Excluding Twitter (where I am more of a spectator than a contributor), LinkedIn (for corporate updates), and WhatsApp (where I communicate with friends, family, and coworkers), I hardly use social media. My last post on Instagram was in 2014, the worst way to reach me is via Facebook (surprised I still have an account there), I do not have a TikTok account (and may probably never have one) and I once downloaded Snapchat tried to use it (and predictably deleted the app in less than 24hours). This ultimately meant that when Threads came out, you would predictably expect me not to bother to get it, and you were right. I was so insulated from the gold rush to a new social media platform that it was a colleague’s text in our internal corporate communication platform that drew my attention to it.
When Threads came out (5 months ago as at the time of writing this), people called it the end of Twitter, the end of Elon Musk, and a whole bunch of other things – in fact, this journalist called it the Twitter Killer. My perspective was different. Threads gained 100 million users in its first 5 days of existence which positioned it to be the first consumer app to break that record, however in less than a month daily active usage on Threads had dipped by roughly 75%, a very predictable outcome. While Threads clearly isn’t dead (or at least not yet), I sincerely believe that the future of Threads (at least as a Twitter alternative) is somewhat bleak, the main reason is the lack of a clear value proposition asides from just being a substitute to Twitter.
Threads enjoyed massive adoption based on the seamless onboarding flow Meta incorporated in its onboarding by integrating the process directly with Instagram. This led to a massive spike in users within the first 5 days. However, the drop in daily active users from 49 million to 12 million, and the daily app activity time from 21 minutes to 3 minutes reinforces a concept I’ve mulled over for a very long time; Distribution will get you acquisition, value alone will get you adoption.
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Distribution
The easiest way to understand the concept of distribution is FMCG companies. If you think about FMCG firms you’ll realize there is one simple framework at play: Manufacture, Market, and Distribute. Manufacturing speaks to creating a good product, Marketing speaks to building awareness of that product, and Distribution speaks to creating channels and avenues to get your product into the hands of customers (in this case the retailers who will eventually extend your product to their customers).
Regardless of how good an FMCG company is, if it cannot properly distribute (whether they own their distribution channels or are dependent on third parties) they will struggle to succeed. In fact, I go as far as saying if a product is sub-par but its distribution channels get it into some really remote communities where it ends up being the preferred product of choice (primarily because it is the most accessible option), it will enjoy higher patronage than the best product that can’t access similar channels. The same is true for digital products.
Distribution plays a key role in not just building successful digital products, but the subsequent flywheel effect that keeps company’s dominant and entrenches monopolies in certain market segments. Think of it like this; distribution is why Threads got hundreds of millions of users in its first 5 days of existence, distribution is why Microsoft Teams beat out Slack in the enterprise communication software market even though Slack had a good head start, distribution is how Apple has built a US$78.13 billion a year services business, and distribution is why I’m putting money on Google to capture the Generative AI market even though Open AI’s ChatGPT was first to market.
Amazon is another good example of this; the Amazon e-commerce marketplace created a use case for a subscription model that creates access to free and fast shipping on the Amazon marketplace, that distribution channel is the infrastructure for Prime Video; a video content company with more than 200 million users generating US$35.22 billion in annual revenue.
From an African perspective, distribution is how MTN built Xtratime (An N80billion+ (US$66.7million) in annual revenue business, focused solely on lending airtime to over 70 million MTN users and charging them a 20% interest rate), distribution is how PalmPay successfully processes more than US$5 billion a month all on the back of a distribution partnership with Transsion Holdings (parent company of Tecno, Itel, and Infinix), that sees the Palmpay app pre-installed on more than 15 million Transsion Holdings devices nationwide, distribution is how BoomPlay (one of the clunkiest and absolute worst music platform I have seen in my life) has more than 100 million downloads because of a similar agreement with Transsion Holdings.
Distribution is the name of the game and companies that know how to both build and leverage their distribution channels are well poised to win.
If you look at the African payments space for instance, every single company (as far as I am concerned) building an SME enablement platform (a platform that provides digital tools for SMEs to manage their business i.e book-keeping, invoicing, payments, etc.) is basically developing a distribution layer to build credit solutions on top of.
That distribution creates the visibility layer into transactions to help companies effectively underwrite credit products issued to SMEs. Companies that issue credit without that distribution layer are at risk of suffering from massive Non-Performing Loans (NPLs).
If possible, every company whose business model can accommodate such should have a clear distribution model that allows them to build and layer new solutions on top of what they already have to achieve scale and bring in more revenues. Most companies already recognize the importance of a strong distribution channel and its transformative impact on the trajectory of a business; Dabadoc, a Morrocan-based healthcare startup, leveraged the assets and distribution of its corporate investors AXA and Orange to distribute its product to more than 10,000 doctors and 8 million users across the countries it operates, and that’s just one example of a company doing that, the African technology landscape is littered with firms adopting a similar approach to expanding their product tentacles and bolstering top-line revenue growth.
Distribution can fail
If the whole Threads saga will teach you anything, it’s that distribution alone isn’t enough, distribution can fail. But distribution doesn’t just fail by chance, it fails when people create solutions on successful channels that have unclear use cases for users.
