Knott-Craig speaks out on the MXit deal

Added by Editor on 22 September 2011.
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Alan Knott-Craig

World of Avatar, the technology investment vehicle headed by Alan Knott-Craig, said on Thursday it is buying social media and instant messaging platform MXit from media group Naspers and the service’s founder, Herman Heunis. But does the deal make sense?

Already, many commentators have suggested that MXit is facing a number of threats to its core messaging business from services like WhatsApp and BlackBerry Messenger (BBM), both of which have enjoyed explosive growth, especially on smartphones, in the recent past.

TechCentral editor Duncan McLeod asked Knott-Craig to explain the rationale for the acquisition, which is still subject to the fulfilment of certain conditions, and whether MXit can see off the threat from international messaging services.

TC: You mentioned in the media release you issued on Thursday that you plan to “consolidate and strengthen” the core of the MXit business before moving to “implement the long-term strategy”. Can you flesh out in a little more detail what that long-term strategy is?

AKC: I can’t give away too much of the long-term strategy, mainly because I haven’t had a chance to talk to the staff about it yet. Only when we’ve taken control officially can we release more information. What I can say is we intend to expand geographically. We want to lock down sub-Saharan Africa.

TC: How will MXit play with World of Avatar’s other investments, such as in the applications space?

AKC: MXit is a community, right, and we have a couple of other communities in the group and we have a lot of applications in the group that kind of need a community. The community needs applications and the applications need a community, so there’s a nice fit in terms of everything working together.

TC: Commentators have suggested that MXit is a business in decline, with the popularity of other messaging services like BBM and WhatsApp soaring. Is this a concern?

AKC: I am 100% aware and conscious of the threat of WhatsApp and BBM. But MXit still adds more customers in SA every day than both of those services combined. As far as I’m concerned, the vast majority of phones in this country don’t use BBM or WhatsApp. We have a bit of a window of opportunity here to get our ducks in a row.

TC: Website Memeburn suggested in its coverage of the deal — and quoting unnamed sources — that World of Avatar paid R500m for MXit. Is that figure in the ballpark?

AKC: No, that’s pure speculation.

TC: Can you disclose the real value?

AKC: I wouldn’t mind, but in terms of the sale agreement I’m not allowed to.

TC: Is World of Avatar raising debt to do this deal?

AKC: No.

TC: So, is this an all-cash deal? Did you have the cash on the balance sheet to fund this?

AKC: The investors behind World of Avatar put the money down.

TC: Who are the main investors, apart from yourself?

AKC: There’s Francois Swart, and a couple of private investors that prefer to remain private for now. They are great investors, we see eye to eye, and while they don’t necessarily fit into the category of people who use MXit, they are looking for exposure to this type of asset.

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  • Hgjs

    I am sorry to say Alan Jr, but somebody is taking you for a ride…..herewith some issues to ponder on …. 
    1. MXit has positioned itself as a youth brand, as a segment they have limited spending power translating into limited revenue stream for MXit no matter what you do.2. MXit is stuck in this youth segment and as their users grow up, they leave and join Facebook – so you have a business that does not scale. 3. Yes, MXit supported a huge number of phones, some of them really old technology, but with the price dropping of Smart phones, this is not a problem anymore so everybody now has easier access to Facebook.4. MXit made a lot of sense when Data Prices were high as it served as a cheap communication platform, that is not the case anymore and new IM applications with more richer functionality are now available out performing MXit. 5. I know this is a cheap shot….but MXit has such a bad reputation in the press and amongst parents, not anybody’s fault really, but this will not be easy to fix. 6. Yes, MXit is a community, but like all social networks, they are struggling to monetize that community. If you have a big community like Facebook or QQ in China, you have a shot, 43 Mil, I am not sure that will be enough. 7. The number of 43 Mil, well that is registered users, the active daily users I have heard are in the hundreds of thousands, best you start there. Alot of people register with Social networks, log on, look around and never come back, but these guys still count them as registered users. 8. MXit has struggled to grow beyond SA, as a social network/ community your value lies in the diversity of the users in your community, being SA and youth focussed not the best position to be and this will be difficult to fix. 9. In closing, Koos, Antonie and the rest of the boys at Naspers, well they know this space well, Tencent etc…..if they are exiting, I would be worried. In closing, you paid R500 Mil for MXit, well I downloaded it for free onto my phone. :-) Not sure who are your investors/funders, but I would be worried. 

  • http://bit.ly/qWEXNt Prom

    1. I know more adults using it than children.

    2. From those only the children have Facebook accounts they actually use, but not exclusively. So rather than children growing out of it a number of adults have grown into it.

    3. Plenty of old phones in circulation. Smart phones are still a luxury. Unless you count any cheapie that does camera, MMS and JAVA as “smart”. Even then this is exactly where MXit is targeted and a lot of the smart phones would then be old phones anyway.

    4. Data prices are not the issue. The price of basic communication like SMS has not dropped and this is what MXit replaced.

