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OLX, an online classified ad has reportedly announced it is shutting down operations in Nigeria and some other African countries. The workers have been informed formally through a notice of termination, which will commence in March and will be followed by the management team in April.

The online classified ads company which was founded 2006 has grown to about 1,200 employees and operates in 40 countries. With its 11 billion page views, 25 million listings, and 8.5 million transactions per month, it has become the largest marketplace in India, Poland, and, as of last year, Brazil. 

OLX sold a majority stake in the African conglomerate to Naspers in 2010. Naspers, the Cape Town-based company, which also owns Africa’s largest pay-TV business and newspapers, has been focusing on e-commerce and is now among the world’s largest investors in the space.The platform made entry into the Nigerian Market in 2012.

The platform is free to use and makes product selling promoted listings to users. Payments are conducted offline, which has allowed OLX to avoid dealing with legacy payment infrastructure in each market it enters.

The value proposition of a classified ads platform.

The value chain for online classified ads includes listing a product/service for sale which can be done by anyone, creating a listing is absolutely free. However, paid options to enhance the visibility of listings are available. Buyers can see product pictures and other details without registering and a buyer can directly get in touch with the seller.

However due to the business model of most online classified ads platforms reports of fraudulent practices and scams (by sellers and buyers) trailed the platform and the inability of the platform to deal with scammers who took advantage of the loophole in the business model to engage in fraudulent activities on the platform by blocking them led to a massive erosion of confidence by buyers on the OLX platform. Though the management tried to stem the tide, the effort was already late.

People, however, expressed divergent opinions on the development on Twitter.

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Possible reasons for closure.

This is definitely not the best of times for e-commerce platforms in the country. Recently, Zinox acquired the embattled Konga- also an e-commerce platform,  Efritin.com closed its operations less than 3 years of operation. Why are platforms having it rough in the country?

According to Nils Hammar, CEO of Saltside, owners of the defunct Efritin.com, while shedding light on the challenges faced by platforms in the country,

“It basically has to do with 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.”

He also noted the high cost of data and internet use as a major hindrance in the business. In addition to Hammer’s points, there is the age-old problem of the high cost of doing business in the country. Perhaps, Nigeria is not just ready for these business models or it may be that entrepreneurs are adopting the wrong business model for the environment. All these may have led to a drastic reduction in the Gross Merchant Volume (GMV) on these platforms. Hence, it has become unprofitable and would be unwise to keep running such platform.

It is however worrisome that startups are shutting down in the country and investors are pulling out of major startups in the country. These series of closures will have a negative impact on the economy and eventually lead to job losses. Konga recently sacked 60% of its workforce in what the e-commerce platform called ‘strategic positioning of the company’. With OLX’s closure, over a 100 workers will also lose their jobs and join the already saturated unemployment population which has continued to skyrocket for the past 3 years.

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In December 2017, Naspers CEO, Bob Van Dijkon revealed that the company is making plans to accelerate the “path to profitability” of its e-commerce businesses and sees a potential for initial public offerings of companies in its portfolio. The company could become purely focused on internet businesses, which now make up about 77 percent of revenues, “quite quickly,” he said. Possibly, that is why the OLX site is still up and running even though they have allegedly shut down operations.

Classified sites definitely have a bright future as more and more people are using the internet to search for products and services locally but a tweak in its business model and consolidation between platforms will give birth to a stronger and healthier online classified ads platforms in the country.

Fikayo has a degree in computer science with economics from Obafemi Awolowo University. ITIL v3 in IT service management. An alumnus of Daystar Leadership Academy. Prior to joining Nairametrics had stinct in Project management, Telecommunications among others. Also training in Consulting and Investment banking from Edubridge Academy. He has very keen interest in Politics, Agri-business, private equity and global economics. He loves travelling and watching football. You can contact him via fikayo.owoeye@nairametrics.com

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