Former iBurst CEO Alan Knott-Craig, who led the buy-out of mobile social network Mxit last year, says the acquisition was as much an accident as the success of the social network itself.
Knott-Craig says he first took an interest in Mxit in February 2011 when he got wind of a fall-out between Mxit founder Herman Heunis and one of its biggest investors, Naspers.
“My perception of Mxit was that it was a bit ‘yesterday’ and a haven for paedophiles,” Knott-Craig told a forum at the Gordon Institute of Business Science in Johannesburg on Monday night. However, after conducting due diligence Knott-Craig says he “found out amazing stuff” and that, in his opinion, the Mxit team was too modest about the scale and success of the service.
“Mxit handles 500m to 800m messages a day,” he says. “Twitter handles around 400m. What fascinated me was the tech needed to handle that kind of volume.”
After Heunis expressed interest in selling Mxit, Knott-Craig began looking for investors. He says the aim was to raise about R850m for the buy-out and in order to have operating capital for the first year, but that proved impossible.
“We managed to raise around R500m, and I met with Herman to tell him I hadn’t managed it. A few days later, the lawyers suggested we make an offer anyway. Naspers was emotionally detached and Herman wanted out.”
Knott-Craig won’t disclose the final amount paid, and says the terms of sale included nondisclosure, but the first offer was R670m, the second was for R300m. “All I can say is that we settled somewhere between the two.”
Mxit makes its money by selling services and content, paid for with its own currency called “moola”.
Journalist Gus Silber, who co-authored a recent book about Mxit with Knott-Craig called Mobinomics, says this currency is one of the things that make Mxit akin to a country. “It has its own currency, its own internal policing mechanisms and its own language and culture,” says Silber. “Mxit is like a country with no borders and a country that’s invisible to those who don’t use it.”
Silber says the platform has a substantial population, with more than 10m active SA users and around 50m globally. “It’s a self-organising community.”
He says another important aspect of Mxit that distinguishes it from other social networks is that it allows for anonymity. “That’s a huge reason for its success,” Silber says. “It’s a form of escapism through gaming, but also important for people who might not otherwise be able to enjoy anonymity.”
Knott-Craig says the value of anonymity becomes clear when it comes to users wanting to ask questions about drugs, or gangs, or pregnancy, or other issues they may not wish to discuss openly.
Mxit remains a service used mainly by children and young adults. But Knott-Craig says people leave the service because they get richer, not because they age. “Only 10% of the base is over 30. Why do people move off Mxit? Because their social group moves elsewhere or they get a better phone.”
Knott-Craig says the Mxit experience on smartphones is “terrible”. To combat this, the company is building applications for smart devices. He says BlackBerry remains the biggest threat to the service. “Only 1,2m BlackBerry users are using [Mxit]. If your social circle moves to BBM [BlackBerry Messenger], you do, too.”
Knott-Craig says if Mxit is to keep users engaged it needs to offer more “utility” than chat. I think people chat less as they get older.
“The biggest utility will be payments, not moola, but real-world payments. It ties into an overall strategy to open the platform to third parties.”
But a big challenge is getting the banks to let users put money into the service for less than operators charge to do so. “We’re working on it, but banks don’t move quickly,” he says. — (c) 2012 NewsCentral Media