Episode Transcript
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[00:01:24] Speaker A: Hello guys. Welcome to the Techpoint Africa podcast. On today's podcast, we have two interesting stories we'll be talking about. One is a merger between Wasoku and Maxab. It's actually the biggest startup merger in Africa. And we'll also be talking about Safaricom's problems with satellite Internet service providers.
Before we get into the story, my name is Bolu and with me in the studio is Tim Gozerim. Alright, so let's dive right in. Eight months ago, Wasoko and Max AB, they proposed a merger. And it was really exciting because of the size of the merger.
Combined together, both companies are bringing together about 450,000 merchants and about 60 million customers. But there are some questions that have come up, you know, based on this matter, especially now that has finally happened. So, Tim Gosim, beyond official responses, what do you think both companies. Why do you think both companies decided to pursue this merger?
[00:02:29] Speaker B: Okay, so there are a number of reasons why they did. I mean, so the official response is we are better off together than we are apart, which is, it makes sense because I think they were operating in about like combined before the major. They were operating in about nine or ten countries. Now I think they are in just six.
And of course, that doesn't speak to, that doesn't speak to the scale that they were operating up. But what it does, if you ask me, is allow them to basically use their resources more efficiently. So one company alone would all your operational costs, you'd be everything. But two companies can now combine operational costs. So technology costs, staff costs. They've had to trim their staff, which, to be fair, wasn't a lot. They trimmed their staff, I think maybe about ten to 15% of their staff were let go and that was just because of overlapping functions. So there's obviously, there's obviously that the cynical view in some quarters is that one or both companies were struggling and they had to merge in order to extend Runway and extend their lifetime. So they share one investor, or at least they have one common investor, that's four DX ventures. So the cynical view could be that one of both companies were struggling. They needed to do this in order to survive. Which um, I don't think it's entirely a bad thing. If a merger means that a startup or two startups do not die, then by all means go for it. But there are, there are a few other reasons. I mean, cost savings, I've mentioned cost savings. I've talked about combined um, capabilities, which.
[00:04:20] Speaker A: Is combined capital too because yeah, they just raised for uh, 200 million each sometimes ago.
[00:04:28] Speaker B: So they've, yeah, they, I think last time bought raised was um, I think 2022. 2023. So yeah, combined capital like that's, that's the whole cost savings. Because now if you, if you had let's say 10 million each in the bank, all of a sudden you now have 20 million in the bank, which is more money to run the operations, more money to make do experiments and all of that. So yeah, that works for them. I think maybe another reason would also be they can access new markets. So we would, yeah, they can access new markets but just to like get into that a bit more.
So I can't say was a good CEO anymore, but was a good founder. Daniel, you shared that previously. They used to.
So we talk a lot about intra african trade and how it's very low, but they discovered that Kenya exports a lot of tea to Egypt.
[00:05:25] Speaker A: I see.
[00:05:26] Speaker B: So they like, I mean that's kind of common knowledge. But what you would have typically done is you source for tea in Kenya and then you sell it to Egypt. I can't remember the exact value of that tea. But the ideal thing would have been you source for tea in Kenya and then you export to Egypt. Or what they are now doing is, and this is because they had already started looking at private label products before. Now what they're now doing is Kenya operations sources DT and then egyptian operations handles selling it. So they do not have to go through, jump through so many hoops in order to do it. Of course there are some challenges that would come up in the process of doing that. But what this does is that it gives them higher margins on that sale and they could also replicate it for different products.
Maybe there's another product that Egypt and Kenya trade and all of that. So, yeah, basically it's a good deal.
[00:06:28] Speaker A: The other question for me will not be that.
I mean, e commerce in Africa, as we all know it, has had its problems, or it still has its problems. I even say, by extension, even outside Africa, e commerce startups have not necessarily been so profitable. So does that mean that the answer to the problem is getting bigger? Does that mean that this merger will solve their profitability problems?
They are also starting financial services. Right. Bringing all those together, does that mean that we can actually now have a. An e commerce company in Africa that is doing really well?
