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Why Knott-Craig Jr left Mxit

Oct 19 2012 09:35 Arthur Goldstuck

Company Data

NASPERS LIMITED [JSE:NPN]

Last traded 1358.45
Change -16.55
% Change -0.01
Cumulative volume 591711
Market cap 566.22bn

Last Updated: 29/08/2014 at 04:28. Prices are delayed by 15 minutes. Source: McGregor BFA

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MXIT has announced the immediate departure of CEO Alan Knott-Craig Jr, and a "R100m investment”. Arthur Goldstuck unravels the shock move.

Alan Knott-Craig Jnr has stepped down as CEO of Mxit, barely a year after he bought it through his investment company, World of Avatar (WoA). He is also departing WoA.

“While the shareholders and I share the same vision, we differ on how to get there. Therefore, I agreed to go my own way. I wish them all the best for the future. Mxit is Africa’s biggest tech success story, and can be a global success story,” said Knott-Craig Jnr in a statement issued yesterday afternoon. The statement added that he would not be drawn further on the issue, suggesting that the terms of his departure include a confidentiality clause.

His departure comes as a shock, as he was seen as being heavily invested on an emotional  level in the future of Mxit and social networking in Africa - as evidenced by his book Mobinomics, jointly authored with Gus Silber.

An aspect of his management that stood out, however, was how relaxed he tended to be about Mxit’s performance. He often commented that it was more important to have fun, and that he did not pay much attention to the numbers. At the same time, he placed strong emphasis on building up a powerful team that would upgrade Mxit into a world-class platform for apps, social networking and mobile commerce.

In the early stages of this development, he appeared to rely for revenue largely on the rising trajectory of Mxit Moola, a virtual currency with which users can pay for certain activities, games and products within Mxit. Moola is available in South Africa, the United Kingdom, Indonesia, Kenya, Namibia and Lesotho.

Mxit has not made a significant impact in attracting advertising, despite offering a highly effective youth and young adult target market in the mobile arena in South Africa.

With advertising revenue growing slowly and Mxit Moola not growing fast enough, there would have been heavy pressure from shareholders who anticipated Mxit becoming a high-growth company. The purchase price has never been revealed, but it is believed that the price paid to founder Herman Heunis and shareholders Naspers [JSE:NPN] could have been as high as R500m.

The number does not sound exaggerated, given that the current shareholders say they have invested a further R100m. That may well have been the sweetener to convince Alan Knott-Craig Jr to leave, but could equally represent the extent to which Mxit was burning through cash to fund its redevelopment. As the quid pro quo to provide further funding at such a high level, the investors would have been able to call the shots on the future of the network.

Just a week ago, Mxit had made an acquisition to shore up its offerings, buying mobile community-building platform Motribe from Nick Haralambous and Vincent Maher.

All of these developments come at a time when Mxit’s subscrtiber base has remained steady at around 9.3-million active users, while the likes of Facebook, Twitter, BBM and WhatsApp are seeing massive growth (see Social Media breaks Barriers in SA). None are yet as big as Mxit in South Africa, but all are on a growth path that could see Mxit relegated to third or fourth place in the coming two or three years.

Mxit was clearly not overcoming its apparent stagnation, but simply holding on to 9.3 million highly active users remained an achievement. It appears that was not enough for the investors.

The bottom line in such matters is usually just that: the bottom line, i.e. how much money are they making? If investors didn’t like Knott-Craig’s answer, they may have decided to find someone who could give a better answer.

*Follow Arthur Goldstuck on Twitter on @art2gee

 
mxit  |  arthur goldstuck
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