Rwanda—as I’ve written—has had a major rebuild after its horrific genocide some 15 years ago, and even in the poorest parts of the country boast far better access to water, power and technology than many other emerging markets. Cape Town was far more sanitized and modern than Rwanda. It didn’t even feel like an emerging market—a true test was my mindlessly drinking the water out of the tap in my hotel room and not getting sick.
Lest I be too fooled the entire continent is so, well, Western, Herman Heunis pulls me right back down to earth. He just came back from a trip photographing wild elephants in his home country of Namibia and holds up the daily paper. The headline screams: LION KILLER TO BE CHARGED. “These are the headlines we get,” he says laughing.
And yet, Heunis’ company, MXit, is the company that Cape Town/Silicon Valley entrepreneur Vinny Lingham said is the most likely to become a billion dollar South African tech company. It is the company that Naspers— the South African media and investment firm famous for making the most profitable Chinese Internet investment in Tencent and one of the most prolific investors in Internet companies in the emerging world—said I absolutely, without-a-doubt had to meet while I was in Cape Town. And it just so happens to be smack in the middle of my somewhat obsessive view that the basic mobile Web in the emerging world is a far bigger business opportunity than every smart phone app in the Valley combined.
MXit is a download for feature phones that allows people—mostly teens in South Africa—to IM in groups or individually without paying data charges and download things like wallpaper, ringtones and games. It has 20 million users and has revenues in the high single-digit millions. That may not sound like much, but remember South Africa only has 50 million people. For comparison sake, India’s well-funded mobile messaging/social network SMS GupShup claimed 26 million users in January– more but not that much more considering how much bigger India is than South Africa. The day before I spoke with Heunis, MXit added some 24,000 new users. He looks disappointed when he looks that number up and adds, “We added 32,000 one day last week.”
In terms of home market penetration, MXit looks a lot like the pre-Facebook MySpace, and that’s not the only similarity. MXit has had a hard time shaking reports that it’s the trolling ground for pedophiles. Slightly-less-concerned parents simply don’t like it because kids spend too much time typing with friends, not enough time on homework. Mention MXit South Africa among kids, and many tell you they can’t live without it. Mention it to adults, and many tell you they hate it. MXit is like MySpace in the mid-2000s—with many of the good and the bad connotations that label implies.
Heunis used to write infrastructure software for mobile operators and every expert told him his idea wouldn’t work. That the non-techy mass market would not know how to download a Web app on a basic phone, especially back in 2005. And the first iteration—a subscription version—indeed failed. But when it came to the free version the company retooled five months later? Yeah, those so-called experts were flat wrong. He compares it to Linux—a kid may spend four days figuring it out but he’s happy to brag and be the one to show all his other friends how to download it. And like any messaging platform, the network effect is huge in this business, especially when you are sending group messages. It’s social media 101: You want to be where your friends are.
Remember the scandal where “MySpace Tom” lied about his age to sound hip? Heunis is older, but he doesn’t have to try so hard. He looks a bit like a younger member of the Rolling Stones, with mad gray hair, a cool brown leather jacket, a white leather studded belt and jeans. (He describes his hair as “like Einstein.” Nah, I vote gracefully aging British rocker.) He’s also a coder through-and-through, which made him unique among companies I met with on my (albeit limited) trip to Cape Town.
Many South African entrepreneurs impressed me with well-thought-out, strategic acumen on things like marketing and strategy, but I met fewer sheer lovers of programming like Heunis. “I have been a software engineer my whole professional life,” was the first thing he told me when I sat down. “It was a traumatic shift to move to running a company. I had to make a decision to remove all the compilers off my machines; software programming is so addictive to me.”
Equally traumatic was early on when bootstrapped MXit was nearing break even, and Heunis had to buy his partner out of the business. “I can’t tell you how many times I drove down that road and said to myself, ‘Tomorrow I have to call everyone in and shut down the company,’ ” he says pointing out of his plate glass window to a beautiful highway amid Cape Town’s wine farms. But like many great startups, death was averted by a growth spurt in the business and a lot of blood, sweat and tears. Once he turned a profit in 2006, he decided to take Naspers’ money. The investors have 30% of the South African business and 50% of the international business. (They are run separately.)
He adds it was a fortuitous time to do the deal and emphasizes he appreciates Naspers non-controlling attitude. “The worst mistake a VC can make is invest and then come in and try to run the company themselves,” he says. (Hmm…I could swear I actually left Silicon Valley…)
Heunis gets that his business mix is changing in the next decade as computers, smart phones and Facebook become more prevalent in South Africa. His goal is to become less dependent on ad revenues, zealously eying a company called M-Pesa in Kenya that is part of Vodaphone and has become one of the country’s largest banks—all flowing through mobile phones. He’s also working on an iPad app– rare as iPads are in the South African market. Developing multiplayer games is a big focus too—and no doubt he leverages Naspers’ connections to Tencent, the dominant online gaming company and largest Internet company in China.
Not short on ambition, Heunis’ goal is to have 200 million users worldwide in five years. To achieve that goal, MXit and SMS GupShup may start slugging it out in the country I’m in now—Indonesia. With 240 million people, Indonesia has one of the largest populations in the world and is mostly untapped.
And Indonesians are hungry for mobile apps: in a flash, and without marketing, MXit found itself with a cool one million Indonesian users. It’s a Wild West still in terms of mobile billing and the reliability of the network. But with a comparatively untapped market that’s almost the size of the US, it’s going to be a place where Chinese, Indian and African companies increasingly slug it out. (More on Indonsian Web entrepreneurs slugging for their own market in a future post.)