Losing $80-million without blinking: Koos Bekker’s Memeburn Q&A

Naspers is an oddity. Who would have bet that a one-time newspaper company would have become an emerging-market internet giant? After all “Naspers” means “National Press”.

Naspers is one impressive company. It owns eCommerce and social networking properties all over the world, including China, Brazil, Russia, Africa and eastern Europe. The company has stakes in two of the world’s biggest social networks, the Chinese TenCent and a small, indirect stake in Facebook.

It’s a successful strategy that has seen Naspers make clever and timely investments in some of the world’s biggest internet properties, but critics say the company — while a strong print and satellite TV operator — is still searching for an organic internet success on a worldwide scale. The organic internet successes are largely limited to its home territory, South Africa — which now appears to be a key focus for the company in internet terms.

To find out what makes Naspers tick and the ideas behind the strategies — we caught up with the company’s enigmatic leader, Koos Bekker. We chat to Bekker about how Naspers lost US$80-million in China, but then “failed quickly”, continued to invest aggressively and kick on to become an $18-billion emerging market internet superpower. Bekker also elaborates on emerging markets, Chinese and Brazilian internet successes, Naspers’ business philosophies, the future of online advertising and his “fail quickly” philosophy that has held the company in such good stead.

Memeburn: What emerging market tech businesses have impressed you the most?

Koos Bekker: I would have to say those of the Chinese, they came from nowhere in the nineties and they are now, after the US, the most vibrant internet market in the world. The big companies like Baidu, Tencent and Alibaba are really doing well. Then another one, which we [Naspers] have a small hand in, is Brazil — in certain fields like eCommerce, the Brazilians have a very lively internet market. You’d think of Brazilians as “beach guys”, but they spend more time on the internet than anyone else. Brazilians are quite social, now why people who drink a lot coffee, have lots of friends and have the beach, spend their time on the internet — I don’t know.

MB: Naspers has been successful in acquiring a number of internet businesses. What is your philosophy for this success?

KB: We’ve made more mistakes than anyone else. The benefit of a mistake is that you know what doesn’t work. What we typically try to do is get into something and “fail fast and cheaply”. We have also failed expensively. We created the second biggest ISP in Beijing in 1998 and we lost the battle there. We eventually lost US$80-million and had to fire people and close it down because of mistakes we made. That was an expensive failure. We’ve failed quite a lot but if you’re going to fail, get into the market quickly, fail quickly and learn from it. Since then we have learnt a few lessons.

MB: Will Naspers ever move to China?

KB: No. South Africa is a good place to come from, lots of people like us and Cape Town is a good city to live in.

MB: What other regions is Naspers targeting?

KB: We’re looking particularly in Latin America, south East Asia and Eastern Europe. I like Latin America, I like it there — nice people, nice food. We’ve looked at Argentina all the way to Mexico.

MB: Any new companies you are looking at?

KB: [laughs] none that I should be telling you about yet. But at any given time we look at any number or companies. It’s long process.

MB: Do you think the web is dead? There is a debate championed by Chris Anderson that the web as we know it will change. What are your thoughts on that?

KB: Not yet

MB: Why?

BK: In time the web will be replaced by something else, but whatever that “something else” is hasn’t started appearing. To conceive a world today where the web doesn’t work is almost impossible. Just think about it, you’re on Facebook, you’re probably also on Twitter and you have your emails. If you were to take those things away, your life would be completely different. The thing that could make you drop those hasn’t been invented yet.

MB: Do you think we will still be reading print newspapers in years to come?

KB: I think at some point some of the newspapers will fall away. But there are real benefits to a physical piece of paper. If I want to read the Financial Times and I am in New York, I will order it from the hotel front desk. However, if I can’t get that, their iPad version is very good. Have you seen it?

MB: Yes

KB: It’s very good, it has embedded video and I find it very satisfactory. I think what will happen with the FT and perhaps most newspapers is that the physical print edition will get further and further restricted. Initially they won’t give up the big cities like New York; they’ll probably give up Tallahassee and Columbus, Ohio. Restrict print to a few main cities and push out electronically as much as possible and then perhaps in 20 years time they will realise it no longer makes sense to have a print version… maybe, it’s possible.

The institution of newspapers will continue. We at Naspers will eventually move everything online. We will run the tablet format alongside our print publications. Newspapers look good on tablets unlike on a PC. The newspaper experience on a PC is quite unsatisfactory.

MB: Websites have ten times the readership of print yet only have a tenth of the advertising revenue. We are ten years on, why do you think this is still the case?

KB: The best example is the New York Times. I was a student in the US in the 80s (remember the world wide web was only invented in 1995) and we visited the New York Times and back then they had a sort of prototype news service that gave the news online via your telephone line, which was quite good.

I went back in the 90s and then again a few years ago and the problem they can’t solve is the following: When you read the physical paper you spend about 27 minutes or so on it. You see an ad, you can’t do anything else but page over, you register [that you’ve seen the] the ad, then page over. Now you’re on the web, you spend about two minutes on the New York Times website, the problem is what the Americans call the “ding” — the ding being what comes in on your galaxy or iPad that catches your attention. You start reading an article online and you see an ad, chances are it’s interactive and you click over to the site and the New York Times has lost you.

