#Legacybusinessmodelsmustfall – Taking the pulse of tomorrow’s industry at the Africa Tech Summit

30 September 2016

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The centre of gravity for tomorrow’s communications industry in Africa has shifted. It’s now possible to attend an event full of people who will have significant impact on the shape this future industry and not meet a single telco or equipment vendor. Russell Southwood takes the pulse on yesterday’s Africa Tech Summit.

The Africa Tech Summit took place yesterday in London and was attended by a mixture of investors, start-ups and mobile and online content and services providers. It bought together a good sample of those who will play a significant role in changing how communications works in Africa and meeting the demands of the continent’s new digital generation. It was a tantalizing combination of money and ideas.

The day was split into four segments: investing in tech; Fintech; the digital consumer; and innovation.

In the investment segment, President of the African Business Angel Network (ABAN) Tomi Davies described how ABAN has set up a network of networks for African angel investors in different countries:”There’s a gap for pioneer capital.” His top three picks for tech investments in Africa?:Nigeria, Kenya and South Africa.

His own investments include South African football comic SupaStrikas which is distributed in 25 countries across the world globally and sells a million copies per issue. He said that African entrepreneurs need to have the both the vision and desire to get their business out of the country they launched in:”(SupaStrikas) has become one of Walt Disney’s first African properties.

Another of his investments that he used to demonstrate the point was the Ghanaian validation platform Sproxil: you can scan a bar code on the pack on your phone and check whether the drugs inside are genuine. It tried to expand into India but failed. Nevertheless, it has found ways of selling its validation services to other industries and “is going gangbusters” across West Africa.

BRCK founder Erik Hersman touched in the raw nerve of African innovation: things that have already happened elsewhere and are simply reworked for Africa. He said there was an express in the start-up community in Nairobi that called this ‘scratching the fleas”. Definition? Apps designers creating things that are nice to have that are not really affecting people’s lives.

He talked about the cluster effect in terms of start-ups and innovation in Nairobi:”The corridor along the Ngong Road is just like Yaba in Lagos”. This geographic concentration of organisations and start-ups made it easier for investors to find people.

And he spoke about the biggest current mobile business success in Kenya, Sports Pesa who are currently sponsoring UK football team Hull City. He said he found it patronizing that people had been critical of this: Kenyans wanted exactly what other people wanted around the world. An investor made a similar point to me about people who were critical of M Kopa selling solar TVs as well as solar lamps as if this was somehow not a serious activity.

Lexi Novitske, Principal Investment Officer, Singularity Investments moved from a small town in Oregon to go to to Lagos to set up an investment fund:”We don't believe in local only business models. You have to scale. We like to co-invest and put in between US$300,000-US$1 million.” Their picks? Monopoly infrastructure (do we need more of that?), strong cash flow and strategic acquisitions. It looks for a good user or revenue base. It has invested in Sliide, the innovative free data start-up and is looking at a software defined base station.

On the panel, Matthew Saal, IFC made the point that the continent had not had that many exits because there were not many “deep capital markets for exits” (in other words, stock exchanges). IFC itself is invested in Interswitch (which is going public) and Andela.

Responding Erik Hersman pointed out the relatively short time the start-ups ecosystem had been in operation. He made the point that in 2010 when iHub started there were almost no start-ups in Nairobi but there were now around 100 a year coming into existence (not all of which will be successful).

(A side bar is needed at this point. Not everything started in 2010. Those with longer memories will remember the start-ups of the early 2000s like Africa Online and Paynet, now part of Interswitch. But there was not a young start-up community).

Ido Sum, TLCom Capital made the point not often appreciated by African start-ups:”Ideas are very cheap. Execution is what drives success.” Ben White, VC4Africa said that lack of capital was often not the issue:”Lack of capital is a symptom of not having the right elements in place. When they’re there, it’s not a problem.”

