Friday, July 10, 2015

Zuku vs. theBIGbox

Recently, there's been a lot of talk about Safaricom's 4G efforts. Well, not exactly their 4G efforts, but their set top box, 'creatively' called theBIGbox (in case it wasn't clear, that's sarcasm). In this post, I want to compare their offering to one of their competitors that always comes up every time anyone talks about Internet in Kenya, Zuku.

More often than not, when the two are compared, the better offering seems to be Zuku. But what everyone forgets in these comparisons is that Safaricom doesn't have to compete with Zuku; at least not yet.

Zuku, through the Wananchi Group, has pursued a strategy of building out their fibre network over time, slowly but surely expanding their network all over Nairobi and into parts of Mombasa. You can see the areas that they cover in the image below taken from their website:

Zuku coverage, Nairobi

Given the wide area they cover in Nairobi, I understand why everyone compares the two services. Further adding to this comparison is the fact that Safaricom has deployed 4G in only two cities: Nairobi and Mombasa (see maps below); the same regions as Zuku’s current coverage.
4G coverage, Nairobi(http://opensignal.com/)

To be clear, when I say they don't have to compete, I don't mean that they're not trying to address the same markets. Zuku and Safaricom's theBIGbox are both trying to capture what I believe is the most valuable data market for Safaricom going forward: the home.
3G and 4G coverage country wide(http://opensignal.com/)

Whenever Safaricom's home efforts are mentioned, in the context of theBIGbox at least, there's a tendency to mention that Safaricom needs to offer an unlimited data option. However, for the foreseeable future, there's no need for that.

Safaricom only needs to be the fastest and most reliable option in the areas outside Nairobi and Mombasa, i.e. in the rest of the markets they'll be expanding to. I didn't mention the price in that statement, not because it's not important (it is), but because it's more complicated than just being the cheapest.

theBIGbox doesn't need to have an unlimited option in the beginning because there's no one competing with them in the home market outside Nairobi and Mombasa that's offering the same home service, and the speeds that come with 4G will not be matched by other MNOs for sometime given, that none of the mobile operators have been issued licenses, and because they lack capital and, frankly, the strategic thinking and planning to compete with Safaricom.

Safaricom will be expanding 4G to 13 more cities in this financial year, which means in 13 cities there's not going to be any Zuku, or Zuku like service, to compare and compete with. In those cities, they don't have to go unlimited and can continue to apply data caps (limits) to the internet connection to ensure they get the maximum profit while the competition is low.

“Our 4G network is now available in Nairobi and Mombasa, and we will roll out to another 13 towns and cities by year end. This is a first for Kenya and will enable our customers to experience superfast home broadband and mobile data offerings.” Bobby Collymore(FY 2014 press commentary)

This doesn't mean Safaricom gets a free pass, I think they still need to put some thought into how it's marketed and how it's priced.

Initial signals on marketing seem to be right, though there's something to be said about pushing the value proposition of theBIGbox, but the pricing has been, in my opinion, so far completely bungled.

First, the pricing for theBIGbox has been all wrong. I don't understand why they introduced it at KES 10,000. Safaricom is a billion dollar company with profits in the $100s of millions, they can afford to subsidise the cost of getting this device into every home with a TV. Further, they introduced it when every pay TV provider had begun to heavily discount their set top boxes and the free to air (FTA) decoders all maxed out at KES 4,000. Selling something like theBIGbox for KES 10,000 when the value is not clear and hardly worth it in the market it’s targeting was a mistake.

Second, the benefits and advantages of an internet connected device like theBIGbox where not developed before launch. I've talked about these capabilities from a media perspective in a previous post, but just launching with free YouTube for a couple of months was not enough.
Finally, and most importantly, they haven't done enough to highlight the cheaper bundle options on theBIGbox, and perhaps the discounts compared to the normal data bundles don't go far enough, though 4k for 50GB is quite a discount on the Safaricom network. In fact, I only found out about the cheaper bundles for theBIGbox when doing research for this post.

Safaricom doesn't have to compete with Zuku because the potential addressable market outside the areas Zuku operates is still potentially lucrative for the foreseeable future. In fact, they don't have to have to cover that much of the land mass to cover most of the population for 3G coverage. The performance highlights from their 2014 sustainability report show that covering 25% of land mass is equivalent to covering 58% of the population(see image).
 Safaricom’s 2014 sustainability report page 10

“We have increased the population coverage of our 3G network to 69%, completed the modernization of our 2G network which covers 92% of the population and have connected 30% of our base stations to our fibre.” Bob Collymore(FY 2014 press commentary)

This doesn't mean that Safaricom can rest on its laurels. Zuku has proven that it knows how to deploy great fixed internet services and it has an advantage over Safaricom, and its other revivals: an exclusive partnership with Kenya Power to use their infrastructure, the poles mostly, to deploy their fibre. This makes it cheaper and faster for them to do so. In an in interview with CNBC Africa (worth watching for more than just context to this post), Wananchi group's vice chairman, Richard Bell, naturally dismissive of 4G and Safaricom's effort, did mention two particular cities: Nakuru and Kisumu. So they could be following Safaricom into the 13 cities sooner than we think. Peace!!!

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