[00:07:10] Speaker B: No. And that's to answer your first question about whether the answer is to get bigger. So you could get bigger, but your fundamentals are still a problem. So e commerce is a low margin business. And it's not just about e commerce, it's about the fact that trading is a low margin business. Except you are trading things that very rare.
It's often a low margin business. So, okay, you buy something for maybe 100 naira, and this is nigerian currency.
Buy something for 100 naira, maybe you're selling for 120 naira.
Your profit is capped at that 20% profit. But if you are now an e commerce platform, what you get to do? So, I mean, we didn't explain, but for those who may not be aware of what, what Wasoku and Maxibi were doing, it's basically you helping merchants. So the mom and pop shop shops around. They can't remember the exact number, but they make up a significant part or portion of where Africans shop. So wherever you are, Nigeria, Egypt, Morocco, Kenya, you most likely buy more things from a mom and pop shop than you do from a supermarket. So they are like everywhere. So you're basically helping them to get products.
Before now, if they needed to stock up, they either had to go to the market. And if you don't have your kids around or you don't have a help, you would. The shop would be locked up for a couple of hours, perhaps even the whole day, depending on where you go to get your products.
The further or the more rural you are, then the longer you will typically have to lock up your business. So you might say it's just one day, but that one day is crucial because they do not make a lot of profits. So, Wasoko Maxabi, we are doing this for them, helping them order and then get it delivered.
So back to your question. Does getting bigger solve your problem? No, because this is a low margin business where the.
Where what could solve your problem is finding other ways to make money. And it could be you leveraging capabilities that you, you have developed as a result of serving these people. And one that they are both doing already is financial services. So before, before the merger, they had already been offering like individually offering financial services or try trying out a financial services to the merchants. And what that basically looks like is you can pay for products. So that's payments and then financing the two major, two major offerings. Payments. Financing. So on the financing bit, they've given out about $20 million in loans in the last one year.
[00:10:04] Speaker A: Wow, last one year?
[00:10:06] Speaker B: Yes, $20 million in loans in the last one year.
And then they say they have about a 99% repayment rate, which is good. But we should also note that we've had too many startups that have made such claims that they were making. They had a 99% repayment rate and when the chips were down, it turned out that those were lies. So I mean, yeah, just bear that in mind. But a 99% repayment rate is good enough.
So yeah, they've been doing that. Financing is one, but they are also allowing merchants to sort of offer, let's say third party services to. So let's say you want to buy, you want to pay for your DSDV bill. Of course, they are not in Nigeria. I don't think they're in South Africa. No, they are not. They are not in Nigeria or South Africa where DSDv might be more common. But let's say you wanted to pay for your pay tv bill.
You will. Some people still don't use their phones to do it.
[00:11:08] Speaker A: Yeah, let's take one to the office.
[00:11:09] Speaker B: Yeah. Or you walk to an agent close to you to do that. So merchants who work with them can, they can just help you do that. They get a cut of the transaction. Maxibi and Wasuku. So both companies still are working on a new name or unified name. So yeah, those are the services that they're offering. There's airtime, top up, and if you're. That needs boya financial services is more, it's, it's a more profitable route to go, mainly because you have lower capex, you don't have to buy products. It's a case of can you, for the financing, can you make sure that your loans are being repaid and that your cost of giving out these loans are sensible? And for the payments, can you ensure that most of the payments would be done within your app? So the good thing that they are trying to do is that you could, there's a wallet that you could use to spend on other platforms. So you could, there's a lot, there are a lot of use cases. So ideally you would increase user usage on the app and then probably retention as well. But yeah, financial services might be the way to go and.
[00:12:24] Speaker A: Well, let's say it goes for somehow I think there's, there's something that we, I don't know, they keep saying e commerce basically they become, or they start doing fintech, fintech things at some point.
And I think it probably all just gets towards the profitability thing.
