Building the next Mxit: where is South Africa’s next big mobile business?

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Mobile

Isn’t it a sad indictment on everyone involved in the tech/mobile/start-up industry in South Africa that the most exciting mobile business to emerge from the country is roughly a decade old (in its current incarnation as messaging app)? A decade?!

I look at list after list of startups to watch and there’s nothing that stands out as ‘wow’.

There’s the inevitable grouping of half-baked clones of services and products that exist in foreign markets. Is copying and pasting an idea from the US going to make you wildly successful and able to cash out and hardly ever work again? Probably not. There are a couple of best-case exits, but the obvious one is being caught up in established players flinging mud at walls trying to see what will stick. For them, spending a few million on a ‘head start’ is easy. (There’s also a never-ending obsession — not unique to South Africa– with solving mobile payments… I’m not sure that it’s a problem that actually exists, not in the way most are approaching it.)

There are (easily) 16-million smartphones in South Africa. Sure, some are (increasingly) stretching the definition of what a smartphone is. But, even without a chunk of BlackBerry OS 7 devices, there’s still a market… There are 5-million or active Android and iOS devices in the country. Still not a market? And it’s a market that is almost wholly mobile. For the great majority of South Africans, the ‘internet’ is mobile. Facebook is mobile (in fact millions of South Africans have never used Facebook.com on a PC).

Why then are people in the country seemingly so preoccupied with starting online and moving to mobile? “We’re going to provide an efficient/easy/effective way of doing this (insert established ‘web’ service here) on mobile” is something you hear far too frequently. Why is the mobile paradigm which smartphones offer not the point of departure?

I’m talking about big, disruptive ideas. Like the flood of innovation in Asia in messaging apps… WeChat? Line? This is not about messaging. If you think WeChat is about sending emoji to each other, you should probably do some more reading… These are entirely new platforms with potentially disruptive business models. Wonder why the Chinese authorities are paying a lot of attention to all sorts of mobile payment methods (payments initiated via QR codes, virtual credit cards)?

What about Uber? Massive game-changer. And made possible only by smartphones… a mobile paradigm which brings together identity, location and payments, in a completely frictionless way. These are big, obvious examples.

PriceCheck is often celebrated in this market. Is it the next great mobile business? I’d argue not. It’s a price checking and comparison engine.

Takealot, with Tiger Global’s war-chest, has done one or two interesting things, most notably solving the delivery conundrum by taking out Mr Delivery. Is this even vaguely game-changing? Probably not. Mobile first? Nope. Anything more than a responsive website? Nope. Plus there are many more questions than answers around how a US-based hedge fund exits its investments in South Africa…

Don’t get me wrong. There are thousands of tidy, profitable online and mobile businesses in South Africa. But profitable and tidy isn’t great.

Should one of Africa’s leading economies be content with celebrating mediocrity? Should it be content with nothing more than the good “execution” of copycats?

Perhaps I’m completely out of touch with reality.

Prove me wrong.

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  • Rich C

    I agree with your thoughts. However, do you not think Mxit is the one player that can be the next Mxit along the lines of WeChat/Line (think about the fact that SA is not 100% smartphone)?
    Also, with WhatsApps dominance, the minute FB opens it up as a platform, developers will build on top of that making it very hard for new local challengers get market share.

  • Hilton Tarrant

    My argument is not about messaging (that’s the most obvious example)… Its about mobile. Why is mobile not the genesis of everything we’re building? Why do we still see (and start) things from a traditional ‘web’ paradigm?

  • Joe Nina

    Great article, completely agree.

  • Me

    @Hilton you raise an interesting question for the SA market. Perhaps, however, you have directed your question to the wrong audience? It is not the Entrepeneur in SA who is unimaginative and celebrates mediocrity; it is the Investors in the market who, in my opinion, have a bigger effect on the stagnated success rate in SA.

