SITTING IN THE COFFEE SHOP at the Arabella Sheraton in Cape Town, WebAfrica's Matthew Tagg hardly looks like the MD of a successful mid-sized ISP. But considering that his idea of relaxing includes fast cars, fast bikes and throwing himself out of aircraft, it's clear from the outset that he's not your normal company owner.
Tagg, who started WebAfrica 10 years ago while still in matric, has seen it grow into a company that currently employs 72 people. He says that most of that growth has happened over the past four years, as he ran the company as a sideline operation while he completed his university studies.
WebAfrica started its life in the IT incubator, The Bandwidth Barn and while Tagg comments that this was a great place to start the business, he adds that it probably stayed there too long as there came a point when the costs of operating in that environment outweighed the benefits. He says that once a company in the startup phase gets beyond about 10 people it is time to move on.
WebAfrica now supports 17 000 ADSL subscribers, plus another 4 000 hosting clients, with the number of ADSL customers growing by around 1 500/month. Tagg says that while the ISP market in SA has grown dramatically over the past few years – due mainly to the rapid adoption of ADSL services – it's now set to see massive consolidation.
"The massive reduction in the cost of broadband that the market is seeing is putting the margin squeeze on all ISPs. The point is approaching where we, along with other smaller ISPs, are going to have to sell out or start buying up other companies," Tagg says.
"To that end we're already in the process of buying up a small ISP. That's an important step for us, as all our growth to this point has been organic. However, if we need to buy up other companies we need to know what the potential pitfalls might be."
The other decision facing WebAfrica in the near future is where to focus the efforts of the organisation. "We have to decide whether to expand the business into a Tier 1 ISP – along the lines of an Internet Solutions or Verizon – or to retain our focus on the retail sector and partner with wholesale bandwidth providers to provide services to our subscribers."
While the retail sector may be especially competitive – with Telkom and MWeb aggressively pursuing that sector – Tagg feels the focus on client service and the use of automated systems that have taken the company thus far will continue to give it the edge over its competitors. "We've spent a lot of time and effort building automated systems, which allow us to service a large client base more efficiently," Tagg says.
He does admit that the nature of its subscriber base will need to widen if it's to continue its growth path. "Until now the majority of our customers have come from the more IT savvy community, but that's changing to include ordinary consumers. However, we'll need to ramp up our marketing efforts in order to raise our public profile. We don't have the financial muscle of either Telkom or MWeb so we'll have to be smart about how we use our resources.
"The broadband market is also moving into triple play, where voice, video and data are bundled together. How we deliver that kind of service is something we still need to figure out, as we're strictly data focused at the moment. In order to get the other two legs of the triple-play offering, we'd either need to create those services internally or find partners whose services we could repackage into a single offering to our clients.
He adds that the company has chosen to focus selling ADSL services as this is the technology with the most long term promise. He comments that he does not believe that the wireless services, even Wimax, will be able to offer the speeds that customers will be demanding in the near future.
"Whatever the structure of the service we offer, the potential market is massive. Currently, there are only 250 000 ADSL subscribers in the SA market, which is a tiny subset of the total population. That leaves lots of room for us to grow."
With the ISP market bearing more than a passing resemblance to the heyday of dial-up Internet access in the late Nineties, we're going to increasingly see the small and mid-sized ISPs being bought up as the major players look to entrench their dominance in the market and the medium-sized ISPs try to establish a large enough subscriber base to survive in the low-margin business of providing Internet access.
Tagg doesn't seem ready to sell up and if WebAfrica can get its mix right it should be playing in the big league within the next few years.
Finweek
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