Risks & Opportunities of M-[Startups] Working with Mobile Operators in Africa in 2014

By Mbwana Alliy  |  February 7, 2014

 

M [Startups] or M[Vitus]- From M-Kopa, M-Kazi to M-Prep in Kenya…

This is a post from M-[Bwana]

I have been quite vocal about the risks of startups in Africa working with Mobile Operators, typically around distribution and payment/carrier billing integration. I am hoping the GSMA presence in Africa will further help startups work better with mobile operators that have a large market shares in Africa, as well as valuable platforms in mobile money that offer real revenue potential in digital goods..

Yesterday, 2 striking examples of how trying to work with mobile operators can work for and against startups:

  • M-Kopa, the solar meets mobile payments startup that’s been around for 15 months  announced they raised $20M from impact investors as well some debt facility from local banks in Kenya. M-Kopa is probably now the most successful social enterprise in Kenya that works closely with a mobile operator- the fact that Nick Hughes, the founder of M-PESA was early involved in the venture probably helps a lot in working with Safaricom. You now see M-Kopa stands within safaricom retail outlets, this is a great distribution deal beyond just the mobile payment integration that probably helped land such great traction and follow on funding rapidly.
  • M-Kazi, the SMS/USSD job venture were not so fortunate, it seems it has had to close down; list of reasons for their failure basically point to an inability to reach a billing agreement with Safaricom. I wish the founders the best for the future and lessons can be learnt from their endeavors. You can learn a lot from failure.

At Savannah Fund, we crossed 10 investments earlier this year, only 1 of our portfolio investments to date depends heavily on a partnership with a mobile Operator. Eneza education (formerly M-Prep), now has a mobile operator deal with Safaricom that allows them to bill as low as $0.30 a month and reach millions of students across Kenya. I spoke earlier today with Toni, the founder and CEO and asked her how she did it. She essentially said that a key factor was Bob Collymore’s (CEO of Safaricom) direct top down support after she challenged him at an event, this then paved the way to open up a deal after months of talking to Safaricom.

Eneza education

The lesson? There are other startups such as KopoKopo that have played the co-optition dance with Safaricom and succeeded, but generally its a very tough road that startups need to be prepared for, coming from a position of strength or having inside connections can get you very far and help de-risk business development negotiations, the mobile operator has to really need you and you must have a great working relationship and tight commercial agreement in place that protects the startup. The question is do these startups need to repeat the same thing with other mobile operators in other countries as they expand? And how easy will it be after conquering one mobile operator? Can the GSMA be of any help? Many of these startups won’t get to scale and sometimes profitability unless they are able to cross into multiple markets. In places like Kenya, many startups bet their destinies initially on working well with a mobile operator because of the market size and reach of subscribers such as Safaricom. But at some point smartphones will dominate and payment and distribution will become a lot easier… That’s a much easier world for startups to play in. I urge entrepreneurs and developers in Africa to read Developer Economics as we transition into smartphones and app economy in Africa. Otherwise they could be missing out on a $68 Billion global revenue market potential that is rapidly growing.

 

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  • Gombe

    Useful insights.