Mxit: how did Alan Knott-Craig Jr’s R500m bet go so badly wrong?

Mxit as we know it is dead. The company announced on Friday that it had shut down its commercial operations and would be transferring its IP to the Reach Trust, its charitable arm. The news had an air of inevitability about it — we predicted that this would be the direction Mxit would take back in February — but it’s a far cry from the hype that surrounded the company just four years ago when Alan Knott-Craig Jr acquired it from Naspers and founder Herman Heunis in a deal rumoured to be worth around R500-million.

So how did it all go so wrong?

As with any company collapse it’s impossible to pin down a single determining factor. Mistakes were certainly made during the Knott-Craig era, but interviews with former Mxit employees suggest that the company was in a bad state when the internet entrepreneur bought it and never really recovered from there.

Trying to float a sinking ship

When Knott-Craig announced his Mxit acquisition, made through his World of Avatar startup group and with backing from a group of investors including FirstRand chairman Paul Harris, he called the mobile platform “a success story the likes of Facebook in its own context”.

Read more: Mxit shuts up shop, donates IP to charity

“Twitter does 8-billion messages a month, MXit does 22-billion a month,” he said at the time. “Your average Facebook user spends 15 hours a month on Facebook, your average MXit user spends 45 hours month on MXit, people don’t know this. It is a massively engaged, massively active audience”.

But according to former Mxit VP of Research and Development Gavin Marshall, the company was in serious trouble at that point.

“We all knew that Mxit was about to crash,” he told us, adding that he saw World of Avatar purchasing Mxit “as a salvation”.

He should know too. Marshall was at the company from its very earliest days, which he describes as chaotic, through to late 2014.

Read more: Mxit: the rise and collapse of ‘Africa’s largest social network’

According to Marshall, the culture at Mxit was “super-maverick” in the beginning and everyone at Mxit believed that they were building “something quite big” for the first two years. But as the company grew, the culture became increasingly corporate.

“We definitely stopped being as edgy,” said Marshall, who noted that the change came with increasing amounts of media scrutiny. On top of that, Marshall says there was a lot of paranoia about product and scalability just prior to the Knott-Craig acquisition.

It makes sense then that he describes thinking of the maverick entrepreneur as a “breath of fresh air” at the time.

While Marshall acknowledges that there was a little bit of organised chaos, largely down to each of the World of Avatar CEOs wanting a slice of Mxit’s resources, he says he was inspired by the sense that Knott-Craig was there to knock down all the old walls at Mxit and was willing to try new things.

He’s not alone either. In an article published on Memeburn shortly after Knott-Craig’s departure, former Mxit employee Frans de Villiers describes him as “Mxit’s Barack Obama”, there to bring fresh ideas to a company that had “lost a lot of its amazingness”.

Read more: The Mxit mix-up: the rise and fall of Alan Knott-Craig Jnr

Despite his initial optimism, it’s clear that Knott-Craig knew that Mxit was up against it from the start of his short tenure as CEO. In early 2012, he told a press conference that Mxit had “one last chance” to get back on track or the company would collapse.

Still, given enough time and money, Knott-Craig may well have achieved the turnaround he spoke so passionately about. On the other hand, he may well have been hamstrung by the very thing that made Mxit so successful in the first place.

The trouble with a loyal community

Mxit’s initial popularity came mainly from its appeal among teenagers and young adults, for whom it provided a cost-effective means of communicating with friends and meeting strangers online. Its launch also happened to coincide with a massive cut in South Africa’s data prices, providing extra incentive for people to sign up.

By the end of 2010, Mxit was being hailed as Africa’s largest social network, with 27-million registered users. It was seen as a vital communication tool, with its users able to communicate seamlessly across other platforms like MSN messenger and Google Talk.

Read more: Leaner Mxit plans to ‘double’ user base in next year amid staff retrenchments

But things were changing rapidly. Early adopters were latching onto the latest smartphone models as soon as they could, and Steve Jobs had catapulted the world in the post-PC era with the launch of the iPad. Mxit still appeared to have a solid and loyal user base but it was a platform born on to Nokia-era feature phones that used the increasingly dated, and very slow J2Me development language, which was being left behind by a new smartphone wave.

