Why market formation matters more than ever in the age of AI.
Chicken or the egg?
Not a particularly useful question. And, ultimately, it doesn't matter.
What matters is understanding the relationship between markets and culture, and what happens when we begin to see them as systems that shape each other.
I have come to believe that it wasn't technology alone that changed our culture. It was the market that formed around the technology.
We had mobile phones long before seven-hour daily screen times became a reality for many people. The device didn't fundamentally change our behaviour on its own. The attention economy that developed around it did.
The market is a system. It creates incentives, rewards certain behaviours, connects participants and, over time, normalises new ways of living.
And this is where things get interesting.
I recently visited a popular coffee shop in Abuja that boldly displayed a notice stating that it accepted only electronic payments.
A few years ago, proposing this policy would have been a non-starter for many retail businesses in Nigeria.
Our relationship with cash runs deep. We spray it at celebrations. It is an established feature of parties and, increasingly, even nightclub culture. We have developed a premium for fresh, clean banknotes.
Cash is not merely a means of payment. In certain contexts, it is part of the performance, the symbolism and the experience.
Yet here was a business operating on the assumption that customers would accept electronic payments as the only option.
What changed?
It wasn't simply that the technology became available. Digital payment infrastructure existed before the behaviour became sufficiently widespread. Reliability, access, incentives, institutional developments and repeated use all played a role in changing what people were willing to accept.
As more people became comfortable making electronic payments, businesses could increasingly design their operations around them. As more businesses accepted electronic payments, customers had more reasons to use them.
Each reinforced the other.
The market was helping to change the culture that had initially shaped it.
Consider another example.
If you wanted to raise money for a wedding, you might once have relied on collecting cash contributions from friends and family. Today, you might create a WhatsApp group.
The technology provides the channel, but the underlying social mechanism is familiar. The group creates visibility, reinforces expectations and, intentionally or otherwise, applies peer pressure to contribute towards a shared cause.
The utility has not entirely changed. The mechanism through which we organise participation has.
This is why I find the relationship between culture and markets so compelling. Markets don't simply respond to existing behaviours. They can create the conditions under which new behaviours emerge, become habitual and eventually feel like culture.
I don't think culture is the source of value itself.
Rather, culture is the collective system through which we interpret the world and recognise value.
Our individual worldviews are shaped by our experiences, beliefs, needs, histories and aspirations. Through our interactions as a community, some of those interpretations become shared meanings, conventions and expectations.
Culture is the evolving, composite expression of those worldviews. It is not a consensus in which everyone agrees, but a system through which people make sense of the world and navigate it together.
Something can have value without us recognising it. But for that value to become economically meaningful to a community, people must be able to understand it, appreciate its relevance and, in many cases, organise around it.
Markets provide a system through which people coordinate the production, exchange and realisation of recognised value.
And once those markets form, they can reshape our expectations, incentives and behaviours, influencing the culture from which they emerged.
Culture shapes how we recognise value. Markets organise participation around that value. And markets, in turn, reshape culture.
This is not a linear relationship. It is a feedback loop.
Understanding culture, and the desires it reveals, can help us identify the gap between what people want and their ability or willingness to participate economically.
That gap can represent an opportunity.
My first proper foray into business, with NaijaSounds, gave me an early view of this dynamic in Nigerian music.
There was an emerging sound, an audience responding to it, and a growing cultural expression that was not yet adequately recognised, organised or commercialised as a market.
My experience with NaijaSounds helped me see early signals of what would become the global Afrobeats phenomenon.
The label Afrobeats itself is an interesting part of this story. Whether or not it adequately captures the breadth of the music, it became a widely recognised category through which audiences, media, artists and commercial players could organise their understanding of it.
The opportunity was not simply to promote music that already existed. It was to recognise the cultural energy, understand the audience and participate in the development of a market around it.
There is a distinction here worth considering.
Cultural expression can exist long before the market around it is fully formed. Artists can create, audiences can participate and communities can identify with a sound without the industry having developed the structures necessary to realise its full economic potential.
Recognition, distribution, commercial coordination and institutional support can help bridge that gap.
The same principle applies far beyond music.
An overlooked resource can become the foundation of an industry when someone discovers a new application for it, a community begins to recognise its potential, entrepreneurs develop products around it, storytellers communicate its significance, institutions establish standards and customers begin paying for it.
The resource itself may not have changed much. What changes is our understanding of its potential, followed by the capabilities and institutions required to realise it.
Markets are not always waiting to be discovered. Sometimes, the conditions for them to emerge have to be created.
There is a trap I often see when people underestimate the complexity of entering a market like Nigeria.
