M-KESHO's subtle hints on the future of Safaricom

M-KESHO, the newly launched financial services product is yet another demonstration of how Safaricom is constantly consolidating its gains in the country while exploring new business frontiers. The financial product appears to be a direct derivative of M-PESA's data warehousing essentials. There is definitely a reason Safaricom and Equity Bank are betting on M-KESHO - that of building on past successes and an understanding of the peculiar Kenyan market place.

Despite the welcome innovative moves by the pair, I must say that in my humble estimation the M-KESHO product might succeed but not so much beyond Equity Banks earlier attempt at mobile banking (Eazzy 24/7).  I stand corrected but although M-PESA succedes to foster a culture of saving among the unbanked, it may be too early to stretch it in search of interest revenues through a financial credit service - which apparently is the differentiating feature of the M-KESHO product from other mobile banking products.

The close coupling with Equity Bank's banking services might undermine any intentions of M-KESHO being the convenience product like M-PESA that die hard Barclays, KCB and other larger bank's customers would quickly embrace. It is difficult to guess how much strategic weight MJ and troops are placing on the Equity Bank partnership. Certainly though, in the partnership comes a subtle hint that Safaricom will not forever extend their business empire with derivatives of its successful products alone.

Seemingly there is a limit to how far a large company in Kenya can pursue an aggressive product diversification strategy before having to 'sleep' with its other would-be serious competitors. Such a limit would then appear as the beginning of hope for companies competing with Safaricom in any of the sectors it has ventured into.

Hope for Safaricom's Competition

Much has been written about Safaricom's success in Kenya. From voice, to sms revenues, to money transfer and data services, safaricom has clearly demonstrated the power of leveraging on traditional revenue streams to generate new value propositions. Michael Joseph and his troops are successfully integrating their business empire with the larger Kenyan economy. So far this has the obvious result of apparently sustained competitiveness for Safaricom.

Safaricom's new partnership with Equity Bank whose EAZZY 24/7 service was at some point  pre-positioned as a serious competitor to the M-PESA service speaks volumes. Seemingly there is a limit to how far a large company in Kenya can pursue an aggressive product diversification strategy before having to 'sleep' with its other would-be serious competitors. Such a limit would then appear as the beginning of hope for companies competing with Safaricom in any of the sectors it has ventured into.

Indeed, Safaricom's growth remains as dependent on voice business - the cash cow - as it was two years ago if its financial report for 2009 is to go by. The competition therefor still has a chance to rival Safaricom in the money transfer, data and even voice revenue streams. The time is ticking though as MJ and troops are not anywhere near complacent with their product diversification efforts - which may still work for a little longer.

The hope for Safaricom's competitors lies in its continued inability to expand outside the Kenyan economy. Although Safaricom has become the dominant player in Kenya where the all important technology driven services are being discussed, sustainability of its growth remains questionable unless it expands beyond Kenya's borders. Regional expansion would assist the company to consolidate its successes across a wider market space.

Indeed the achille's heel for Safaricom as a largely Kenyan entity will continue to be its inability to expand regionally and globally. Such expansion for the company is seriously curtailed by virtue of Vodaphone - its major shareholder - being already out there as a competing global player. This constraint is apparent in the fact that even the most modest ambition to expand Safaricom's M-PESA service into Tanzania is not possible since Vodaphone has already rolled out the same service there - with the same brand name through Vodacom Tanzania.

In my view Zain, AccessKenya, OboPay and other would be Safaricom competitors need to only drop in some killer innovation and some incredible value propositions for the bottom of the pyramid (BOP) market in Kenya to secure the all important critical mass that they hopelessly lack. Then they can use the same product diversification and vertical integration strategies that Safaricom has applied to easily catch up and meaningfully compete.

Safaricom therefore needs to steer away from the trap to confine its success to the Kenyan economy if it is to sustain its growth and remain competitive.