[00:12:47] Speaker B: Yeah. So like I said, e commerce is basically buying and selling. It's commerce and commerce is not the most. You need volumes to make money. That's the major thing. You need volumes to make money. So the hundred units you sell would not be what makes you massive. You need volumes. And if you layer good, if you layer technology on it, the problem is in most cases you could even look at Amazon. Right. You have to change user behavior. You have to tell people to stop going to a shop and start using an app. So you would most likely have to incentivize them. Yes, of course they might see the benefits in making an order or you have to incentivize them. You have to hire people to go and talk to them. I mean Maxabi has like they currently have about 4000 employees and that's, I think that's just full time stuff when you add contract staff and all. It should be more than that.
So you need to hire a lot of people, which is just natural. So if you're running just a fintech, you could probably run most fintechs with a very small group of people. But you can hardly run an e commerce operation with like ten people because there's logistics, there's sourcing products, there's a sales, there's marketing, there's also a whole lot of functions that you need a large team for. So yeah, if you're going to do that, it's nothing like the most lucrative business.
[00:14:18] Speaker A: Is that why Daniel Yu, the CEO, which one of the companies?
So is that why he said that? Speaking about their expansion to Senegal, he said we saw some opportunity on ground in terms of fragmented, informal retail space, but we underestimated the challenges when it came to running those localized operations.
[00:14:44] Speaker B: That was what he was talking about.
So it goes back to the benefits of combining goes back to the benefits of combining operations. So yes, they launched in Senegal and Cordevo, what he says is, yes, they launched, but they soon realized that they did not have the experience of operating in both countries Wasoku is Kenya, and most of your business has been done in Kenya and parts of East Africa. And then you decide that you want to get into West Africa.
Something that a lot of people will tell you is a lot of experienced people, by the way, will tell you, is that doing business in Africa is not always the same. So the user behaviors you witness in Kenya might not be the same user behaviors you witness in Nigeria. So you need to take that into account. So going from East Africa to South to West Africa was a huge change for them, and they soon realized that they didn't have the local knowledge to do that. Of course, you could say, sweat it out, but this was 2022, I think, when.
Yeah, this was 2022 when funding was reduced and you didn't have a lot of leeway to experiment.
This was speaking to the reason they are merging. Right. And just to just like, double down on that is the value of having localized experience or local experience so you could expand into a new country. But if you don't have a. You don't have the right understanding, you most likely bomb it. There are just a whole lot of. Lot. A lot of factors are coming to play. There are new networks to build. There are new. Okay, so, for example, you launch.
Yeah, there's that. And then how do you get to break through all of that when you do not understand it? So it's probably a cautionary deal that while expansion is great, you shouldn't just rush off to go launching a new market when you don't have appropriate understanding of how the market operates.
[00:16:59] Speaker A: Okay. All right, we've, I think we've discussed Wasoko and Max EBS merger at length. Let's now go to Kenya, where Safaricom is.
Should I say trying to block or trying to get regulators to do something about satellite Internet service providers?
If you don't know what satellite Internet service providers are, a very good example is Starlink. Yes. People who provide Internet for you via satellite.
Safaricom is telling the regulator to, you know, you shouldn't really let. If you want these people to operate, you should probably get them to be on ground. And if they will not be on ground, they need to operate under the same license or operate under the license that they have been given. This is, for me, it's raised some. It raised some flags. Right.
I should note that they did not explicitly say they were trying to block a particular satellite Internet service provider. They just said they wanted regulators to take a closer look at the operations of satellite service Internet providers. But I really think they are talking about Starlink but let's not, let's not start, let's not start from there. Let's start from why Safaricom is trying to tell regulators, and that's the regulator for Internet services in Kenya is the communications authority. Okay, so why is Safaricom trying to tell the regulator what to do? And what does this tell us about how big companies respond to competition?
[00:18:48] Speaker B: So this is our behavior by.
Because I don't know why you want, I mean, okay, so you look at it and you're thinking, this sounds very, very patriotic. You want the regulator to say ISP's satellite, ISP's should only, they should only be allowed to operate if they are partnering with local companies. But really what you want is them to partner with you. So perhaps they've tried to partnered with Starlink and Stanley was like.
