Platforms in Sub-Saharan Africa: startup models and the role of business incubation

DOIhttps://doi.org/10.1108/JIC-12-2016-0134
Published date14 May 2018
Pages581-616
Date14 May 2018
AuthorOlayinka David-West,Immanuel Ovemeso Umukoro,Raymond Okwudiri Onuoha
Subject MatterInformation & knowledge management,Knowledge management,HR & organizational behaviour,Organizational structure/dynamics,Accounting & Finance,Accounting/accountancy,Behavioural accounting
Platforms in Sub-Saharan Africa:
startup models and the role of
business incubation
Olayinka David-West, Immanuel Ovemeso Umukoro and
Raymond Okwudiri Onuoha
Lagos Business School, Pan-Atlantic University, Lagos, Nigeria
Abstract
Purpose The purpose of thispaper is to examine the startup models adoptedby entrepreneurs in launching
platform enterprises, and the effectivenessof business incubators across Sub-SaharanAfrica (SSA).
Design/methodology/approach Data reflecting origin, mo dels, services, ownership and o ther variables
were collected on over 6 00 platforms and 196 inc ubators, and were ana lyzed using descript ive and
inferential statisti cs.
Findings Market portfolio of the platform startups is dominated by independent models, as incubators and
accelerators were found to be inadequate in platform establishment within the region in terms of the services
rendered to incubatees. The results also indicate that private ownership still dominates the startup ecosystem
with a scant presence of public participation and almost a complete absence of public-private partnerships.
Research limitations/implications This exploratory study is constrained by a limited access to
information on the platform ecosystem within the SSA region, curbing the scope of empirical work; but serves
as a foundation for further investigations within the domain.
Practical implications The paper highlights the imperative for African Governments to make conscious
efforts in driving enabling policies that will help bridge the gaps identified in facilitating the development of
the regions emergent platform economy.
Originality/value The paper empirically elucidates the limited availability of critical resources necessary
in supporting the successful development and growth of platform startups; and helps explain why the
platform ecosystem within the region, though very active in the last decade, has not been laden with
landmark and scaled innovations.
Keywords Accelerators, Platforms, Business incubation, Startup models, Sub-Saharan Africa (SSA),
Technology hubs
Paper type Research paper
Introduction
Since its commercialization in the 1990s, the ubiquity of the internet combined with mobile
communications technologies has resulted in a digital transformation combined with the
creation and adoption of new technologies (Kon et al., 2015). This has made way for a variety
of disruptive businesses that alter the way people live, work and interact (Nguyen, 2014).
In conjunction with the ascendance of entrepreneurship principles, it has also promoted the
development of startups[1] in a manner consistent with entrepreneurial economies, which
are gradually superseding managed economy systems.
This technological drift is gradually shifting competitive advantage away from large- to
small-scale organizations (Brock and Evans, 1989). Audretsch and Thurik (2010) argue that
this is adduced to the market-creating dynamics that a new technology brings, which
disrupts traditional market positions thereby altering their typical entry barriers and
competitive economies of scale pressures. Traditional businesses also known as pipes
describe businesses that operate the classical value chain model via a series of controlled,
linear activities from inputs to final products (van Alstyne et al., 2016). Categorically, pipes
reside in this traditional domain, whereas platforms extend the value chain by incorporating
user interactions. Thus, platforms are businesses that facilitate value-creating interactions
between producers and consumers. Depending on the number of producers and consumer
Journal of Intellectual Capital
Vol. 19 No. 3, 2018
pp. 581-616
© Emerald PublishingLimited
1469-1930
DOI 10.1108/JIC-12-2016-0134
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1469-1930.htm
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categories, platforms are also known as two- or multi-sided networks. Unlike conventional
businesses where products and services are created and then delivered to consumers,
platform interactions are co-created. Increasingly, in order to fully exploit the
ever-expanding ecosystem, most pipes are evolving into platforms to remain competitive
(van Alstyne et al., 2016).
The life cycle model can be used to explain this evolution given the open access to the
internet, which creates equal access for business engagements by firms irrespective of their
size, thus reducing transaction costs a major entry barrier especially for smaller firms.
Also, smaller startups have shown more market agi lity than large corporations
(Weiblen and Chesbrough, 2015). Whereas established businesses are reliant on corporate
equity, technology startups leverage on shared technology to connect the multi-sided
market with lower costs, greater speed and agility. Hence, many platforms have grown to
become the dominant forces within their respective markets with examples including
Facebook, Uber, Amazon, PayPal and others.