    5. Not really a cheap shot but any other application can be misused too, even MMS. The press with the help of some “concerned” groups have blown it completely out of proportion and most parents capable of independent thought know that.

    6. Can’t argue there but like you say all social networks are struggling to monetize their communities. Most of it lies in advertising and while it may be a lot Facebook is still highly over valued. MXit on the other hand has made money from services alone which no other social network has managed before.

    7. That would be for all social networks so doesn’t help in a comparison to other services.

    8. MXit has become quite popular in a number of countries not just SA. Keeping in mind it was designed as an SA exclusive but the users themselves pushed it beyond that.

    9. It’s not R500m. We have no idea how much it was but with most of the revenue probably in data charges for the networks I doubt the whole company is worth that much. Unless they can do something amazing with it that the company itself couldn’t, but that could also easily become another dot bomb like what seems to be brewing with Facebook and Twitter.

    10. Stop the wall posts. lol :)

    I’m not sure what the rationale is in buying it but I bet it has something to do with Vodacom’s own social network being a complete failure competing against it. In a few weeks it might open up to VODAit on a red background. These telecoms executives are all in bed with each other somehow.

  • http://www.clickclickboom.co.za Alan Benington

    If you think of MiXit as an app platform / store with a defined marketplace, then there’s a no-brainer model for monetisation. The challenge for MiXit is to enrich the platform, which they can only do by opening it up to the mobile development community.
    They’ll have to re-invent (no, throw away) the current archane, restrictive ‘API’ and replace it with something modern. I would have thought something that takes advantage of  html5 would be the best approach.

  • http://twitter.com/d4v3g Dave Gale

    I like this deal. And despite some of the concerns raised here, I know there are savvy and innovative minds in both WoA and MXIT to make some mobile magic here.  Will be watching with much interest.

  • http://twitter.com/ianTweeting Ian Whiteley

    I wonder how many teenagers were consulted in their evaluation? Also have any of them actually used Mxit? The interface is a shocker, and will need a complete revamp if it is to gain any traction with future users, and deliver richer services.

  • http://www.twitter.com/bobbynic23 Bobby Nic

    Interested to see how this deal pans out, cos he is quite secretive at this point…Clearly :-) You asked some super questions though!

  • Magawa2009

    These days, anybody older than 16 using MXit is the butt of jokes. You make a valid point @Hgjs. There is just no revenue in the market that MXit is plaing in. The path from here is down, rather than up.

  • Gary – proudly a MXit user

    Ian,  obviously you havn’t seen MXit Version 6 ! 

  • Gord1298

    Alan uses other peoples money to invest, never he’s own. He was the single reason IBurst failed even with daddy opening every door for him. He will list WOA cash out and leave he’s investors to fix the mess, he reminds me of the CEO of Vox

  • Anonymous

    The tech industry is no longer really about Technology. It has become a game of communities and how best you can contitnue to evolve, innovate and open your platform to as many third party developers as possible. WOA needs to grow its footprint in the tech landscpae to compete with the big boys like Naspers which means such investments are in the right direction. Do you think Allan was going to develop a product/service and grow a community with the same number of users as Mxit. Buying Mxit is the easier move for WOA in this case to just get a community behind your brand. Naspers has been buying companies in all corners of the world and their true success story is Tencent. I believe Naspers success is becoz it is the only social networking company which operates in China legally. I wonder how Tencent will perform if Facebook, Google, Twitter and other services were allowed in China.  Imagine if WOA can provide mobile payments, link Mxit with merchants and retail brands across Africa and also provide access to Mxit across the region. I feel there is room for innovation and it takes true innovators and entrepreneurs to see opportunities where others do not. If mxit has 22 million users WOA needs about 25-26 rands per user to pay back the 500mil. I do not underestimate the potential of an innovator who has vision.

  • Adrian

    Your R25 calculation doesn’t take into account that MXit is reportedly running at a R20m/month loss, even with the revenue they’re getting in. So the R500m (this is speculation, it’s probably closer to R200m) then they have 10 months to 2 years to get this right at the current level of expenditure, and even less time if they choose to invest in any new tech/ventures as per your suggestions.

  • http://twitter.com/thewomble_za Greg Mahlknecht

    [1] Citations Needed

  • http://profiles.google.com/jddcef David e Freitas

    R20m/month - lol, that’s almost impossible. What sort of expenses would come up to R20m/month exactly?  Salaries?  It’s a very profitable company and everyone gets paid every month :)

  • http://bit.ly/qWEXNt Prom

    I don’t know if they host locally but even a local server doesn’t cost that much to run and it’s not very bandwidth intensive. One local forum with a lot more traffic volume doesn’t even spend 1/100th of that.

  • Thinchef

    1. Mxit is used by a vast number of previously disadvantaged adults that make up 75% of our population.
    2. BBM and Whatsapp are for Smartphones, which are still considered luxuary items in most of Africa.
    3. Mxit could be used as a platform for many applications and communities Africa could really use – health & education.

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