    How often do we hear stories of $30mil funding thrown towards some startup in the USA? Hell, in SA, you would be lucky to get $150k at a VC level. I can tell you from experience in dealing with SA Investors that the #1 question that was always asked of me was… “Is your idea working elsewhere in the world?” In addition, the Investors default approach is to find reasons not to invest as opposed to other markets that look at reasons why to invest. A very different mindset. Lastly, to illustrate the point, my most favorite of comment was “please call us when you are profitable”. Really? That is like the hot girl saying only to give her a ring when you become cool.

    I have often wondered if Facebook had been started in a dorm room at WITS whether it would be what is today given SA Investors.

  • http://www.iwishgroup.com/ Smartone

    Disruptive ideas need an ecosystem for sustained investment cycles, that is the Oxygen that drives disruption.

    SA could be the next hot tech startup scene – Cape Town is evolving into this and attracting clumps of developers but it is slow and not enough.

    All comments here allude to a VC culture of zero risk tolerance. The gap exists for VC funds based in SA to own future IP at a rediculous cheap rates compared to international rates.

    The challenge is to retain the best ideas and SA is failing that critical element – government could step in with IDC funding with a lock down clause for funding but that will take 10 years to take off.

    So we are left with an aggressive USA VC firm dropping in and taking all IP and revenues overseas anyway or a savvy local bank/investment club/philanthripist to kickstart the process and own this space.

    I vote for a simple start, a simple start up sponsored competition to funnel the best IP somewhere, build it locally (prize of R1 million) to attract more local developers (can only be Cape Town at this point), market it and keep it SA…..

    Govt needs to address why Shuttleworth and Musk left, then participate with tax breaks if need be…..think Dubai Media World tax free zones etc….

    Last one to ponder – if you had a multi billion patentable concept – ould you run it from here yourself? My bet is probably not due to the market size and the fact that super profit windows are tiny and you need big markets to exploit that early super profit phase. That means being based on the ground in the biggest relevant market.

  • Pierre van der Hoven

    Totally agree with article …. and lack of VC in South Africa. But just because it is tough, is no excuse for RSA not have more successful mobile only start ups.

  • Alexander Fulcher

    The feature phones are where the action is still at. Too many articles I read here treat South Africa like the USA or Europe, whilst ignoring the technological reality in the country. Make some awesome apps for feature phones, like Mxit was, like Whatsapp has proven to be. The market is still there. Smart apps for dumb phones- thats what its all about!

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  • Hilton Tarrant

    That might’ve been the case 12 months ago, but if you’re starting from zero now, it’d be foolish not to target smartphones (bearing in mind you’ll only realistically ship something in 6 months from now). There’s a tsunami of sub-R999 (and now sub R499) devices coming. Too late to now focus on only feature phones. The market is changing and its changing rapidly.

  • Alexander Fulcher

    I agree the market is changing, but I don’t think it is changing at the rate you’re suggesting. Working for a mobile-first publisher with a large youth audience in South Africa, our data still shows very low smartphone penetration. The phone that the majority of our users seem have upgraded to, the Nokia Asha 201- seems to have been a very popular Christmas present!

    This phone can do a lot- and a lot of people are using it, So designing software to make the most out of it seems to be the best way to reach the most possible people, tapping into their behaviour, making a product that is as useful and as viable as possible for the greatest number of users. That was the disruption that mxit were able to create in challenging the cost of sms, and that whatsapp have created in tapping into the user’s existing contact list.

    In 6 months I don’t think this will have changed to be frank. It is estimated that by 2015 smartphones will still only represent 15% of the African market (according to Mxit). The 85% simply can’t be ignored because it is less convenient/ fashionable!

  • Hilton Tarrant

    I’d argue that the Asha range of devices fit the definition of smartphone far better than they do feature phone. Been saying that since the original global launch.

  • Alexander Fulcher

    I agree that they are smart, and I think in this technological area that innovation in the SA market should be located.

    However it is worth remembering that the 201 doesn’t even have a 3G connection, nor wifi access. Given this, as well as the relative cost of data in the SA market, ease of use of a product is very important- A flashy iOS/ Android chrome type app simply won’t cut it!

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