And they decided to go through the back door by forcing the regulator's hand and then spinning the patriotism, or, I mean, that patriotism line almost always works with people. Just give them a common enemy and they will go to war with you. So, yeah, like I said, it's a buyer behavior. I do not know.
I know why they are doing this.
[00:19:45] Speaker A: Okay.
[00:19:45] Speaker B: I know why they are doing this and I'll come to that in a bit. But like I said, disabaya behavior, those who are not Nigerians are. It's basically where an older person is trying to bully a younger person.
[00:19:56] Speaker A: Exactly.
[00:19:56] Speaker B: But why would, what does he say about how big companies, and this isn't just Safaricom now, what does he say about how they approach competition?
So a lot of, let's call them legacy companies or really large companies existed at a time where they were able to build a, a hegemony or build like major dominance in a particular sector. And the entrance of a new person just makes it difficult. So typically, the telco space is like capital intensive. You can't just wake up one morning and maybe you have like spare $1 million and you, or you have a laptop. So unlike fintech, right. You can't just wake up one morning, spin up code, and then you're up and running. You need some infrastructure to be able to do that. So they haven't had any issue with new entrants for a very long time. They've not, I mean, I'm not saying there hasn't been strong competition, but just by its nature, there's a very low barrier to entry, except you have significant money, you probably will not be able to launch in launch telco. So they've not had to deal with this issue and now there's someone who is flush with cash and can, like on the, I don't know, on an expansion free. Right. So yeah, this is a poor attempt at hitting back at a new competitor.
And it probably tells me that you are not willing to do the work of sitting down and thinking, how do I respond to this new entrant?
[00:21:34] Speaker A: I would like to play the advocate a bit. I would say that if I, I will use the, I will start with the lowest angle. Fruits, I've been around for a long time. I have some influence and there's somebody that wants to come and challenge my dominance. I will start with the one before starting to think about, okay, how do we compete?
[00:21:57] Speaker B: No, you're still an abaya. If you decide, that's the first thing you do.
[00:22:03] Speaker A: No, no, that's what, that's the first thing I would do. I will use my influence.
[00:22:07] Speaker B: Yeah, you're still, you're still an abaya. It doesn't change the fact that you're an abaya. So the, okay, um, primary school, you were used to coming first. And then this girl comes from a new school, and first three weeks you're already seeing that this girl knows what she's doing. She's not yet to play. Now you realize that you're, you are in danger of losing out on your first position streak. Yes. So what do you do? Do you go to the teacher and say, oh, that, that girl cheats, or do you go back, sit down and read more?
[00:22:44] Speaker A: So this is not a very parallel.
[00:22:45] Speaker B: No, it's as parallel as they come.
[00:22:47] Speaker A: This is business, right?
[00:22:48] Speaker B: Okay, yeah, it's business. Okay, fine. Um, you are, let's say you are the, you are the neighborhood store. Let's even use the. Okay, you, you're the neighborhood store. You've been around for maybe 1015 years. And then one day this young man moves into the area. He realizes that there's a market here. I can launch a new store and find the way. He gets the money. He sets up a new store and he has a better product. Or maybe he has a better customer service. Customer better. You know, there's a reason you're saying better customer service. So he has better customer service. He has this shiny new store. People can check out seamlessly. They don't have to stand in queues or stuff like that. And all of a sudden you see that your users are going up to him. Do you go to the estate chairman and say, chief, that guy has to leave, or do you go look at what he's doing? Right? And see if you can match him.
Or do you look at what you may have been doing wrong? Because first of all, you have an advantage, right? People are not going to just wake up one morning and switch to Starlink. Because here's the thing. There's a cost barrier to using Starlink. Yes, Starlink now offers the kids that you can rent, but there's still a cost barrier. It is still more expensive than Safaricom in most cases, but Starlink is giving people a better deal when it comes to the value they would be getting. So how do you adopt your product or how do you revamp your product? And I'll use a very, very common example. Here in Nigeria for a very long time, MTN did not offer per second billion. Blue gets into the market and they start offering per second billion. And I mean, MTN could go cry and say per second billion was, was not the will of God, but they doubled down and did exactly what glow. Well, yeah, that is not probably right. You can go and check.
