While it is not uncommon for any investment firm which invests in multiple businesses to have a few failures, Vodacom’s case is particularly curious.
Some of the companies in which Vodacom invested are pointing the finger at the mobile operator for their failures.
According to some of the companies, Vodacom did not provide the support which they expected from the mobile operator to make their businesses work.
The case of Gogga Connect is particularly strange as Vodacom seemed to have opted to fight the company rather than to give it support and save its operations.
Eugene Beetge started Gogga in his garage in 2005 with the aim of bringing cheap internet to the masses.
Vodacom, through its investment arm Vodacom Ventures, bought a 26% stake in the company after they showed strong subscriber growth. In 2009 Vodacom increased their holding to 49%.
After a conflict between the two companies, Vodacom cut the data connections to all of Gogga’s subscribers, essentially killing the company. “Without data we couldn’t bill any further and the customers all cancelled within 7 days,” said Beetge.
Beetge said that they made an offer to Vodacom to buy the remaining subscribers and keep good faith, but explained that Vodacom decided to rather fight and close Gogga down as it was the best financial decision.
“The option to buy the rest was approx R16 million based on actual subscribers. [The] legal battle cost them R2.5 million. Simple math,” said Beetge.
“Their view was also that despite disgruntled subscribers, they will simply recover the customers via their channels. They literally at one stage blindly phoned and SMSed our customers on their data lines and offered them a VSP deal before Gogga closed.”
Beetge added that Vodacom did not support Gogga as agreed. “The original deal was loosely based on verbal agreement with everything in e-mail. This was all thrown aside when it didn’t suit Vodacom Service Provider’s model,” said Beetge.
Beetge said that Vodacom was “100% responsible for killing Gogga.” He said it was not a good period in his life, fighting against what he once believed could have been a good partnership.
iBurst also suffered
Gogga’s case is not entirely unique. In March 2010 iBurst informed its Vodacom 3G/HSDPA customers and resellers that “with effect from 1 April 2010, Vodacom 3G/HSDPA will no longer be available as an iBurst product, due to Vodacom seeking to consolidate its 3G/HSDPA market share.”
According to sources at iBurst at the time, the company’s agreement with Vodacom was terminated without iBurst’s full consent, and that Vodacom may have used strong-arm tactics to terminate a contract which it felt did not favour them.
The sudden termination also meant that iBurst effectively had to renege on its agreement with some of its resellers, something which did not bode well for the company.
Vodacom denied this, saying that the negotiations about the termination of the agreement had been going on for months, and they didn’t know why iBurst waited until the last minute to inform their resellers about this turn of events.
Vodacom sold its 24.9% shareholding in WBS/iBurst shortly after this news broke, which also coincided with the departure of Jannie van Zyl as iBurst CEO.
iBurst said that they can “assume that Vodacom’s exit was to pursue alternative revenue streams within their own organization”.
“Vodacom was committed to WBS and are still honouring their relationship with us. WBS post the exit of Vodacom has grown significantly and has been able to develop a sizable network not only in consumer based markets, but also for corporate clients,” iBurst said.
Zoopy’s future uncertain
Video streaming website Zoopy closed its doors in September 2012, with the promise of a re-launch in November 2012. To date this re-launch has not happened.
Vodacom, which wholly-owns and funds Zoopy, previously said that it is planning to sell a significant stake in the group.
Details about the planned deal remain unclear; however, Vodacom confirmed that it is “looking at options for Zoopy that include bringing in a partner to invest and help grow the business”.
Zoopy was founded in March 2007 by Jason and Pat Elk, and at the time, competed against platforms like YouTube by allowing users to upload and share videos, photos, podcasts and blogs. The two former owners have stepped down from the company after Vodacom’s planned changes emerged.
Elk said that it was a pity for him to step down when he did, partly because their plans with the website were starting to come together.
“The biggest pity was that several new revenue plans had started to pay off and we were weeks away from launching a brand new aspect of Zoopy that would have added to the South African mobile media space while generating even further revenue,” said Elk.
When asked whether Vodacom supported Zoopy and delivered on its agreements when it acquired the video website, Elk indicated that he would not like to answer these questions.
“At this point I’ve moved on and would rather not comment on the past any further. There were certainly a great deal of lessons, but experience can only come with lessons I guess,” said Elk.
Other costly investments
Vodacom acquired Gateway Telecommunications SA (Gateway) in late 2008 for around R6 billion ($700 million), and after suffering significant losses it sold part of Gateway (Gateway Carrier Services) for R220 million ($26 million).
Vodacom had to write down large amounts of money because of its Gateway acquisition, indicating that it either grossly overpaid for the company or it did not run it effectively after it took ownership.
Vodacom’s foray into social media also did not work out well for the company. The cellular operator pumped millions into its mobile platform The Grid, its mobile messenger service Meep, and a mobile game Legends of Echo.
Meep shut down without much fanfare, and Legends of Echo did not last long after its launch. Vodacom is currently in the process of shutting down the Grid, explaining that “The Grid was a great learning exercise for us, but other applications like Facebook have ultimately overtaken it”.
Even Vodacom’s radio station, which was punted as a large potential revenue stream for the company at launch, has not fulfilled its promise.
With all these failures, some industry players have suggested that Vodacom’s investment strategy may not be to blame, but rather the way that Vodacom handles the companies in which it invested.
Vodacom’s group executive for business development, TC Ralebitso, explained that they support good ideas with funds and time, but they can’t predict how successful these businesses will be.
“Our objective is to explore and see what works. We have to balance the time and money spent with the level of success of a venture. At some point we have to make a call just as we do with our standard products,” said Ralebitso.
“Startups by nature will always have uncertain success rates. We invest money and operational support on a commercial basis and accordingly the idea has to have commercial merit for us to keep supporting.”