Going back to the FMCG analogy; no matter how good your distribution channel is, if you try to sell US$30 soap to small retailers in a remote village somewhere in the Northern part of Nigeria, you will struggle to see adoption. The reason is simple, your channel is relevant, but there is a clear disconnect between your channel and what your users need, and that usually has consequences. Two of my friends who are social media aficionados downloaded the Threads app but don’t use it anymore (yes my sample size is skewed, but the larger scale data shows I may not be too out of order), and the reason is that they really don’t know why they should use it, one of them who is a social media marketer herself referred to it as “overwhelming”.
Expanding to digital products, there are lots of cases where businesses create fundamental mismatches between what their customers need (or values) and what they (the business in question) are capable of doing and just dump anything on them all in the name of we have a “channel”. This usually results in wasted manhours spent on unnecessary integrations.
A good example is mobile banking apps in Nigeria. Banks are one of the most powerful distribution channels in Nigeria because they have native customers who trust them to manage their money. Most Nigerian banking apps offer a plethora of services (movie tickets, plane tickets, etc.), but most bank customers use them for a handful of services (transfers, airtime and data purchases, etc) a lot of the other services they have go unused.
Think about this; the airtime and data market in Nigeria today is a N106 billion (US$88.3million) market, however, the majority of the value in that market is captured by banks because banks play a pivotal role as the key distribution channel for those services. Users find it much easier to buy airtime and data directly from their banks whether via their mobile apps or USSD channels. However, electricity doesn’t follow the same trend, and this is why companies like BuyPower and iRecharge enjoy massive adoption because while banks also provide those services, customers do not find adopting standalone products to access those services impractical.
The truth is the idea of a super app may seem alluring within business circles, but consumer behavior (especially within Nigeria) doesn’t necessarily seem to align with that, the CEO of Flutterwave shared how their initial plan to build a super app via the Barter product didn’t birth the results they envisioned and ultimately informed their decision to split their remittance application (Flutterwave Send) and their mobile payment application into two different products as against subsuming them into one.
If you think about it holistically Nigerians are used to redundancy; more than 66% of Nigerians use dual sim phones (the highest in the world), most Nigerians have more than one bank account, and having more than one ISP (Internet Service Provider) is crucial for anyone who wants to maintain their mental health in this country. So, while MPesa’s super app ambitions make sense in Kenya, it may be a challenging proposition to execute in Nigeria.
Access Bank has a great mobile application, one of the neatest I’ve used so far, but the number of services distributed via that app is so overwhelming that I wonder if they see adoption on all those microservices. Someone might argue that even if it doesn’t generate significant revenue, it still serves those who wish to utilize it. The crucial question is whether you are certain that you want to allocate manpower and developer resources to implement APIs that fewer than 200 people will use in a year? Would investment aficionados rather use a Bamboo Integration on a bank app or engage with Bamboo directly via a dedicated mobile application? These are things we need to test.
MTN is a leading telecommunications firm and one of the most powerful companies in Nigeria. With a market cap of N5.11trilion (US$4.2 billion), it is the second largest publicly traded company in Nigeria second to only Dangote Cement. Over the last decade, they have expanded into new verticals with direct impact on the Nigerian digital economy, especially the Nigerian financial services space.
However, while MTN has a strong agency banking network (200,000+ active agents), MTN’s mobile money initiatives haven’t caught on as expected. There are many reasons behind this; excluding the fact that a PSB license doesn’t allow its holders to lend off the balance sheet (or anywhere else for that matter), the fact that Nigeria is NOT a mobile money market is another compelling reason for that. MPesa tried South Africa and failed there for similar reasons.
While MTN has enjoyed massive success in other markets where it has rolled out its mobile money business, Nigeria has proven to be challenging so far. As of Sept 2023, MTN had a total deposit value of N5.4 billion (US$4.5million) and total user accounts of 3.6 million, placing the average account value at N1,500 (US$1.25). While I am not one to look down on a company like MTN (they can always bounce back to shame you), it is clear, it may take a while for them to record strong growth within that specific business line.
Distribution as a Service
Distribution is a key competitive advantage for any company. John D Rockefeller Sr reportedly bought out the railroads in his days so he could squeeze out his competitors and stay dominant in the market (not the friendliest of strategies, but who am I to judge).
DaaS involves a company opening access to proprietary distribution in its control to other platforms to build solutions on while it earns a cut for creating that access. An easy way to look at that would be a B2B eCommerce player like TradeDepot, Omnibiz, or Alerzo giving fintechs in the offline acquiring space i.e Global Accelerex, MoniePoint, Itex, etc. access to their merchant bases in exchange for a fee or a cut on revenues generated. It could also be a Moniepoint opening access to its merchant data and distribution to a third party to use that access and data to underwrite credit facilities (something I guarantee they will never do).
Distribution as a service helps companies with strong distribution moats who lack the technical know-how on how to leverage them to build new revenue streams properly.
For distribution as a service to work, the sweet spot is understanding the target use cases properly and effectively aligning marketing initiatives as against just firing in all directions because target customers (whether they exist in clusters or not) exist in those “directions”.
This may just be the next opportunity; DaaS, companies opening up their distribution channels to experienced third parties to help them leverage and maximize those channels, while they keep a share of revenue generated via those channels. The opportunities here are massive; co-advertising to target audiences, providing credit solutions to target groups, etc.
Conclusion
While Distribution channels continue to play a key role in how companies build out their business moats and insulate themselves from potential threats, knowing when to switch to a Distribution as a Service model that allows you maximize the opportunity within your distribution channels to attract new businesses is a key imperative for any business on a path to creating massive outcomes within the digital economy.
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