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| Nairobi Business Monthly April

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Clicking where others failed

Online business Cheki Africa sells cars worth Sh3.4bn in an industry with its fair share of failures. Carey Eaton says its about understanding the market better

BY AAMERA JIWAJI n an industry of sprinters, Carey Eaton is a long distance runner. And this is the secret to Cheki Africa success, while his competitors in the e-commerce sector are falling by the wayside. With just under two years in the online car selling business, Cheki in Kenya receives two million page views, sells between 6,000 to 7,000 cars and makes over $40 million (Sh3.4 billion) in car sales in one month. But running a tech business is about more than just the numbers - or the platform for that matter - said the Cheki founder and Managing Director. Ive been quoted elsewhere saying a website is not a business and I stand by that. A shop window is not a shop. There a number of players in the market who have come and gone who have focused on building a website and driving trac to it, but thats not the same thing, he said. He added that the ICT sector, contrary to perception, was not a quick win industry, and that a successful business, as in any other sector, would have to focus on the core fundamentals.

Clear strategy
Cheki started its Kenyan operations in July 2011 with an initial investment of $30,000 (Sh2.5 million). Mr Eaton was reluctant to disclose how much the company is worth today but indicated that it was in the millions of dollars. And even though in a remarkably short period of time, he has
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In an e-commerce business, the website is simply the window to the business.

achieved numbers and monetisation, he knows that the race is far from over. The length of time needed to build a consumer brand and transform a market cant be done in a year, he said. You need time and stamina. Weve come into this business knowing its a long term play and itll take ve years of investment at least. And so he has spent a good part of the last two years building the Cheki brand and the business. Once youve got that, prots come out of that. Prots are not our number one objective; market share is, and actual value delivery. Monetisation is an output. In his opinion, this is the rst challenge that e-commerce businesses in Kenya face. The idea
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that just because there are people and theres internet, therefore theres big internet businesses is far from an equation thats true. We have to do what everyone else does which is build an actual business from the ground up. Slowly. Theres no quick free easy money. While other companies have chosen to focus on building websites, Cheki - with its simple layout - has focused on a critical mass for its service through sales and marketing, brand recognition and delivering quality service to customers

A shop and the window

Cheki employs 350 people across Africa, 50 of

them in Kenya, and intends to double its workforce locally by the end of the year. The business has a network of sales people on the streets who engage with car dealers on a weekly basis. At a cost of Sh20,000 for a car dealer, and Sh750 per car for a private seller per month, a car can be advertised on Cheki.co.ke. Cheki handles all the photography and content preparation. With this simple approach that focuses on building business networks, Cheki is able to deliver between 30,000 to 35,000 car buying leads to dealers every month. Its all very well having 20,000 cars on a website. Anybody can do that. Its quite a dierent thing from selling $40 million in cars, said Mr Eaton. With a turnaround of three days for a popular car,

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the system works. The company has also invested in building a popular brand and so 30% of the trac Cheki receives originates from a Google search, not for cars for sale but for Cheki. That word has become associated with buying and selling cars in Kenya, Mr Eaton said. Of the people who buy cars, 62% of them use Cheki, he said. The nearest competitor is 21% of people who will walk into a dealer, 18% who would use another website - such as OLX, and 12% who refer to a newspaper. Mr Eaton believes that this speaks to how Cheki has disrupted the traditional approach to buying cars in the market. What other companies have failed to do, he said, is to focus on one thing and do it well. Not to knock my competitors but if you compare that with other people in the same space, what did they stand for and what did they do really well? They didnt disrupt anything. The growth of Cheki into Nigeria last year has also been well received and today Cheki Nigeria is four times bigger than the Kenyan operation. This, Mr Eaton said, is because of the larger market size - Lagos itself has a population of 18 million; second, the fragmentation of the market where car dealers are not in convenient pockets as they are in Nairobi, but dispersed all over the place, which makes a single market proposition more compelling; and third, because Cheki started in the Nigerian market relatively earlier than it did in Kenya, in the sense that there was less competition and so it was able to grow faster. need, although this is expected to change as economic growth of African countries moves to the double digits. A dierent model was therefore needed for the jobs side of the business. Mr Eaton said that generally 25% of a labour force would be actively searching for a job, and so potentially a job site could end up with around 25% of the workforce on their site every month. In Kenya this would mean 3 million people a month. The market, however, has only 7,000 available jobs. The total oversupply of candidates to jobs meant there was abundant opportunity to charge people to access them. If it were to work the other way, that is charge those oering the jobs, it would be like charging a sand owner to go to the beach, Mr Eaton said. Employers advertise their jobs on the site for free - a strategy change that has seen the number of jobs posted on BrighterMonday triple in the last couple months - while job seekers are charged a membership fee of Sh100 to view adverts. The implication is that advertisers are not ooded with irrelevant CVs, and the number of job seekers competing for a position reduces to the serious candidates, increasing their individual chances for success.