Ido Sum talked about how limited Silicon Valley funds were about where they invested in geographic terms:”Most Silicon Valley funds only invest in Palo Alto, San Francisco and New York. They don’t even invest in Boston or Los Angeles”.

Ben White followed this up by saying:“People are moving towards where the money is. Places like London where they are only 1 hour’s drive from their investor.” From several examples two very different illustrations of this trend, BitPesa and WhereIsMyTransport.

In the Fintech segment Charlene Chen, BitPesa described the Bitcoin landscape of Africa. There are two bitcoin exchanges: Bitx, ice3X in South Africa. There is a Bitcoin crowd funding company, The Sun Exchange. BitPesa itself does SME payments: BitPesa and there’s a company in South Africa called Bankymoon that provides Blockchain powered solutions and services.

A staggering US$1 billion has been invested globally in Bitcoin and Blockchain including from IBM, Orange, Samsung and Mastercard. But as Justin Floyd, Red Cloud Technologies said later in the panel, it was proving difficult to get financial companies and regulators to agree on Blockchain.

Chidi Okpala, Atlas Mara said that there were 10 countries in Africa that have more mobile money accounts than bank accounts, including DRC, Tanzania and Kenya. He said that MTN gets US$7 million a year in merchant acquiring fees from music sales and is the 3rd largest distributor of music in the world.

Greg Rogers heads up Techstars who ran the Barclays Fintech accelerator in Cape Town. He talked about large organisations partnering with start-ups to bring about changes in their businesses. He cited two examples of start-ups that had ended up working with Barclays.

DoPay in Egypt is a smart card attached to a smartphone that allows employers to pay those who have no bank account. “It just works.” The employers can also use the smart card to pay things like utility bills. DoPay has a relationship with Barclays and within 6 months it had 60% of Barclays SME account numbers and it will exceed that number in a year.

The second example was Atlas in Ghana. Peter Thiel put in US$100,000 with his scheme that invests in a group of young people who want to do a start-up rather than go to college. Atlas saw a fragmented mobile money landscape and realized there needed to be new partnerships. Why not use Blockchain to do settlements in the back end? With 20 year old founders, this might have sounded impossible but Barclays wants to partner with them. Today, according to Rogers there are no numbers but they are “crushing it.” Barclays becomes the guarantor of a service that might otherwise not get traction.

“The best investments will be in places like Africa and we’re looking for investors and corporate partners (to do another accelerator).” Perhaps a train of thought the mobile operators might pick up?

The Fintech Panel had two really interesting moments. Nicola Smith, BIMA said:”90% of customers never had insurance before.” We have 3500 agents in the countries we serve.” Her point was that there needs to be people to explain things that are unfamiliar. Daniel Howard, Simba Pay, an alumni from the Cape Town Techstars accelerator made me smile when he said:”When something’s designed by tech guys, it works for about 5% of the population.” This should be tattoo-ed across the typing fingers of all coders.

In the consumer segment, the presentation by Tim Lambrechts, Mobihunter gave some idea how far the idea of mobile as a media has come. It is a mobile media agency that represents CNN, BBM, 2Go and Nimbuzz which means it has access to 35 million monthly user. Its clients include people like the Chinese handset manufacturer Tecno. His business is growing although he noted the difficulties caused by the current economic climate. There were problems getting money out of Nigeria:”Thank God for BitPesa.”

Jo Eyre, Opera focused on the need for a lite Internet for the next billion. Opera is best known for Opera Mini but also has other browsers and is developing privacy and performance as a new area of business. It has “350 million – ish users and 60% are in Africa. Its largest markets are as follows: Nigeria: 21 million; South Africa: 10 million; Kenya: 7 million; Ethiopia: 6 million; and Tanzania 5.5 million.

One of her most telling points was a comparison between the average number of people per base station in Norway (400) and in Nigeria (6,000). So when you’re wondering why your 3G connection in Lagos seems so slow….She also criticized the OTT players by pointing out that 30% of data consumption went on in the background.