They observe a behaviour, identify a cultural difference and conclude that the opportunity simply requires better communication or a change in mindset.
But a market may fail to emerge even when people recognise the value of a product.
They may lack purchasing power. The infrastructure may be unreliable. Access may be limited. Trust may be absent. Regulations may constrain participation. The institutions required to support exchange may not exist or may not function effectively.
These are different problems, requiring different interventions.
Understanding culture is essential, but it is not a substitute for understanding the economic, institutional and practical realities of a market.
This is also why successful foreign operators often need to partner with local businesses or establish a meaningful presence in the markets they want to enter. Local knowledge is not simply a translation service. It is an understanding of how the system actually works, including the informal relationships, incentives and constraints that may not be visible from the outside.
The challenge is to understand the interaction between these forces.
You cannot build broad, sustainable investor participation, for example, simply by making investment products available or increasing public awareness.
People also need to understand risk, trust the system, recognise their capacity to participate and develop the behaviours necessary to make informed decisions.
Some barriers are economic. Some are institutional. Some are informational. Others are cultural.
Market formation requires us to understand which constraints matter, how they reinforce one another and what interventions might remove them.
This brings me to a distinction I think is becoming increasingly important.
Marketing often seeks to change a person's decision within an existing market. It helps an organisation communicate its value proposition, differentiate its offering and persuade people to buy.
Market formation may require something more fundamental: changing the conditions under which people understand, trust and participate in a market.
The distinction is not that marketing is unimportant. Marketing can be a powerful part of market formation.
But if people cannot access a product, do not trust the institution behind it, lack the means to participate or cannot see how it fits into their lives, better advertising alone will not solve the problem.
Market formation asks a different question:
What needs to change for this market to become possible, viable and sustainable?
The answer might involve storytelling, education, technology, community participation, distribution, partnerships, institutional reform or some combination of them.
It requires us to look beyond the transaction and understand the system that makes the transaction possible.
There is an important caveat, too. Those who help form markets cannot always control what emerges. Social media, for example, created extraordinary opportunities for expression, connection and commerce, alongside unintended consequences for attention, wellbeing and public discourse.
Markets are complex systems. Interventions can have consequences that extend far beyond their original intentions.
That makes market formation important work, but also work that demands responsibility. The objective should not simply be to create participation at any cost. It should be to create the conditions for markets to emerge and evolve in ways that produce value for the people and communities involved.
AI is lowering the cost of producing many things: content, software, analysis, designs and services. We are already seeing how quickly existing products can be replicated, re-engineered and improved.
If you are in the software business, that should get your attention.
It is becoming easier to build something that works. It is not necessarily becoming easier to build something that people want, trust, understand or continue to use.
The proliferation of technically competent products does not guarantee the proliferation of successful markets.
Look at the many businesses attempting to reproduce successful formats and experiences, including the inevitable clones of Lagos Life. Replicating the visible features of a product is not the same as reproducing the cultural understanding, relationships, trust and participation that may underpin its success.
AI can help us produce and analyse at scale. It can identify patterns, personalise communication and make experimentation cheaper.
But the ability to produce something is not the same as the ability to make it meaningful to a particular community.
The strategic question is no longer simply whether we can build something. It is whether we understand the people, institutions and conditions required for it to matter.
And where AI makes supply easier to create, the ability to develop meaningful demand and organise participation may become an even more important source of advantage.
At Sponge, we describe ourselves as a Market Formation Company.
We connect culture, participation and institutional intelligence to create the conditions for markets to form, grow and evolve.
For us, this means looking beyond the product or campaign to understand the system around it.
What do people value? How do they interpret the opportunity? What prevents them from participating? Whom do they trust? What infrastructure, incentives or institutional changes are required? And how might the market we help create change the behaviours and expectations of the people within it?
These questions matter whether we are working with emerging industries, financial services, cultural products, technology or established institutions trying to reach new audiences.
The ambition is not simply to help businesses adapt to the world as it exists.
It is to help develop the conditions for a different economic reality to emerge — one that creates meaningful opportunities for people, enables businesses to grow and produces value for the communities and institutions involved.
Because the future is not determined by technology alone. It is shaped by how we organise ourselves around what technology makes possible.
And that brings me back to the original question.
Market or culture: which came first?
Perhaps the more useful question is: what conditions are we creating for the next market to emerge, and what kind of culture will it leave behind?
Markets don't just happen. They are formed.
And we should care about how — and for whose good.
The method this essay refers to is set out in full at the Five Constraints of Market Formation, worked through on a single market in Find the constraint, and the twenty checks we run are published here.
Occasional notes on how markets form — sent when there is something worth saying, not on a schedule.
Subscribe