[00:24:48] Speaker A: That was, that was exactly what you do, right, about what Safaricom doing, being Agbaya behavior. And I was glad because the communication authority in Kenya actually gave them a very good response. They told them that it's not you that will tell us what to do. They said the authority independently examines such issues within its mandate and regulatory framework. So it's not you.
[00:25:13] Speaker B: Yes, because if everybody was to, if everybody was allowed to run to the regulator and cry when things are not going their way, then at what point does it become. Because here's the thing, right. A competition between Safaricom and selling benefits one person as the user. So the regulator would typically.
Yes, the regulator is here to sanitize the industry. But if competition is going to aid the improvement of services or products in that space, let's go for it.
[00:25:48] Speaker A: And I think in a way, you've answered the next question, which is in an ideal world, who should they prioritize? The regulators?
Well, I think regulators need to. They will prioritize the customers.
[00:26:00] Speaker B: So it's okay. So, yes, the thing is, usually when you prioritize customers, you sort of take care of the industry. So regulators don't always like companies that are too big to feel or too big that you can't caution them without taking a hit.
Microsoft, Google, TikTok, they are very familiar with how the regulator has come up or come against them because of how big they've gotten. If I am a regulator, yes, I don't want you to get too big that I can't caution you or that me cautioning you will lead to major repercussions for me. So maybe a loss of tax revenue or something like that. So basically, the more companies are in the field, the better for all of us. And if I am going to go from a government's point of view, that's more tax revenue, both from the companies paying tax from the employees. There's also the fact that what could more people on the Internet, what kind of value does it unlock? Because let's say you have 10 million people, I don't know the exact number of people who use Internet right now in Kenya. Let's say you have 10 million people in Kenya and the entrance of a Starlink can hit, can push that number to, let's say, 11 million over the next five years. And all of a sudden we have a million more people who can transact, a million more people who can buy stuff on the Internet, a million more people who are basically generating revenue for the country.
And I'm choosing that over Safaricom.
[00:27:43] Speaker A: And if you don't understand why Safaricom is doing their aguaya behavior, I think some of these stats, and this is why I say they actually, they didn't mention names, but this is why I think they actually coming after Stalin, before Starlink came, Kenya already had satellite Internet service providers. And the total number of people using satellite Internet in Kenya before the entrance of Starlink was around 405. Right. And I'm not saying 405,000 just means 405 people, basically. And then Starlink came in and in just one year, it grew by ten x.
[00:28:19] Speaker B: And then what does that index?
[00:28:21] Speaker A: That NX is about over a thousand users, which is very small. Right. Not really that big of a number. Right. But I mean, going from it shows you that they were doing something, right. Because if those other players have been in the space for I don't know how long, but they've been in the space for a while, about five of them. Right. And they only had, well, to be fair, some of them were only offering their services to businesses. To businesses. Right. So you don't expect that you have millions of customers. Right. But Starlink came in and I mean.
[00:28:57] Speaker B: So it would be interesting. It would be interesting to look at this from a revenue point of view as opposed to. Because putting it. That would put it into more perspective. Because one company can give you the revenue that 100 users.
[00:29:12] Speaker A: True.
[00:29:13] Speaker B: And maybe even more give you. So I think it would be. It would be helpful to put that into perspective. Unfortunately, most of those companies are like private companies and you can't get their revenues and same with Starlink.
[00:29:24] Speaker A: Those ones are not even a threat to, not even straight to Safaricom. I think Starlink is a, is a threat.
[00:29:31] Speaker B: Safaricom is, yeah, exactly. So Safaricom is like, and again, this is why I say it's about behavior here. Safaricom is like, they have over 10 million users, if I'm not mistaken. Right.
These guys have a thousand.
[00:29:49] Speaker A: Just over a thousand.
[00:29:50] Speaker B: Just over a thousand users.
