Why Online Classified Businesses Like OLX Are Dying

In recent weeks, there has been a series of not so great news within the technology space in Nigeria. From the unceremonious sale of Konga to the shutting down of OLX, one of Nigeria’s leading classified ads business. Let’s not forget that about a year ago, Efritin also shut down citing “the fact that we didn’t get desired returns on our investment, so we decided to scale back on our investments in Nigeria and that means we are forced to let many people leave the company,”

The CEO was also quoted saying – “I think the data cost in Nigeria is very high. In comparison to other parts of West Africa, Africa and the rest of the world, it is very expensive to use the Internet for the vast majority of the people. It is very difficult for e-commerce and classifieds because they are quite late in the evolution of the Internet industry”.

I am sure you guys know that I completely disagree with the CEO, but I believe it boils down to revenue. I have said it too many times, you cannot continue to operate any business on investors’ funds. That is not sustainable. Once funding dries up (Like it is now), can your business survive? For me, that is the major issue. Most online classified ads businesses do not generate revenues, or what they generate is too insignificant for their cost.

OLX on the other hand, transformed from DealFish in an attempt to rebrand. I have not seen an official statement from the CEO of OLX, but circumstances suggest that Naspers is looking to exit unprofitable markets and focus its attention on viable markets, hence shutting down its operations in Nigeria and Kenya.

Online Classified Ads – Business Model

There are 2 major models for an Online Classified Ads play. Horizontal and Vertical.

1. Horizontal – the horizontal model, offers ads across a wide range of categories, from automobiles to human hair. Jiji, OLX and Efritin are major players in the Horizontal space in Nigeria
2. Vertical – like you will suspect focuses on a single category, such as cars, real estate etc. Cheki, Tolet.com.ng are major players in the vertical space in Nigeria

So, how do they typically make money?

Online Classified Ads – Revenue Model

There are multiple ways of making money in this new business line, I will highlight a few;

1. Subscription

You charge merchants to become member of the site before they can publish ads. This might involve a one-off membership fee and a monthly, quarterly or annual subscription fees. Since you might not be able to charge per transaction (Disintermediation), you can charge the merchants on the platform to access your customer base.

The challenge then will be; what is the right price point? How many merchants will you require to make sufficient revenues to cover the cost of the platform? And Finally, how do you guarantee that the merchants will make sufficient sales to justify a continuous subscription.

2. Free classifieds with premium options

This feature offer merchant the benefit of posting their listings for free, and offer premium features such as “Featured Ad” or the ability to add more pictures if they pay a small fee. This will allow for a wide product range (since the merchants are not paying to list). The platform will however look out for fake and substandard products.

3. Paid Listings – People typically look at the first few pages of search results. The same way, you can offer merchant the possibility to bump their listing back to the top for a small fee. Think about google ads. So, for your ad to be listed as part of the first few ads, then you pay a fee.

4. Advert Banners – The easiest way is to add the Google Adsense code to your site and shows banners through Google’s ad network. These banner positions are also open to your merchants. But in case you have no paid advert, the Google Ads will still run anyway.

Please note, a lot of these revenue models can be combined.

Again, did anyone notice that vertical classified ads platforms are the only ones still surviving – Tolet.com.ng and Cheki (outside of Jiji.ng). I don’t know for how long they will hold out for, but something has to be working for them. I also believe that some of these vertical classified businesses sell inventory of themselves.

So, Cheki sells cars from its own inventory and Tolet sell property with which it has direct mandate for rather than facilitating Customer to Customer transaction. This means that the platforms might provide access for Peer to Peer transaction for free, while they make money selling products they have direct mandates on.

Jiji, I believe will continue to survive. This is because the platform is owned by Genesis Technology Partners –  the owners of Naij(One of Nigeria’s leading online publication). I believe the synergy between both companies will keep Jiji afloat.

In fact, now that Jiji’s fiercest competitor is out of the game, I believe Jiji will spend less on advertising and concentrate a lot more on monetization.

So, what could have gone wrong?

I believe it all boils down to monetization. Most online classified ads business in Nigeria have not figured out a sustainable way of making money. I have listed and sold a few items on 2 classified ads platforms, and the platforms made no revenue from me.

Once monetization is sorted, then we can talk about expanding the revenue pool. We need to get this, no business will survive if it doesn’t make money, and technology cannot be our excuse for not making money.

(Nairametrics)