Carey Eaton Prole

Co-Founder, One Africa Media August 2012 Present Managing Director, Cheki Africa Media September 2010 Present Chief Information Ocer, SEEK Limited August 2008 July 2011 Product Director, SEEK Limited December 2006 August 2008 Commercial Development Manager, News Digital Media (NewsCorp) August 2005 December 2006 Product & Integration Manager, News Interactive - CareerOne September 2005 March 2006 Regional Internet Manager - Asia Pacic, Michael Page International plc 1998 2005 Banking Recruiter, Hays 1995 1997

Value for money

Around 40% of the jobs on Brighter Monday are not advertised elsewhere, and employers that have embraced the approach include Google, Microsoft, IBM, Barclays and the Kenyan government. As with Cheki, the challenge is maintaining accuracy of content such that as soon as a position is lled it is taken o the site, an area in which Mr Eaton says many other job sites fail. We know that on average jobs get lled in seven days so for something to be advertised for 300 days is just articial ination of ads. It means that on the rst day 100% of the jobs are real and on the 90th day 5% of the jobs are real, he said. This directly impacts on the condence level of consumers as it aects the value of quality information on the site. BrighterMonday, Mr Eaton said, is still in the investment phase, and as a long term business will take at least three years to achieve profitability. To get 2 million consumers onto Brighter Monday is going to take a lot longer than to get 60,000 car consumers, he said. And car buyers are more used to the internet paradigm, he added, which means that there is a quicker uptake curve. Members of the job market, however, need to be educated. What has worked for Cheki - and what Mr
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Market dynamics
Four months ago, Cheki acquired a majority stake in the seven-year-old Kenyan job site, BrighterMonday, from its local founder Sagini Onyancha, and acquired Jobberman in Nigeria. Jobberman is already the third biggest of all websites in Nigeria, and the number two player in Ghana, and Mr Eaton is condent that both Jobberman and BrighterMonday will become the bigger business in the group because of the dynamics of the job market. They are older businesses than Cheki so we invested in those businesses, and our philosophy is to invest in good local business rather than being an import, he said. The African market has a high supply of labour - around 10 million in Kenya and 43 million in Nigeria - but the availability of jobs has not risen dramatically in response to this

Education
Master International Relations, Macquarie University 2004 2006 BA, Linguistics, University of Sussex 1991 1995 ERASMUS Programme, Universit de la Mditerrane (Aix-Marseille II) 1993 1994 Hillcrest Secondary School 1986 1990

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Eaton intends to carry across to enhancing BrighterMondays business operations is the localness of the model. You have to be super local: payments, languages, compliance, tax, local complexities, he said. So, for instance, Cheki in Nigeria is highly customised to the Nigerian car market. If you compare East and West Africa, right hand drive and left hand drive; diesel and petrol; sourced from Japan and sourced from America. Here 70% of the cars are Toyota -in Nigeria, there is a huge fragmentation of American models. Here you pay duty - there you dont. There the government subsidises petrol - here it doesnt. They have nine million people in the diaspora who are the main car dealing people; weve got a bunch of agents who buy from Japan. So its a completely dierent set of customer dynamics. Payment modes on the sites are also customised to suit the market and such that while in Kenya, Cheki and BrighterMonday rely on M-Pesa, Kopo Kopo or cheque, in Nigeria where mobile money is not as prevalent, the payment barrier is much harder and so Jobberman, for instance, operates with cash and bank deposits, and has innovated into scratch cards and ATM integration. Understanding local needs and local dynamics is critical to any business, Mr Eaton said.

