Tyler Reed

If you missed it, Alan Knott-Craig Jnr (through World of Avatar) acquired a 90% stake in MXit, well known for its mobile instant messaging service. Besides stepping down, Herman Heunis along with Naspers sold their stakes in the company and the remaining 10% is for the benefit of the employees of MXit. Alan will now take the reigns as CEO of the company.

Before I go any further, I would first like to commend Herman Heunis who certainly risked it all. I am personally inspired by him and after 6 years of hard work, I hope he enjoys his well deserved break.

Since news of the acquisition broke there have been more questions than answers. Why did Naspers sell? Is it because they don’t see a future for MXit? What will Alan do at MXit? Is he aware of BBM, WhatsApp and all the other competing mobile IM services?

I am going to take a step back and first look at how BBM ate MXit’s lunch and why it lost out on smartphones. Essentially there are two important reasons why MXit lost ground to BlackBerry’s BBM.

1. Device Integration with Push Notifications
2. BlackBerry Internet Services

MXit’s biggest problem was that you had to keep the application open in order to receive messages. They tried SMS notifications in the early days, but that obviously became too expensive. And this is where BlackBerry moved in. BBM has tight integration with the device and therefore they have made BBM work just like SMS. I can close the application and receive a notification (just like SMS) when I receive a new message. Obviously this is coupled with their BIS offering which gives you unlimited data for around R59 per month (although that might change).

I used to be an avid MXit user until I got an iPhone. MXit’s biggest strength was (and still is) in being able to support thousands of devices, predominantly low-end devices or feature phones. However they were very slow to adopt smartphone platforms (iOS and Android) and when they did, the experience could have been better in my opinion. It felt as if I was still using an old application, it just didn’t feel as easy to use or as well designed as the competing applications. However, their metrics didn’t show that smartphone platforms where that important did they?

So yes, it is widely known that MXit has faced some stiff competition in the smartphone space, especially from BlackBerry. It also appears that BlackBerry will continue to grow in South Africa. Ah, South Africa? We shouldn’t forget that MXit is a global company. We need to take the other markets they operate in into account. I don’t have statistics available, but I know they have experienced massive growth in Southeast Asia and other developing markets over the last few years. With 40 million users and 14 million of them in South Africa, you can do the math.

The MXit Opportunity

Alan has mentioned that there is a window of opportunity to get MXit’s “ducks in a row”. And this is where some people ask isn’t it too late? I definitely don’t think so. Essentially MXit are in the perfect position to stage a comeback over the next few years and become a dominate player in mobile IM space globally (yes, I am ignoring the “social network” part of MXit).

I think that Alan will be looking to the rest of Africa for new growth (without excluding the rest of the world). Using MXit’s biggest strength, support for thousands of low-end / feature phones and now Alan’s network too. What about smartphones? I mean feature phones won’t be around forever right? This is the comeback opportunity I’ve been alluding to. Smartphones are becoming cheaper and will become more widespread in developing markets over the next few years. MXit will need to leverage this change over. With their large user base, if done right, they can make it happen.

I don’t know why Naspers sold, maybe Herman wanted to leave and they didn’t want MXit without him? Perhaps Alan made the right offer. All I know is that the future potential of MXit is immense. If somebody had to ask me if the acquisition was worth the money, I would reply by saying definitely! Remember, I touched on the instant messaging service. MXit has additional products, and as they grow the potential for solving problems like mobile banking throughout Africa (even globally) become possible. Maybe they will go head-to-head with Facebook.

Update: Arthur Goldstuck has interviewed Alan Knott-Craig on the future of MXit and it seems I wasn’t too far off on my analysis.

Over the weekend I read an article which covered Koos Bekker’s recent talk at the Highway Africa conference, in Cape Town, where he spoke about how internet innovation is failing in Africa and Europe.

Now before I carry on, I’d like to reiterate the definition of innovation I subscribe to, which can be found in a recent post where I share my thoughts on innovation in South Africa. I would also like to mention that I think Koos is probably one of the few high profile executives in South Africa that “get” this space. One just needs to look at the Naspers tech investment portfolio to understand that.

I agree with Koos’s sentiment. Almost no transformational innovation in the online space has come from South Africa. We only see incremental innovation, clones of services from abroad. Now I maintain that a market will justify clones and that there is nothing wrong with them. However, I think Koos (and myself) would like to see the next Facebook, Twitter, Square or PayPal come from South Africa and more importantly more tech entrepreneurs along the lines of a Sean Parker, Jack Dorsey, Mark Zuckerberg, Larry Page and Serg Brin (to name but a few).

I would like to explain why we haven’t seen this transformational change come from South Africa. I hope my perspective from the front line as a tech entrepreneur will add some context. I think the problem doesn’t lie with every tech entrepreneur but more so our conditions and circumstances.

Koos outlines the characteristics of internet entrepreneurs as “young, men, who are geeks and engineers”. Now that describes me. So why haven’t I invented the next big thing that will take the internet world by storm? Even if I did come up with the ideas, and trust me I have bag full, unfortunately the gate keepers are still older people – guys like Koos, except they don’t “get” it.

Do you really think Facebook, Twitter or YouTube would have survived and become as successful as they are if they came from South Africa? I will wager anyone that they would have all done much worse. Can you imagine somebody actually investing in a website that allows people to post what they are doing in 140 characters? I can’t.

And that’s the point. Often we don’t even know what innovation looks like until it succeeds. It requires failure, as Koos mentioned, and it requires betting on unknowns. I have yet to see a South African investor or startup that is playing in the unknown, because our culture is too risk averse. And more importantly, we have no eco-system to support the anomalies and those who fail.

The reason Silicon Valley is so successful at producing innovative internet companies is because it has rich people and nerds who take risks (coupled with great education and bandwidth). However the culture is all about moving forward, building the next big thing and everybody works in tandem to achieve this. Nerds have ample access to capital, even for the dumbest ideas, and are allowed to fail time and time again.

I know there are many factors that contribute to the success of an innovative startup or technology. However I feel strongly that access to the right capital and culture (pro-risk / acceptance of failure) are the biggest hindrances to our internet innovation. Everybody is too focussed on being precise when what we need is the ability to experiment, which would be far more progressive and probably more capital efficient too. And I’ll say it again, we need more technology incubators (like Y Combinator and TechStars).

In closing, I think we will get there. It will just take time, everything is slowly coming together. I know that I am hungry and my ambition for tech startups will never fade – I hope to play a role in the tech scene, both in continuously founding startups whether I fail or succeed and at some point investing in them too.

Side Note: I tried to be a bit controversial on purpose and some statements were absolute but please try and read between the lines and not troll on every single point. Also, this was written between 02h00 and 04h00 so be kind on spelling and grammar mistakes.

I think we have some really exciting startups in South Africa and I would like to showcase their story and the people behind them. As a side project I’ve decided to start “withTy” to interview startup founders and their startups.

In this first episode of withTy I sat down with Jaco van Wyk and Josh Yudaken the founders of SnapBill, an automated billing system, based in Pretoria (and soon Cape Town).

We chatted about how the company was founded, how they were able to finance the company and some of the challenges they have had along the way. I also asked them about their recent experience of pitching at Y Combinator and TechCrunch Disrupt.

Side Note: It is the first recording, so it isn’t perfect. I have learned a few lessons, the first being that cellphones should be switched off as there is some cellphone interference. I’ve also edited out some banter. I’d love to hear thoughts and feedback though.