It is also promoting an ad blocker. “Most of our business is run on advertising but we need to talk about the issues.” She criticized data-heavy websites and advertisers. Its compression products includes video and it has Opera Max for compressed apps all in one place.

The consumer panel consisted of two above speakers plus Seyi Taylor, Big Cabal and Yannick Lefang, Kasi Insights (a market research and insights company). Declaration of interest: I chaired this panel.

Simplice Anoh, DAT (a Francophone VAS provider who also spoke) told me before the event that 90% of his business came from SMS. However, he also told me that 40% of the market had smartphones in Cote d’Ivoire. By comparison, another pan-continental VAS provider told me his SMS related business was only 75% and that in 3-5 years time it would be 60% revenues from data-related services and 40% from SMS. These numbers will show the kind of speed of transition that simple smartphone handset numbers often fail to yield.

Yannick Lefang, Kasi Insights spoke eloquently about how in its research (drawn from urban areas in many African countries) it defined the African middle class using proxies rather than income data. He said that the middle class was between 4-10% of the population of the countries he covered. These are the people who can afford to pay but are often strangely reluctant to part with their cash. They needed a “value proposition” and when it was there, they paid willingly for things,

Seyi Taylor, Big Cabal spoke about his ambition to become a publisher of significant online properties in Africa. Its website Tech Cabal was just the start and it has now launched what Zikoko that he described as a “Buzzfeed for Africa”. Its uniques were now exceeding those of Tech Cabal. Readership was in the main on mobile phones with early morning and evening spikes of readers. He said that traditional newspapers were dying very quickly and there needed to be a new business model.

Tim Lambrechts, Mobihunter came back to the #Datamustfall campaign out of South Africa and there seemed to be a widespread consensus that although it posed enormous challenges for operators, data prices must indeed fall. Quick as a flash, Jess Williamson, Techstars tweeted:”Looking forward to the next big thing South African hashtag: #legacybusinessmodelsmust fall”

Jo Eyre argued that featurephones will be with us for some time to come and that everyone needed to take this into account when thinking apps and services on mobiles.

So where’s the mobile industry in all this? It needs to provide a data network that works effectively and is priced in a way that enables the mass digital audience to do the things it wants to do. The money and ideas to build on that network and to create new revenues is all in the kinds of ideas and debates that took place across the day. But with Millicom Africa up for sale and Airtel likely to be next on the block, it remains to be seen who has got the message.


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Videos interviews to watch:

Jason Njoku on how iROKO has pivoted its business from the diaspora to Nigerian mobile users

Christian Osei-Bonsu on MEST start-up e-commerce inventory platform SynCommerce

Bunmi Okunowo on the start-ups selected at Start-Up Friday to get seed and accelerator funding

Devin de Vries on how start-up WhereIsMyTransport wants to change Africa's city transport

Juliet Ehimuan, Google Nigeria on why the Internet of Things matters for Africa and how to use it

Kofi Dadzie, Rancard Solutions on how its Social Graph Rendezvous provides engagement marketing

Goodnews Chibuike on how his start-up Dochase helps advertisers reach their online customers

Binta Coudy De, JJiguene on how it helps women street sellers go online to sell food products

Karl Kathuria, Psiphon on how Africans can beat social media and What's App banning

Catherine Luckhoff, NicheStreem on bringing Afrikaans music and Nigerian gospel online

Chika Nwobi, L5 Labs on the lessons of seed investing in Nigerian start-ups

Jennifer Chizua on launching Startpreneurs, Abuja's first start-up accelerator

Kemo Toure on his start-up jobs platform Wutiko.com aimed at Francophone Africa and the diaspora

Benedict Olumhense on the barriers to success in the Nigerian games sector

CcHub's Bosun Tijani on its new edtech incubator and research centre re:learn

Tech Cabal's Bankole Oluwafemi on making Lagos a Playable City - The Mirror that talks back to you