The cost of Koos: how the Naspers boss almost crashed and burned

Koos Bekker, today the chair of Naspers, nearly got fired. Not once, but twice.

The first time was in the early days of M-Net, about 18 months into the business, when the subscriber numbers weren’t growing fast enough.

“By February 1987, our viewing audience was so pathetic we had to give make-good ads to advertisers on the basis of one paid, two free,” he said, nearly three decades later.

Things were desperate. He even mulled cutting lemon creams from the office coffee supplies, but that would not have been enough to satisfy the real tough cookies: his investors.

“By March 1987, our trading results were: turnover of R500,000, loss of R3.5m for the month,” he recalled.

These sorts of losses were clearly not sustainable, especially as the newspaper groups that had stumped up the capital were also having a tough time with their printed media.

Bekker reckoned his team was a few weeks away from the end, and a “smell of failure … was in the air”.

Thanks to the timely arrival of decoders for households, sales and subscriber numbers soon picked up, and M-Net broke even the following year.

It wasn’t exactly a failure — the model just needed time to gain traction. It did, however, have a shaky start — shaky enough to get many an MD fired.

Luckily for Bekker, he was backed by Ton Vosloo, so he survived.

By 1997, when Bekker took over from Vosloo as Naspers CEO, he was a veteran with international experience. The bigger the stage, though, the bigger the possible failure.

A 90% share price plunge

Bekker’s second close call was the dot-com crash.

After repositioning Naspers to invest in new media opportunities, he poured billions into internet businesses while the dot-com bubble was inflating.

For a while, Naspers, through its international technology arm MIH, swelled along with the bubble, the share price scaling R100 early in 2000. But when sentiment turned against technology stocks, Naspers shares lost their lustre and fell nearly 90% over the next two years.

“We were caught with our pants down, and the share price dropped to below R12. For many people, this was a significant part of their investment — it was a disaster. So what do you do? Fire the CEO?” Bekker said in 2017.

Ironically, with his career hanging in the balance, he was awarded the Sunday Times Top 100 Companies Lifetime Achiever Award. In his acceptance speech, Bekker said the media industry came with specific tensions, and that a suitable emblem for it might be a headless chicken. “People deal with this tension in various ways. Some play golf, some drink, I read myself to sleep on history,” he said.

It was Bekker’s belief in historical trends that got him into trouble in the first place. He was well aware of the fact that China had the world’s largest economy for most of recorded history

It was Bekker’s belief in historical trends that got him into trouble in the first place. He was well aware of the fact that China had the world’s largest economy for most of recorded history, and he believed this nation of more than 1-billion people would return to that position. Soon after he took the reins at Naspers, he started eyeing China’s emerging internet market.

“After failing to identify a satisfactory entry vehicle to enter China, Naspers decided to go it alone,” recalls Charles Searle, chief of Naspers’s listed internet assets.

In 1998, the company launched the Chinese-language portal and internet service provider Maibo Wang, invested in data-hosting centre 21Vianet, and established portals for finance and sport. But Naspers used technology and systems imported from SA, and parachuted people in.

Though Maibo Wang initially seemed promising, the internet bubble masked the real state of affairs. In reality, Naspers’s expatriate team knew little about the local market, and cost-conscious Chinese consumers shunned Maibo Wang in favour of cheaper alternatives, says Searle.

“We went into China, one of the first non-Chinese companies to do so in the media sector. We imported Western managers, and we lost $80m. We were completely stupid,” Bekker acknowledged later.

At the time, some of his other investments in the Far East, as well as in Europe, the US and SA, were also guzzling cash. As a result, in 2002 he reported the company’s first-ever loss.

But again he survived, probably because he knew what needed to be done.

So Naspers immediately announced rapid and drastic cost-cutting, scaling back its support for operations that were taking too long to break even.

As Bekker recounted: “The board never said: ‘Sell all your unprofitable businesses, close down all your developments, pull the company together.’ Instead, the board said: ‘OK, we understand it’s a tough time, we’ll back you.’” 

Nevertheless, he displayed enough intent.

He did not renew Hans Hawinkels’s contract — this was the person he had sent to Hong Kong to look for a business like Tencent, and who actually found, well, Tencent.

