Her view “keep it simple, make it mobile”

In contrast to the slow proliferation of internet, that of mobile phones has been very far reaching. About 30% of Ugandans i.e. 10 million people own a mobile phone and that number is rapidly growing. With this in mind, budding entrepreneurs should design online classifieds with mobile interface in mind.

Not only will building for mobile allow you to take advantage of existing payment systems like Mobile Money, but it also avails a new target market i.e. the owners of mobile phones with no internet connection. There are ways to incorporate SMS as a viable means of doing business, see Google Trader Uganda. Buyers and sellers can post or view listings by simply Texting START to 6007 on MTN.

When I say keep it simple, I don’t mean it should be boring. Build something that your users can easily view on a small screen, avoiding heavy graphics or big images. Simple User Interfaces (SUIs) load easily and counteract the slow and patchy internet connections. You don’t want your users to turn away in frustration.

Last but not least build, and rebuild based on user feedback. You will not get it right on the first try, therefore be willing and able to incorporate new features based on site usage and eliminate those features that nobody uses. Remember keep it simple and mobile.

SUMMARISING AND THE FINAL WORD
First the numbers

On the basis of my analysis:

Capital investment(A): 19,894,750

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

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

If you look at 60% growth, you can however look to recover the investment in 0.57 years!

Now the basics you must get right before investing.

Excellent website design. You need to invest in a good website that will make it easy for users. You need to remember that not many Ugandans have internet at home and so will most likely be browsing in office, in a cafe or on their phone and so a simple design which can support mobile phone browsing is most likely appropriate. I couldnt put it better than my guest writer; “Keep it simple, Make it mobile”.

Aggressive marketing. You will need to move fast or smart to capture the market with different marketing techniques otherwise your website will get drowned in the crowd. I am not necessarily saying splash out on huge newspaper adverts(which we know cannot necessarily be measured for success). There are numerous methods for example a free press story, interviews, article marketing, facebook advertising et al.

A clear target market. Who do you want to reach? You need to know who you are targeting and then go on to develop your service with that client in mind. A good example I gave is auto trader.co.ug

FINAL WORD

Despite the threat of the big competitors coming, this is truly one of those sectors where even the little guy can win and go on to be the next google, the next facebook. You don’t need to capture a huge portion of the market to be successful. Kampalamart.com for example has about 388 facebook fans. If this represents their market share of an estimated 304,000 facebook users in Uganda, that is only 0.13% of the market BUT from the tables above, they would already be profitable! Need I say more, go on GET RICH (OR DIE TRYING).

P.S

The easiest means of keeping up to date with this website is via email. Please click here to join my email suscription list.

And now the disclaimer: While I have taken steps to research this information as well as based on my experience, you should not rely on the information given here to base your investment decisions. You should seek business advice from a professional knowledgeable of your specific circumstances. I shall therefore not be held responsible for any loss you may incur when acting on this information.

One thought on “Online classifieds website/portal? Who wants to be a millionaire?

  1. well done but you grossly understate the cost of starting a classified website.A serious website can run upwards of $100k in costs.Thats why you see these ugandan classifieds sites are ugly,have no usability and people end up not using them.

    After that,another challenge is value creation.What will keep people using your site?How do you create value for advertisers??People must learn that in the website business,one thing matters!!! TRAFFIC!!!

    I have tons of experience in ecommerce and actually willing to give a few tidbits from my experience if only you can get in touch by email

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