This is not even, this is not even a David versus Goliath. It is a Goliath versus, versus David. No, no. Like the competition. Yes, there's competition. Let's be clear.
Exactly. There's competition there. But the distance between a 1010 million, can you just like, check the exact number of users that safari commerce. Okay, the distance from, let's say thousand to 10 million, for example, is so wide that you have time on your side to make up for it. So I don't get why you're already 30 million.
It doesn't make any sense. 30 million to 8000. So even if Safaricom or Starlink now is making way more money on one user than you are on the same, like on one user as well, there's leeway for you to claw back your market dominance. Like, you're still dominant. You're still the dominant player. I mean, yeah, you could say, oh, let's, let's not for the trade before it starts. But this is time for you to.
[00:30:59] Speaker A: Say, okay, so maybe they are seeing something that we don't see.
[00:31:03] Speaker B: What are they seeing?
[00:31:04] Speaker A: Here's the thing.
Every market that, okay, I won't say every market, but for Kenya and for Nigeria, it's still not that fair. But let me just point it out.
When Starlink came in, they grew really fast. Now Starlink in Nigeria is the third largest, is to provide more context.
It's not as if we have that many people using Internet service providers. In Nigeria, the person with the highest number of users is Spectranext. I think we just over a thousand users, followed by, I think Starlink is stored and it's stored with just about 27,000 users.
[00:31:48] Speaker B: It said spectrum, it has a mini.
[00:31:50] Speaker A: Just over a thousand, over 100,000.
Yeah. And Starlink is stored at 27,000. Yeah.
Is it that Safaricom sees that?
[00:32:02] Speaker B: No, they don't. Don't complete at all. They don't.
[00:32:04] Speaker A: So because Starlink, Starlink has the, they have the phones.
[00:32:08] Speaker B: True.
So as a new player in a probably market that isn't so saturated, you have better.
Like the scale of your growth is bigger than the scale of growth for a Safaricom. So Safaricom can, can do, let's say we grow five x in a year or maybe two x in a year, and it will be seen as good growth.
If Starlink does one x, two x, three x, five x, you'll be like, okay, because you're starting from a very low base. You are going from zero users to a thousand users. You can't go from like the complexity involved in going from, let's say, 30 safaricoms, 30 million to 34 million is significant. There's a whole lot that needs to go in. So it's either, and I'm careful to like say Safaricom is making a mistake because these are people who have decades of experience in the industry. But it seems very short sighted to me that you are focused more on eliminating competition than improving your services. Eliminating competition. That, to be fair, isn't competition. So think about it.
Nigeria's largest banks, imagine them trying to snuff out somebody who just launched his fintech two days ago. It makes absolutely no sense. Even if that fintech has 10,000 users and they offer the same services, there's enough time for you to improve your services. And you know, you know what, you can even underprice, like, yeah, you could undercut them. So instead of you going to cry to the regulator like a kid, how about you just fix up your business?
[00:34:06] Speaker A: Yeah. So really interesting stuff Safaricom is doing in Kenya.
I hope the probably hear this and decide to fix up instead of crying to daddy. But yes, I think that's all we can take on today's episode of the Techpoint Africa podcast. There's a lot of things that happened in the african tech industry this week. You can find all of them on the Techpoint Africa website. Just go to Techpoint Africa to find everything and to also stay on top of everything, like you want to know what's going on, what has happened, when it happened. Be sure to subscribe to flagship newsletter Tech Point Digest. It will hit your, your inbox 05:00 a.m. every every weekday. Yeah. And if you are more interested in other parts of tech, if you're interested in startups and investments, for example, subscribe to Team Grazim's equity merchants. If you are interested in work and you want to know what the latest trends are when it comes to employers and employees and hiring, subscribe to Nife's modern workplace Africa newsletter. And if you're interested in technology and their evolution, be sure to subscribe to how cool tech works. That is my own newsletter. It also has a podcast just like Tim Gazooms on Infamy's own. Thank you so much for joining us. Be sure to give a like share and send your feedback to us at podcast at Techpoints Africa. We'll see you in the next one.