At the same time as Mxit was trying to build a coherent smartphone offering, it was under pressure to keep that loyal feature phone user base happy. It wasn’t just the users applying that pressure, but Mxit’s investors too. That’s understandable: it was the part of the business bringing in the most money. But it also hamstrung Mxit’s ability to innovate.

“We were too tied to our business models,” Marshall told Memeburn, adding that keeping the feature phone aspect of the business onside “ended up preventing us from innovating fast”.

Even technologically, the company was unable to disrupt itself. According to Marshall, Mxit spent a long time trying to get the tech stack it had built for feature phones (where it worked really well) to work on smartphones, something it simply wasn’t designed to do.

Read more: Can features like Chat Cards and Newsfeed make Mxit cool again?

Former Mxit communications manager Sarah Rice confirms this, saying that “the vision never completely resonated with the tech”.

The result was a much-delayed smartphone app. And as Rice notes, by the time Mxit 7 came out “WhatsApp was so strong, it had already eaten the market”. That resonates with former FNB CEO and Mxit chairman Michael Jordaan’s comment to Fin24 that Mxit “could have been WhatsApp if it had acted two years faster”.

Still, WhatsApp’s dominance (aided by Cell C making it free for all its users) might not have mattered quite as much if the app was more definite in what it was trying to do and had developed the right technology at the right time.

Jordaan certainly thinks so. In an email interview, he told Memeburn that these factors “could have been overcome had the right strategic decision — to optimise the service for smartphones — been taken early on”.

Failure to focus

When Mxit 7 launched, it was beautiful. You couldn’t look at it and not see that it had a massive amount of effort put into it. But it also didn’t seem entirely clear about what kind of app it was trying to be.

At the heart of that confusion is the fact that Mxit was always a hybrid of three aspects of social networking:

• A private messenger which allows you to chat to people you know (similar to WhatsApp);
• An open platform which lets companies and organisations engage with communities in real-time (comparable to WeChat’s Official Accounts);
• A space for public chatrooms which allows you to anonymously meet people online.

According to Marshall, the reason it never settled on any one of those models is because decision-makers within the company were split on what path Mxit should take. Marshall himself wanted it to be an open platform, while others were keen to see it take the WhatsApp route, or to become a dedicated space for public chatrooms.

At the same time, the company was experimenting with a number of other innovations, including mobile payments, APIs, and publisher portals.

“We were shooting at a lot of targets,” Marshall admitted, adding that the company was “spending a lot of money” at that stage.

Read more: What Alan Knott-Craig’s departure means for brand Mxit: An insider’s view

Even after Knott-Craig was pushed out, apparently over disagreements with Harris over how the company should be run, Mxit never seemed to find its focus. Except in one crucial regard that is.

The rise of Reach

Following Knott-Craig’s exit, Francois Swart was named CEO with Jordaan coming onboard as non-executive chairman a few months later.

When Jordaan joined as chairman, he didn’t seem interested in Mxit’s ability to make money so much as the company’s ability to help people. “One specific aspect of Mxit that I believe is unique is how Mxit is leveraging their technology to help people, particularly in the fields of mobile education and health care,” he told Memeburn at the time.

Mxit also made an increasing number of announcements regarding Reach and in the wake of the 2014 retrenchments, said it would “place a bigger emphasis on its social services”.

According to Mxit, more than 500 000 learners access educational apps on Reach every month. The service also claims to have helped “more than 10 million people transform their lives through access to free education, health and counselling services on their mobile phones”.

Read more: Sources: fresh retrenchments at Mxit

Both Marshall and Rice say that the success of Reach has its roots in what Knott-Craig was trying to achieve with Mxit.

“Every workshop we had came to the same point,” said Marshall, “that we were trying to build a social network with a social purpose.”

Rice meanwhile told us that “all the stuff we were proud of lived in Reach”.

From a business perspective, it’s an ignominious end for a company that was supposed to be Africa’s big technology success story. It could well have turned out differently, but at the very least some part of its original vision will live on in a space where it makes a difference.