SMS REVENUES UNDER THREAT FROM IM CLIENT FROM MXIT
At around R70 (USD10.17) per megabyte, South African SMSs are almost certainly the most expensive data-based communication method in the world. Local cellphone networks gloat at Christmas and New Year about how many SMSs have been sent. Vodacom, MTN and Cell C reported a total in the 130m range over 2005’s New Year’s weekend. Let’s suppose that those millions of SMSs cost an average of 50c (with bundles, free messages, etc). That weekend would’ve netted the networks over R65m (US$9.4 million).
Enter instant messaging, and more specifically Herman Heunis’ MXit. Instant messaging is nothing new, though. Any form of real-time communication between two or more people using typed text would fall into this category. The technology has been around for over 30 years, with computers and the early precursor to the internet.
If you’ve used commercially available products like MSN/Windows Live Messenger (209m users globally), Yahoo! Messenger (104m), Skype chat (100m) or AOL Instant Messenger (110m) you’re a convert.
It’s clear that instant messaging is big business. Then, it follows that a back-and-forth SMS conversation between two people could be seen as similar to instant messaging.
The emergence of software specifically for cellphone-based instant messaging was a given. Some phone makers, like Motorola, have software pre-loaded on their devices (not that it works in SA!) And now we have MXit.
MXit is essentially a South African-developed instant messaging program that you’d download to your cellphone. It was launched a year ago by a company called Clockspeed Mobile, which has since been renamed MXit Lifestyle (Pty) Ltd.
CEO Heunis, who is also the founder of Swist Group Technologies, started the company. Swist is a Stellenbosch-based company “providing telecommunication and information technology solutions”, with large clients in the telecommunications arena.
The application itself is small (a few kilobytes) and can be downloaded for free by pointing your cellphone browser at www.mxit.co.za/wap . The site will automatically figure out what type of phone you have and start the download.
Setup is painless and you’ll be messaging in no time. The service also works with some existing PC-based chat programmes like MSN Messenger, enabling you to chat to someone in front of their work computer in the UK, for example.
You’re able to add friends or acquaintances and when logged in, see whether they’re online. The beauty of MXit on symbian phones is that it can remain running in “the background”, so that you can still use your phone to make and receive calls … and even SMS.
From a standing start of around 500 daily downloads a year ago, the company is now registering 11 000 new users per day. Heunis says their userbase has grown to a staggering 1,3m (most of whom are in SA). He says MXit should soon have 1,5m users – a huge number.
More than 100 million messages are sent through the MXit application a day and this translates to roughly 2 Terabytes of data a month. Even faced with the loss of, for example SMS revenue, the cellphone companies must be more than happy with these volumes of data moving across their networks.
For such an enormous amount of data, it’s obvious that the backend system went through extensive development, and Heunis says “in general, we can increase [the amount of] servers to cater for growth”.
Heunis is modest about MXit’s success: “we didn’t really expect this level of growth in South Africa”.
Version five of MXit is due to be launched by the end of August, and Heunis is excited by the prospects. He says the company will be producing some mind-blowing features in the new version. Incidentally, the company hasn’t formally launched the service in any other country yet, even with a fair amount of overseas users.
The company is on track with its global expansion plans, but Heunis cautions that MXit needs time to get its their “house in order in terms of scalability”. As to where MXit will launch first, he says he’d prefer to “leave that open for now”.
But how does the company make money? With a registered base of well over a million, one could only start imagining how easy it might be to make money. Unlike some Silicon Valley start-ups, who have a “build-it-and-when-they-come-we’ll-figure-out-how to-make-money” attitude, MXit figured out how to generate revenue well before reaching this mass audience.
Heunis says the company “had a plan [to make money all along], and that plan is in an advanced state of execution”. MXit is generating income right now. MXit has run a number of pilot projects with advertising on its service, and Heunis says the results were “unbelievable”. MXit has “definite plans to monetise [users] in the very near future”.
It’s not easy, for example, to find out from cellphone networks in this country how their revenues and margins are split between voice, SMS, data and other services. This illustrates just how secretive the telecommunications industry is. MXit is almost the antithesis to the norm. And that’s what is great about this start-up. Heunis and co openly admit their ambitions. On its website MXit plainly states it wants: “to secure about 2,5% of the world GSM phone population within the next three years.”
With such a great business and a huge user base, surely MXit would be an obvious takeover target, either from a media company or from a venture capital outfit? Heunis confirms this and says that the company has been “entertaining ideas from certain parties, although the urgency to get investors is not quite as important as it was six months ago”.
Rumours, however, abound that there is a media group or two interested in MXit. Obviously, if a buyer was to come along with a ridiculously outrageous offer, Heunis said the company might consider it. But remember that the company is now only roughly 1/40 of its anticipated value. For now, though, Heunis says the company “still has a long way to go”.