Bekker also rationalised the portfolio of Chinese investments, holding on only to Tencent in the end. In the US, he sold OpenTV.

“When the internet bubble burst and we were barrelling down a slope in 2002, we got the top team together in Bangkok and slashed and burnt and restructured, which put us back on the road to profitability,” he recalled later.

This kept the faith of the board, and shareholders.

Cutting the unicorns loose

Interestingly, one of the assets Bekker got rid of in China turned out to be a unicorn. Founded by Josh Sheng Chen in 1996, 21Vianet had positioned itself as China’s first carrier-neutral data centre three years later.

At the turn of the century, Naspers acquired 10% stake in Chen’s business. But by February 2021, 21Vianet was valued on the Nasdaq at $7bn. A year later, Vnet (21Vianet’s new name) had a market cap of only $1.4bn. It was a modest rather than a big miss.

But there are other missed opportunities Bekker laments.

“Shares we were offered in Baidu and Alibaba in China, a bigger stake in Facebook, maybe 10% of LinkedIn. It was a lack of either insight or courage,” he told Rapport newspaper.

A stake of 10% in LinkedIn would have been worth a bundle today. By 2011, when it listed on the New York Stock Exchange,  the networking platform had about 100-million users. Shares rallied more than 100% on the first day, valuing the platform at nearly $9bn. Five years later, Microsoft bought the company for $26.2bn. Today, it has 800-million users.

Bekker and his team could also have pocketed billions more from social networking.

Not long after Naspers invested in Mail, the Russian internet business — since renamed VK — took a $200m punt on Facebook. This was in 2009, when Mark Zuckerberg’s company was still privately held and growing user numbers rapidly, but its profitability was far from certain. 

After Facebook’s listing in the US, Mail sold down its stake in several tranches and pocketed profits of hundreds of millions of dollars.

“Of course, the interesting question is, what is Facebook worth? It started at $100bn, and dropped to slightly below $50bn, but it’s clearly a vigorous company so it may belt up,” Bekker said in 2012, after selling most of the shares Naspers held through Mail.

By 2021, Facebook was still going strong. The company, renamed Meta Platforms, and by then also the owner of WhatsApp and Instagram, was valued at nearly $900bn. Mail’s original stake of 2.4% would have been worth more than $20bn.

Bekker would have done well to sell out of Mail itself. When, in 2010, the company was listed on the London Stock Exchange,  it was worth considerably more than in early 2022.

Shortly after Russia’s invasion of Ukraine, and the economic sanctions that followed, Naspers and Prosus wrote down their  investment in the company to zero.

Naspers passed on a few other unicorns too. This was because Bekker was set on controlling the businesses he backed, as Naspers’s pay-TV investment philosophy pervaded its internet approach in China

Missed opportunities in the Far East

The really big misses, though, were in China.

This includes Baidu — a search engine platform which is like the Google of China. By 2020 it had a market share of nearly 75% in internet search. In 2010, Bekker described it as “an excellent local search company … No 1 by a fair margin”.

By early 2022, Baidu had a market cap of more than $50bn.

Naspers passed on a few other unicorns too. This was because Bekker was set on controlling the businesses he backed, as Naspers’s pay-TV investment philosophy pervaded its internet approach in China.

This limited the opportunities the team in Asia could look at, “as there were a number of internet businesses where the group could have acquired a minority interest, but these were turned down”, Hawinkels said in 2018.

By early 2022, Ding Lei (also known as William Ding) was the world’s 39th-wealthiest person. And he had made his fortune with an internet gaming company called NetEase.

NetEase did good business, particularly in China and Japan. After 2015, it also launched 50  mobile games in global markets. But its first success was with the multiplayer online role-playing game Westward Journey Online, launched in 2001.

“We had significant discussions about acquiring a stake in NetEase, but we could not get more than 10%,” Hawinkels said.

No control meant no investment. Which is strange, since Naspers never had real control even over Tencent. Sure, it had a say, but foreign holdings in Chinese communications businesses were capped at 50%. Besides, those Chinese stakes are held through variable interest entities, which adds extra distance between the investor and the company.

The point is, Tencent is the market leader in online games globally — but Naspers could have had a bite of its closest rival too.

