Why Technology Is Rewriting the Economics of Business 

KAMPALA, Uganda — Technology is changing the economics of building a business, allowing companies to reach large audiences without necessarily expanding their physical operations at the same pace.

(Nyanzi Martin Luther/ photo by Fred Kabuye )

According to Ugandan entrepreneur Nyanzi Martin Luther, this scalability is one of the defining advantages of technology-based businesses.

His argument is that entrepreneurs can invest in developing a digital product, continue improving it and potentially make it available to millions of people without having to reproduce a physical product for every new customer.

“When you start an application, you must have a goal. With that goal, you must plan the audience and the content,” Nyanzi said.

The observation points to a broader shift in the economics of entrepreneurship: the relationship between investment, distribution and growth is changing.

From physical expansion to digital scale

Traditional businesses often require continued investment as they grow.

A retailer that sells more products generally needs to replenish its stock. A restaurant serving more customers needs more food, staff and, eventually, additional capacity. A manufacturer has to increase production when demand rises.

Digital businesses can operate differently.

Once an application has been developed, the same underlying product can potentially be used by millions of people. The company still has to pay for employees, servers, security, maintenance, development and other costs, but it does not necessarily need to manufacture a new physical product every time another user joins.

That difference can make digital businesses highly scalable.

Nyanzi argues that the entrepreneur's responsibility is therefore not simply to create an application but to build something that people want to use.

The audience becomes central to the business model.

Why the audience matters

A digital platform can generate revenue in several ways.

Advertising is one of the most common models. Subscriptions, transactions, premium features, digital services and other commercial arrangements can also generate income.

This means the person using a platform does not always have to be the person paying the company.

Advertisers and businesses may pay to reach the platform's users.

As an application attracts more people, its potential commercial value can therefore increase.

Nyanzi's view is that this is one of the reasons technology can produce enormous businesses from relatively small beginnings.

The initial product may be digital, but the potential audience can be global.

Investment does not disappear

The idea that technology requires only one investment, however, needs qualification.

A digital company may not have to manufacture a physical product for every customer, but successful technology businesses require continuous investment.

Applications need updates. Servers and cloud infrastructure have to be maintained. Cybersecurity requires ongoing attention. Employees have to be hired and retained. New features must be developed as competitors enter the market.

The difference is that many of these investments can support a product serving a very large number of users simultaneously.

That creates the possibility of operating leverage: additional revenue can grow faster than some costs once a platform reaches sufficient scale.

Africa's technology challenge

The same economics present both an opportunity and a challenge for African entrepreneurs.

Africa has a large and expanding population of digital consumers, but many of the services required to build digital businesses are provided by companies based outside the continent.

Entrepreneurs may depend on cloud computing, payment processors, software tools, application programming interfaces and other digital infrastructure.

Payment systems can be particularly important.

Mobile money is widely used across many African markets, while some international digital services rely on bank cards and other payment arrangements.

For entrepreneurs trying to build products for international markets, understanding how these systems work can therefore be an important part of running a technology business.

Nyanzi argues that entrepreneurs need greater familiarity with the infrastructure behind the digital services they use.

The ability to develop an application is only one part of building a technology company.

Artificial intelligence adds another layer

Artificial intelligence is expanding the range of services that entrepreneurs can build around digital technology.

AI tools are increasingly being used for coding, education, translation, image creation, video production, research and business operations.

The technology has also created new commercial models.

AI companies can charge users through subscriptions, usage-based pricing or credits. Developers can pay for access through APIs and incorporate AI capabilities into their own applications.

This creates several layers of economic activity around a single technology.

One company may develop the underlying system, another may build an application around it, while businesses and consumers pay to use the final service.

For entrepreneurs, the significance is that technology can create markets not only around finished products but also around the infrastructure that enables other businesses to build their own products.

The regulation question

The expansion of artificial intelligence has also raised questions about regulation.

Governments are considering issues including privacy, copyright, security, misinformation and accountability.

Nyanzi argues that policymakers should be cautious about regulations that could unnecessarily discourage innovation.

There is, however, another side to the debate: governments may need rules where technologies create risks that businesses cannot adequately manage on their own.

For technology companies, the question is therefore not simply whether regulation exists, but whether the rules are clear, proportionate and predictable enough for businesses to plan around them.

Who captures the value?

For Africa, the larger economic question may be ownership.

Millions of Africans use global digital platforms every day. Their activity generates advertising revenue, subscriptions, transaction fees and other forms of economic value.

But many of the companies capturing that value are headquartered outside the continent.

Nyanzi argues that African entrepreneurs should seek to move further up the technology value chain — from consumers of digital products to developers and owners of digital businesses.

That could involve building applications around problems specific to African markets and then expanding those products into other markets.

The distinction is important.

A country can have a large population of technology users without having a similarly large technology industry.

Consumption creates economic activity. Ownership determines where a significant portion of the resulting value ultimately accrues.

The changing economics of entrepreneurship

Technology has not removed the basic requirements of business.

Companies still need customers. Products still need to solve genuine problems. Entrepreneurs still need capital, skilled employees and effective management.

What technology has changed is the potential relationship between investment and distribution.

A small company can potentially reach customers across borders without establishing a physical branch in every market.

A digital product can be improved continuously and distributed to large numbers of users at the same time.

That scalability is what makes technology economically distinctive.

For Nyanzi, the opportunity is therefore not simply to use technology but to build businesses around it.

As digital services become increasingly embedded in everyday economic activity, the competition will extend beyond who uses technology.

It will also be about who develops the products, who owns the platforms and who captures the economic value created by them.