😵‍💫 20M Users and No Profit...?

Plus: VC rocket fuel, saving the internet, isiZulu-GPT & how to build a startup with AI.

Newsletter

April 5, 2024

Cosmic Friday? Check out this updated image of the supermassive black hole in the centre of our galaxy. It’s the science-approved upgrade to that smudgy one from last year.

In this Open Letter:

But how: 20M users and no profit? There’s a reason.
VC rocket fuel, saving the internet & isiZulu-GPT.
Beyond the hype: Building an application-level AI startup.
How you choose to buy fresh: The results are in.
Free stuff: Share this and get cool business tools.

20M Users and Still No Profit?

Recently various SA news publications made submissions to the competition tribunal about how big tech (Google, Meta, X, etc) is preventing them from making money.

And through these submission we learned some interesting things about Google:

They claim to make very little on SA news – a measly R36 million a year (not much by Google standards, but a pretty penny here in sunny SA, considering they do almost nothing for it).
And they also claim to be sending more than 600 million free referral clicks to SA news sites.

But perhaps even more bizarre is that Media24 CEO, Ishmet Davidson, says News24 “remains unprofitable”.

What? The most visited news publication in SA, 17th of most visited site in SA overall, with 100k paying subscribers, close to 20 million monthly visits and more than 52 billion impressions per month, is not profitable?

Online news never really worked, did it?

Newspapers worked for various reasons, but most notably because there wasn’t really a free alternative and importantly distribution locked the user in – the paper came straight to your front door in most cases.

Put that on the internet, and all of a sudden your advantage is gone :

You’re up against diverse business models that complicate justifying a subscription fee.
And switching to an SEO-driven ads model where you try to get as many “free” organic eyes as possible puts your content under pressure to make money, instead of trying to drive value.
Finally, in a world where Google, Meta, X and TikTok own the eyeballs, it's no surprise that they will make sure they get most of the ad revenue. The whole setup builds loyalty to tech giants, and not to your website.

It's a race to zero.

The Problem of Loyalty

Sadly, website visits don't mean a heck of a lot these days. Just cause someone, somewhere, somehow hit your site, doesn't mean they’re interested in what you’re doing (or selling).

Dig into your website’s analytics to see what we mean – there’s a huge disparity between the traffic hitting your site VS the engagement time spent VS the bottom of the funnel (signing up/purchasing a subscription etc.).

OK, but you still own your social followings, right? Wrong.

Check your own feed: How often are you seeing true-blue content from accounts you’re following – most of the time it's suggestions and ads of some sort. Heaven forbid you accidentally pause even for a nanosecond on a '90s WWE image or video – you’ll never see anything but wrestling content ever again.

It’s no different for your followers. Estimates are only just 2.2% or as low as 5% of your followers actually see your organic posts. That means, if you have 10k hard-earned followers, you should be thankful if a mere 500 of them see your post – sickening (unless you pay off course). Not to mention Facebook’s algorithm intentionally deprioritising news.

And that’s the problem – media creators don’t “own” their social audiences any more than they “own” the audience that comes through search.

The missing link to make media work

This is one of those times when you have to learn from the past – take a page from the old newspaper model and look to own a direct distribution channel straight to the customer, not via a search engine or social network.

We’re not saying start printing magazines again, either. But in the digital era email is probably the closest way to connect directly to a customer without borrowing a channel.

Think about it:

You always own the list of email addresses — independent of where you send the emails.
The connection with the reader is way more engaging than on a website.
You have the opportunity to know your audience better than any other platform (some of you reply to emails and we have made many friends this way!).
Once you know the audience, you can offer them unique value, which diversifies the revenue streams away from ad sales alone.

Now we know, most news publications in SA have email newsletters. But the difference is to make the primary way of engaging via email. Basically the content is written for email first as opposed to writing web articles and sending a digest of those articles via email.

Our glorious tech-enabled news media future, according to AI.