NetEase is second in China and in the top seven globally. By early 2022, Ding’s company had a market cap of more than $65bn, and was listed both in Hong Kong and on the Nasdaq.

Giving Alibaba a wide berth

But NetEase is no Tencent. The only other Chinese company that can be mentioned in the same breath is Alibaba. As Tencent has Pony Ma as its legendary founder, technology conglomerate Alibaba has Jack Ma.

When Alibaba listed in New York in 2014, it was the biggest IPO at the time. And Naspers could have had a juicy minority stake in it, something in the region of 7%, according to Hawinkels. Again, this is a tidy sum in a business that was valued at more than $800bn in 2020.

Add to that the billions Naspers never realised during the dot-com bubble when OpenTV was running hard. 

Do a calculation on the back of a cigarette box, with loose assumptions, and you’ll get to almost $100bn that Bekker left on the table.

But that would be ridiculous. No-one who throws spaghetti at a wall is good enough or lucky enough (or both) to see it all stick.

Bekker didn’t pick all the winners, because no-one does. Missing out on a good few billion in potential windfalls is hardly a failure.

There were, however, instances on Bekker’s watch where Naspers poured in large amounts only to see it evaporate. The $80m that was lost in China at the start of the tech boom is a good example. Naspers’s punts on Chinese pay-TV, web browsing and e-commerce came to nought before the Tencent investment.

Interestingly, one of the assets Bekker got rid of in China turned out to be a unicorn. Founded by Josh Sheng Chen in 1996, 21Vianet had positioned itself as China’s first carrier-neutral data centre three years later

Strangely, Bekker then pushed into a few more traditional media assets — newspapers and magazines. He saw this as an opportunity to apply his company’s expertise in various types of content in other emerging markets.

“Several print media acquisitions were chased in Brazil, Argentina, China and India. A few print investments were actually made, and most of those actually lost the group money, severely so in the case of Abril in Brazil,” said Searle years later.

In 2006, Naspers forked out $422m for 30% of Abril, a business with assets in TV, book publishing and magazines. By 2014, Bekker and his team had written the value of the investment down to zero.

The losses were four times bigger than during those early years in China, but Bekker was older and wiser. Fat chance of him getting fired this time around. The company would follow wherever he pointed because “Koos sê so”.

If he wanted to buy a turkey in Turkey, he could. And so Naspers did, spending R672m on an Istanbul flash-sale fashion business called Markafoni. In Eastern Europe it bought Fashion Days, a similar outfit, for R435m, and in Brazil it funded Brandclub with $15m. This was all between 2010 and 2012.

In 2014, it raised an impairment charge of more than R1bn on these three businesses — basically saying that they were worth much less than previously thought. 

Stay of execution

Some businesses started under Bekker’s watch, however, were allowed to limp along for decades.

At online retailer Kalahari.com (initially Kalahari.net), for example, profits were scarcer than water in the desert it was named after.

SA’s high broadband costs held back online shopping. By 2014, online shopping accounted for only 1.3% of consumer goods spend, compared with 14% in markets such as the US.

Without scale, SA online retailers could not compete against the bricks-and-mortar shopping groups. And Kalahari was even losing ground against newcomer Takealot.com and Amazon. 

“After many years of losses on Kalahari, and four years on Takealot, we realise we have to work together if we are to survive and prosper,” Oliver Rippel, the senior executive responsible for Kalahari at the time, said in 2014, as he announced the merger of the two rivals.

Kalahari was no more, as the new entity would trade under the name Takealot.com. Another half a decade would elapse before the merged retailer had its first profitable month. And it took the online shopping boom brought about by Covid to push it finally into the black. 

With some businesses, Bekker was prepared to stick it out. But he had much less patience for some of the traditional media assets in the Naspers stable.

Journalists at the newspapers have grim stories about rounds of retrenchment and cost-cutting. At the same time, billions were invested and lost in Brazil, not in tech but in print media. 

Bekker survived his failures mostly because they were dwarfed by his successes. Besides the early years of M-Net, he always had several lines in the water. Some got tangled, others caught minnows, but he did hook at least one whale.

His early backer expresses it best. “In business, Koos did not hesitate to risk big money in the pursuit of opportunities. This approach has cost Naspers shareholders billions of rands over the years, but earned them billions more,” says Vosloo.