Collymore bets on opening up M-Pesa to ring up Safaricom’s future billions
SEE ALSO :Loan apps to get you out of that fixAnother instance is seen in an announcement by Collymore about four months ago that points to the telco’s new strategy. He said he would work in partnership with Craft Silicon in a venture that would take on Uber, the Silicon Valley start-up that was causing a ruckus in the local transport industry. Kenyan taxi drivers had been protesting over Uber’s popular taxi hailing app saying it was taking away customers with low prices. “It is effectively a rival for Uber,” Mr Collymore, said then about its venture with Craft Silicon that brought about a taxi hailing solution. “It is a local competitor which will be cheaper and better for the local community.” While to the masses the launch of Little went down as just another dust-up in the murky world of the taxi business, in the tech world, this was not only a major strategic shift on the part of Safaricom, but a signal to Silicon Valley giants to start taking Africa seriously. If Travis Kalanick, the founder of Uber heard the shot, so did Mark Zuckerberg, the billionaire founder of Facebook who was recently on a ‘learning’ tour of Africa, visiting Nigeria and Kenya to experience the vibrant tech start-up scene--and to learn more about M-Pesa. In Mr Zuckerberg’s words, M-Pesa is the world leading mobile money platform. Facebook, which last year opened its Africa headquarters in Johannesburg, is looking at growing its mobile money offering on the continent. In Kenya, the Social media networking company has started a search for a candidate that will steer its growth campaign in Kenya. unicorn But when you think about how corporations used to grow into the so called superstar companies that spanned the globe like a colossus, it was all about conquering the supply side of the equation in a bid to minimize the cost of production. A very big company could organise its supply chain in a way that it bought raw materials cheaply and in bulk, then because it was producing more, its unit cost could be brought down. This means it could be competitive in the market place. In the digital age, the strategy has shifted to the demand side and this is where the platform plays a big role. All that a tech start-up like Uber or Snapchat needs to grow into a ‘unicorn’ (a firm valued at $1 billion – about Sh101 billion) – before it sells its shares to the public on the stock exchange) is to grow to scale. Revenues and profits do not even matter initially. Once you have one million users, the path to attracting 100 million others is dictated by what is called the network effect, which is the effect that one user of a good or service has on the value of that product to other people. Millions of users beget millions of others and so the game plays out. As the platform grows, the ecosystem of users, buyers and suppliers becomes a vibrant marketplace. Since the marginal cost of adding an extra user is almost zero, the platform owner will make billions of shillings/dollars by simply getting a small cut of every transaction. This is what accounts for the fact that there is no time in the last two centuries that so much wealth has been created by new industries and upstarts like Amazon, Google, Facebook, Amazon, Alibaba, Uber, Airbnb, SnapChat and the like than in the last decade. They have become giants by vacuuming cents out of small transactions carried out on their platforms, and along the way disrupted the status quo in industries ranging from newspapers, taxi, hotels and supermarkets. A recent report by the Center for Global Enterprise identified 176 platform companies that are valued at $4.3 trillion (Sh437 trillion) and employ 1.3 million people, demonstrating the size and scale that platform companies have achieved. The report found that Asia led with 82 platform companies, San Francisco in California followed with 64, Europe lagged with 27, while Africa and Latin America were barely on the map with three firms. defying gravity Since the threshold set for inclusion in this study was that a firm must have a market capitalization of $1 billion (Sh101.6 billion) or a similar private valuation, only Africa Internet Group, which, jointly with Rocket Internet and Naspers, owns an investment platform that operates a portfolio of ecommerce websites such as: - Jovago (hotel bookings), Jumia (e-commerce), Zando (fashion), job search (Everjobs) and now the defunct EasyTaxi (ride sourcing) made the cut. These platforms draw their most customers from South Africa, Kenya and Nigeria. Even though Safaricom is valued at $8 billion (Sh813 billion) on the Nairobi Securities Exchange it fell shy though it operates a platform through M-Pesa that serves more than 20 million people and transacts as much as $32 billion (Sh3.2 trillion), largely because it would be broadly defined as a mobile carrier. However, the potential has not been lost. While there is no doubt that Safaricom is one of the most successful companies in Africa with its annual revenues growing from Sh14 billion in 2003 to Sh195 billion in 2016 - an annual growth of 22 per cent every year - its core voice business, as the law of numbers dictates and experience in the industry demonstrate, will not continue defying gravity forever. Indeed, a quick analysis shows that among its four main revenue lines, voice business is growing the slowest at six per cent on an annual basis compared to data (42 per cent), text messaging (20 per cent), and M-Pesa (24 per cent). In a heavily regulated industry where your core product that accounts for over half of your sales is expected to become commoditized, the last thing you want is to be found standing literally on the dance floor when the music stops playing. Hence, the decision to recast Safaricom fully for the digital age. The company has been down this road before over the last decade, when it decided to experiment with M-Pesa, a money transfer service. “When M-Pesa was launched it wasn’t launched as a big thing. It was just launched as a thing that was right in the edge. Now it is 20 percent of (our) revenue,” Mr Collymore said. “Since our inception, Safaricom has aimed to act an enabler of wealth creation in the country. With time we have come to appreciate that this can only be achieved by forming meaningful partnerships.” M-Pesa was initially thought of as a value-add money transfer service, and not exactly as a strategic pivot back in 2007. While the product was an instant hit attracting three million users by 2009, it is only in the last four years that its possibility in contributing to the revenue growth of Safaricom, and disrupting industries beyond telecommunications. Stock market Today, the M-Pesa platform is mostly known as a full-blown mobile based financial technology (Fintech) platform that brings together all the major banks, insurance companies, merchants, the government and consumers. In the last four years, as it expanded to e-commerce, M-Pesa revenues have grown to Sh41.50 billion, which means that, at this rate, the platform will soon eclipse the revenues of Kenya’s KCB Bank and Equity Bank. Mr Collymore’s vision is that Safaricom should not sit as a “dumb pipe” that merely carries other people’s content, but it should sit squarely as a platform at the centre of a web of connected users and their devices that are opening up further opportunities for growth. He said the operator has already engaged the retail sector (Fast Moving Consumer Goods (FMCG)), energy sector, utilities and general merchants who have been using the platform as payment solution system- especially the Lipa Na M-Pesa. In the past one year for instance, distributors of major FMCG and the fuel industry drove Sh4.6 billion in transaction volumes monthly. Already, the market has been paying a lot of attention on the Safaricom shares on the NSE. The share was priced at Sh21.25 by close of business Friday, which is in comparison with Sh5 listing price close to ten years ago. Even at the current level of the share price, Safaricom’s shareholders are among the happiest. In the last eight years since the company was listed, investors have received a total return of 20 per cent compound annual growth rate, and the share price has outperformed the NSE 20 index by 214 per cent. However, as a platform company, the valuation question will attract a new significance. Without accounting for profitability or free cashflows, and viewed as a Fintech, M-Pesa, which is roughly the same size as Equity Bank in terms of revenues could arguably be valued at the same level as Kenya’s second largest bank which stands at Sh100 billion in market capitalization. This means that as Safaricom embarks on its third iteration of its strategy, it is starting with M-Pesa already valued as a unicorn. In the lore of Silicon Valley, this is a company valued at $1 billion (Sh100b).