Email as a distribution mechanism is rising in popularity. Morning Brew (a US based and focussed daily news email) is probably one of the earliest success stories in the space. It started in 2015 and has amassed 4 million+ subscribers for its free newsletter. It has gained so much traction at high engagement that it was acquired by Business Insider in 2020 for $75 million.

The same for The Hustle who got bought by Hubspot for $27 million.

The Local plays

Some local players have caught on to this shift. One of our favourite local email newsletters is The Outlier. Using data journalism, they craft beautiful charts accompanied by storytelling that gives anyone a clever stat to drop at your next braai or water cooler convo. You can sign up for their weekly newsletter here.

Then there is The Finance Ghost who, after reaching its first 10k subscribers organically, turned their audience into a business by launching a podcast, a paid-for community and products that their community find useful.

And then, of course, there’s always the rootinest, tootinest, shootinest SA startup newsletter of all – you’re welcome!

Look, we’re not saying that mainstream news journalism is in any way comparable to what we do. But when the world moved from paper to online, I think we all missed out on a fundamental way to engage — and that’s direct to the reader. (Not to mention how these lessons apply to building product communities.)

Let’s hope those who wield the pens are bold enough to change their approach and find new ways to pay the bills. We’re watching this space.

IN SHORT

🚀 VC Rocket Fuel. Baobab Network, the early-stage investment firm from Nairobi has acquired South African strategy and branding agency Reflector Marketing for an undisclosed amount. Baobab says that the deal will strengthen their ability to help portfolio companies with marketing.

🗺️ Wealthy Planning. NEXT176 and Standard Chartered’s SC Ventures are joining forces to combine 22seven and Autumn to launch a new wealth planning platform across Africa and the Middle East.

🚓 Nailed Crypto. Crypto evangelist and CBI Director Coenie Botha has been fined more than R216 million by the FSCA and disbarred for 10 years for contravening the Banks Act.

👨🏻‍💻 Saved the Internet? Microsoft software developer Andres Freund might have just saved the internet after he accidentally uncovered and reported a security vulnerability affecting Linux, averting a catastrophe that had been in the works since late 2021.

🌍 isiZuluGPT. A local AI research and product lab Lelapa AI is building LLMs using indigenous African languages like isiZulu and Sesotho to help more African language speakers interact with AI tools.

HOW WOULD YOU BUILD IT?

How to Supercharge Education with AI

If you’re excited about finding more practical uses for AI in the startup/tech space, today’s How Would You Build It podcast is for you. We sat down with Gabi Immelman, Co-Founder & CEO of SA AI educator platform, Mindjoy. And she had some awesome insights on what it takes to build using AI.

Catch the highlights

1. Have a clear vision and integrate AI early on

As Gabi mentions here, her journey started with a clear research question (how to enable young people to flourish in a world of technology), and being a former teacher needing to “learn” the startup way played in her favour as a lack of technical skills made her open to engaging with AI early on.

And the combination of having a clear problem statement and willingness to experiment with the new technology, coupled with a drive to upskill and network pays huge dividends in your early days.

2. Adapt to user needs

Gabi’s the first to admit they weren’t prophetic in jumping onto AI before AI was even a thing. As she explains here, it was in response to their users’ request (12-year-olds no less) for more information on AI that led Mindjoy to apply for early access to Chat GPT’s 2021 beta, which led to the amazing project experience she describes here and ultimately the success Mindjoy has enjoyed thus far.

3. Focus on real-world applications for AI

Much of the media hype around AI centres on the infrastructure level – what OpenAI, Microsoft, Apple and the like are doing. But as Gabi mentions here, startups will likely find more value in working at the applications layer – finding new ways to use existing AIs to solve real problems.

She does advise, though, to play the field and experiment with as many different AI APIs as possible – they all tend to have specific areas in which they excel, which can help you better find applications for the tech.

You can also grab the Spotify and Apple Podcast links on our website here.