Macro environment
Internationally the e-commerce businesses that have grown successfully are those that oered basic information such as jobs, cars, houses, music, entertainment and shopping. And as consumers grew more involved on the internet, sites oering social information began to register higher demand. The growth of the internet business in East Africa, however, is at the tail end of a process that started in the late 1990s in the West. E-commerce businesses in the West have between 15 to 20 years under their belt, and only started breaking even in seven years, whereas in Kenya the transition to bre cables and the subsequent drop in price only happened in 2012. The message is, its still very early. We are two years in here in Kenya. Yes, the curve is much steeper and we are seeing very rapid growth in companies and adoption of internet much faster. Mr Eaton attributes to quicker understanding of the concept, and cheaper access to data through mobile phones, but he added that the age of the internet industry in East Africa
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The Cheki team in Nairobi.

is still young. Companies that started in Kenya in the early 2000s such as Myjobseye and Kenyacarbazaar, he said, while good businesses were too early for the market, and limited to PC users since they came before mass adoption of the internet through mobile phones. They were even before M-Pesa and so Myjobseye, for instance, was limited to the payment option of scratch cards. The entry of big international players marked the second wave in the e-commerce industry, where foreign business models were cut and paste into the local market. But the local context wasnt ready for a straight import and so businesses like Dealsh and Kalahari were

not successful. Similarly, the exit of Naspersowned Mocality. A lot of these foreign players have come in and seen Africa as a block, [and assumed that] what works in South Africa will work in East Africa, and were seeing that thats not necessarily true, Mr Eaton said. And even though, uptake of e-commerce business in Africa could happen much quicker, it is denitely not a one-year exercise. On average people dont job hunt every week. They job hunt every two to three years so for a customer to come back, it will take two to three years at the most basic level. The same with Google. It took ages before Adwords kicked

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Dos and Donts
1. Understand the problem youre solving Make sure its real and that what you deliver genuinely solves that problem. So if the problem is nding a job make sure you genuinely solve that problem. Dont give them a fake job. 2. Go local. Try and understand local nuances and issues That will drive adoption. If you import something foreign, you will have a double challenge of educating the market on what it is, and why its dierent from what theyre used to. 3. Do something. There is a lot of opportunity for online products and services Our audience is bigger than that of the most popular TV station already. We have good macro frameworks; the industry is growing; and the capital is available. Those ingredients you wont nd in another industry with that size potential. has put in money and got a lot of money out. Until we have that rst exit it will take time to build condence in Africa, but we will see some in the next couple of years. Dealdey may potentially be the rst serious exit that we will see. Dealdey is a Nigerian e-commerce platform, modelled on group buying deals. However, anyone who starts a business in the tech sector, or who partners with an investor who is in it for a quick win, is headed for failure, Mr Eaton said. The corporate culture of startups is about risk taking, being energetic and nimble. Big media companies, such as Naspers, which have had a presence in Kenya through e-commerce businesses Dealsh, Mocality and OLX, by their very nature, dont have startup in their DNA, he said. Big companies and nimbleness and risk taking dont go together, he said, and so while these investors may be willing to invest a large amount of money into a start up - as Naspers did with Dealsh and Mocality - they burned it too quickly. Time is more important than money in business. You have to be in long term value creation, he said. The corporate culture of the investor is also key, and is one of the reasons big international media companies like Google have chosen to start incubator programmes like Google Ventures, a venture capital fund, at arms length rather than as part of their core operations. In February, Cheki underwent a reshue when it formalised a seven-year relationship with South African PrivateProperty Holdings and their common investor, US-based Tiger Global Management. Cheki and PrivateProperty merged their ve brands (PrivateProperty, SafariNow, Cheki, Jobberman and BrighterMonday) to form Africas largest classied service. Tiger Global Management is internationally renowned for having a high appetite for risk, and a track record for building companies in emerging markets. The coming together under a single holding company - One Africa Media - was designed to oer various operational advantages. For instance, the two can now share working space, rather than run three separate oces in Lagos, and cumulatively raise capital for their eleven dierent entities. PrivatePropertys entry into Kenya with its property and travel site was not however a foregone conclusion, Mr Eaton said.
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Its all very well having 20,000 cars on a website. Anybody can do that. Its quite a different thing from selling $40 million in cars
in. They built a huge search engine and once they had the ecosystem, then they were able to monetise it. Thats how it works with the internet, he said. If you chase money in the beginning, you will probably never get to scale. The third wave in the online business sector, which is being witnessed now is the inux of foreign money into the market through venture capitalists (VC). has meant that Africa has attracted the attention of large venture capitalists, the challenge is that the African market is still not properly understood, a diculty that is exacerbated by the lack of sucient data. VC money wants to see traction and that will take some time, said Mr Eaton. But as more investors see potential in Kenya, condence will build. The recent multi-million dollar investments in online businesses such as Kenyan restaurant guide Eat Out and retailer Jumia, and Nigerian media distribution company iRoko are a positive indication. The reality is we havent seen any exits [by venture capitalists] yet so there isnt a VC who

Corporate culture
The opportunities available in Africa and its stronger growth rates as compared to Europe and America mean that VC interest in the continent will continue to grow. While this