This success syndrome has underpinned the development of innovation hubs that drive
platform entrepreneurship globally (Gawer and Cusumano, 2002; Nambisan and Baron,
2013). Bramann (2017) adds that technology hubs, accelerators and incubators provide
numerous enabling effects toward building techno-entrepreneurial ecosystem in resource
scarce contexts and remain vital to launching technological startups. In Africa, the actual
number of active hubs is difficult to ascertain. As of 2015, the World Bank identified a total
of 117 technology hubs, while the Global Systems for Mobile Association (GSMA) 2016
evaluation reported no less than 314 active hubs operating on the continent a number that
is increasing weekly. About 50 percent of the tech hubs are concentrated in just five
countries South Africa, Kenya, Nigeria, Egypt and Morocco, while other African countries
have at least one or two active tech hubs. With regards to types and services, the GSMA
study also finds that incubators and accelerators make up almost 60 percent of these tech
hubs, facilitating access to three key resources: skills, funding and networking.
Even though business incubation models were established to reduce transaction costs of
startups through the provision of co-location workspace, infrastructure, advisory and other
services, their impact on the evolving platform ecosystem in Sub-Saharan Africa (SSA) is
yet to be determined. The nascent nature of platforms in the region limits the availability
of empirical studies on platform startup models within the regional digital ecosystem.
While several models exist and have been adopted by startup investors, not so many
startups have hit the digital platform ecosystem with landmark and scaled innovations.
This exploratory study employs secondary data sources to explain the relationship
between emergent platform businesses in SSA with business startup models. Following this
introduction, a literature overview on platforms, entrepreneurial startup models and
business incubation models is presented. The data acquisition and analysis approaches are
described in the method section. Research findings and discussions are elaborated in the
fourth section with final concluding remarks in the fifth section.
Platform conceptualization
Eisenmann et al. (2006) define platforms as products and services that bring together groups
of users in two-sided networks. The existence of two-sided markets is not new; examples
range from product-based platforms such as consumer cards, video game terminals
(Rochet and Tirole, 2003) and shopping malls to more technological (service) platforms such
as marketplaces (Eisenmann et al., 2006). In attempts to categorize platforms, Gawer (2014)
advances the platform discourse from two theoretical perspectives vis-à-vis economic and
technological design. While the economic perspective sees platforms as double or
multi-sided markets, the technological (engin eering) perspective sees platforms as
technological architectures. Although the economic perspective provides insights into
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platform competition, the technological (engineering design) perspective focuses on
platform innovation. Furthermore, while platforms exist in physical and digital forms across
diverse industries, they are different from traditional businesses otherwise known as pipes.
Pipes are used to explain traditional value chain business models where goods originate
from the supplier and flow sequentially to the consumer (van Alstyne et al., 2016). Platforms,
unlike these traditional linear business models, operate differently by facilitating
interactions between producers and consumers and are subject to the operational
phenomena of network effects.
Network effects are the demand-side economies of scale built on advanced inter-
networking and demand aggregation. They are unique to platform business models that
allow for a greater competitive transaction cost per volume (van Alstyne et al., 2016), as
platforms become more valuable and attractive to potential users the more users are
connected (Evans and Gawer, 2016; Parker and Van Alstyne, 2005), thus explaining why
many digital platforms such as Facebook, Uber, Airbnb and the likes have gone viral
(Evans and Gawer, 2016; David-West and Evans, 2016) given the phenomenon of users
beget user.Direct network effects are same-side value-creating externalities while indirect
network effects are value creation as a result of consumption externalities from
complementary products or cross-side effects (Evans and Gawer, 2016; Parker and
Van Alstyne, 2005). There could also be negative network effects in the form of
value-reducing feedback loops within the platform ecosystem. These can be controlled
using optimal governance mechanisms that are embedded in platform business models
(Chesbrough, 2007), and even becomes more significant at the startup phase.
Startup business models
To bridge the competitive divide and threat of new technology-based entrants, larger-sized
enterprises have since sought avenues to become more entrepreneurial (Weiblen and
Chesbrough, 2015). This has resulted in mechanisms like corporate venture capital (VC),
internal incubators, strategic alliances and joint ventures (Kemp, 2013). However, the
growth and increasing viability of startup firms and their attendant market disruption is
creating a new imperative for large companies to develop more agile and rapid means to
engage with the startup community (Weiblen and Chesbrough, 2015). In this regard,
Dee et al. (2011) suggest that with the proliferation of business incubation over the last
50 years, a diversified use of the terminology has ensued. The subsequent paragraphs
present the various models and terminology.
Company incubator
The main distinguishing feature of the company incubator model is the entry selection
process for incubatees (Weiblen and Chesbrough, 2015). A more recent progeny of the
traditional corporate startup incubation model is the corporate accelerator. This involves
providing a superior value to startups by surpassing the existing organizational constraints
to launch a greater number of businesses more quickly (Kohler, 2016). Services provided to
these businesses include management advice and training, office services such as secretarial
and room hire as well as networking functions.
Business incubation services
Kemp (2013) seesbusiness incubation as the processthrough which assistance (in theform of
business incubation services) is provided by a business incubator to businesses operating
from within a facility. Hackett and Dilts (2004a) define business incubation as [] a shared
office-space facility that seeks to provide its incubatees with a strategic, value-adding
intervention system of monitoring and business assistance(p. 57). These services include
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