Same thing happens when an email comes through and takes you away from what you’re reading. The NYT’s experience is that the reader time is two minutes on electronic products versus the 27 minutes on the physical product. Consequently the advertising income for the physical product is about ten times more than the electronic product. That’s what’s killing online advertising.

So the NYT says: I have today a bigger audience online but people pay me one tenth of what they used to pay… something has to give. Either become global brand with 10 times the audience… this is the dilemma. The solution now is to encrypt the signal and charge a fee but that causes audience to run away. So far only the Financial Times and the Wall Street Journal have such powerful brands that people are willing to pay. I won’t pay for USA Today or the Guardian.

MB: Do you think advertising online will grow bigger than what it is now?

KB: Yes, absolutely. It’s growing very quickly. What’s nice about online advertising is the amount of targeting. Consider what Google is doing, Google only takes you to the BMW ad only when you think about cars, because you type in “car” and Google leads you to a site and the ad in conjunction with that. If you’re reading a piece in the NYT about Iran and they show you ad about cars, you won’t care about it. So why people like Google get such good ad revenue is because they serve advertising with relevant content. This is good. People like Yahoo and general portals are still struggling because their content is so general.

The big debate is Facebook. Facebook’s argues the following: “I know you personally”. If you bought a new Gap top, telling that to your friends is immensely valuable to Gap because they will pay. This is true; Facebook’s limitation is that they know exactly what you are talking about. If you are talking about lipstick problems, they could serve you a lipstick ad and solve that problem but they would seem to have overheard you.

So all the experiments where they use the information you’re talking about to direct advertising has failed completely on privacy grounds. What Facebook has is your network, they know who your friends are that they can use successfully, they also know what you are talking about but they are not allowed to use it. Google is allowed to use it. The difference here is you enter the topic yourself with Google. If you say “lipstick”, and Google serves you a lipstick ad you don’t object because you asked the question and it served you an ad. But if you talk to your friend about lipstick on Facebook and a lipstick ad appears you will say: “Facebook you’re listening to my conversation, you’re like Rupert Murdoch!” [laughs]

MB: So the online advertising business model will improve?

KB: Yes. You read a news site; you got the News24 frontpage for example… if you’re interested in rugby and you go to the rugby story, then News24 serves you an ad pertaining to rugby such as fares to New Zealand or SA rugby shirts. What the shirt seller now sees is a qualified audience, so he will now pay more for that ad, so instead 20 cents per click he’ll pay 50 cents.

What will happen in the future is that ads will become more intelligent, either to your locality or your search history which will make them more valuable — and this is where they will beat print ads hands down.

MB: Should media companies own their own tablet devices?

KB: No. It’s like cellphones, we started MTN in the 90s and we debated quite a lot about what business MTN should be in and initially there was an argument that it should be manufacturing cheap handsets. In the end it is a crushingly competitive field. You’ve seen it with the Hewlett Parkard (HP) exit in the last month. Let someone else produce the hardware and we serve the content on it. Tablets will be getting cheaper in the next 18 months or so… we might see less than R1 000-tablets.

MB: Why are there so many few internet entrepreneurs in Africa? Where are Africa’s Zuckerbergs and Pages?

KB: It’s partly two things. One is the schooling system. When people get to university they are not the best in the world. Some universities are okay but they are not the best. Then there is the lack of broadband. Here is a question: Why are the gaming champions in world all from Korea?

MB: Fast internet?

KB: Exactly, the kid grows up with fast broadband, somewhere between 10 or 100mbps so he can play these games at home. For that kind of access South Africans have to go to a special internet cafe. So the Bill Gates and the Steve Jobs had access to computers before their fellows. So in SA, because we lag in broadband, the kids get to the scene a little bit too late. You should have in your flat 10mbps so you can be downloading videos and all sorts. So we need to push for faster internet, the government doesn’t need to subsidise. We just need to open the market.

The rest of Africa is doing better. Kenya, Ghana and Nigeria are rising. People in Nigeria are using their cellphones to connect to the internet, which is pushing connectivity further. Nigerians are such enterprising people and they are a bunch to watch.

MB: Is it possible to replicate Silicon Valley in Africa?

KB: That is an excellent issue. I think the concept will disperse. What keeps Hollywood together is an ecosystem of studios and lots. The physical infrastructure is there. The infrastructure of the internet is different. Microsoft sits in Seattle and Google, Yahoo and Facebook sit in San Francisco. Quite a few are in Los Angeles, and New York is starting its own hub, while Groupon is in Chicago. In the US these companies are already dispersed. Then you have the centres like Beijing in China and Petersburg in Russia. Ten years from now you might have Cape Town and Lagos as hubs of innovation where people are doing interesting things because they now have broadband and five young friends can get together in a garage and start a new ecommerce site. I think it will happen in Africa. There isn’t a technical reason like with filmmaking where you need an ecosystem around you. Usually things get clustered with the internet around a university.

MB: Is social networking overhyped? Are we in a bubble?

KB: [laughs] I honestly don’t know. If you take your life on Facebook for example, I assume it’s important to you, these things are to you young people. You only know two things: One, it’s important today and two, it will be replaced in the future because everything gets replaced eventually. However, how long it will be I have no idea but I do think social networks are actually quite powerful. We [Naspers] own a small sliver of Facebook… it’s a good company.