SA’s online markets limited by country’s enormous wealth inequality

Although smartphone access is growing, only consumers who have enough money and credit cards to process payments can really use online shops. Online markets are limited by the country’s enormous wealth inequality, while competition is curtailed by contracts and clauses that makes it very difficult for other players to enter the market.

According to the recently released Competition Commission’s Online Platforms Market Inquiry, that was released after 14 months of evidence gathering and in-camera hearings into online intermediation platforms that included eCommerce, app stores, travel and accommodation platforms, food delivery and online classifieds, the online market does not encourage competition.

The inquiry wanted to identify market features that curtail competition among platforms and between businesses using these platforms, as well as the participation of SMEs and historically disadvantaged persons (HDPs) as platforms.

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Leading online market platforms

The Inquiry identified leading entrenched platforms that get the most consumer traffic in each category, which business users relatively depend. These leading platforms are Apple App Store, Google Play Store, Takealot, Booking.com, Airbnb, Mr Delivery, Uber Eats, Property24, Private Property, AutoTrader and Cars.co.za, as well as Google Search, including its specialist search units such as Google Shopping and Google Travel.

The findings and recommendations apply to these platforms. The inquiry provisionally found that Google Search plays an important role in directing consumers to different platforms, shaping platform competition.

According to the report, the prevalence of paid search results at the top of the search results page, without adequate identifiers as advertising, increases platform customer acquisition costs and favours large and often global platforms.

In addition, preferential placement of their own specialist search units also distorts competition in Google’s favour and, therefore, the inquiry provisionally recommends that paid results are prominently labelled as advertising with borders and shading to be clearer to consumers and that the top of the page is reserved for organic, or natural, search results based on relevance only, uninfluenced by payments.

The inquiry also recommends that Google allows competitors to compete for prominence in a search by having their own specialist units and with no guaranteed positions for Google specialist units, while also exploring whether the default position of Google Search on mobile devices should come to an end in South Africa.

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Competition among platforms in online markets

In terms of competition amongst platforms, the inquiry made provisional findings and recommendations, such as:

• Software application stores: there is no effective competition for the fees charged to app developers with in-app payments, resulting in high fees and app prices. The Inquiry provisionally recommends that apps steer consumers to external web-based payment options, or that a maximum cap is placed on application store commission fees.
• Price parity clauses in travel and accommodation, eCommerce and food delivery: these clauses hinder competition and create dependency and the Inquiry therefore recommends their removal because wide price parity clauses prevent businesses from offering lower prices on other platforms and narrow parity prevents businesses from offering lower prices on their own direct online channel.
• Property classifieds and food delivery: new entrants and local delivery platforms battle to sign up large national businesses, undermining their ability to compete, with large estate agencies investing in and supporting property classifieds and restaurant chains preventing franchisees listing on local delivery platforms. The Inquiry recommends that no incentives be provided by national delivery platforms to steer volumes their way.
• Food delivery: the business model of substantial eater promotions and high restaurant commission fees can result in large surcharges on menu items that consumers cannot see and this distorts competition with local delivery options. The Inquiry provisionally recommends greater transparency on the menu surcharge or the share the delivery platforms get.

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Competition among businesses and consumer choice

The inquiry also made these provisional findings and recommendations in terms of competition among businesses on the platforms and consumer choice:

• A tendency to sell top ranking search positions to businesses, which are not the most relevant and constitute an untransparent form of advertising that affects consumer choice and competition, especially for SMEs with a small budget. The inquiry recommends that advertising is clearly marked and the top results are reserved for organic or natural search results.
• Extreme levels of fee discrimination against SMEs in online classifieds, food delivery and to a lesser extent travel and accommodation that hinders their participation and has no reason to be there. The inquiry provisionally recommends a maximum cap on the fee differentials between large and small businesses, such as 10-15%. For food delivery it recommends more equitable treatment also in terms of marketing commitments made in exchange for lower commission fees.
• In eCommerce conflicts of interest arise in operating a marketplace for third party sellers and selling your own retail products, which can result in certain self-preferencing conduct such as product gating, retail buyers given access to seller data to target successful products, preferential display ads and promotions. The inquiry provisionally recommends an internal structural separation of retail from the marketplace to implement equitable and competitively neutral processes.
• In software application stores, local apps face challenges to be found in competition with larger global app development companies. The inquiry provisionally recommends that app stores provide country-specific curation of app recommendations and provide free promotional credits to local app developers to help get visibility.

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Previously disadvantaged persons and online markets

Regarding the participation of historically disadvantaged persons (HDPs) the digital economy is far less transformed than many traditional industries, with considerably more challenges resulting from historic disadvantage, especially in funding and support.

• HDP digital entrepreneurs face general wealth inequality and seed funding, while venture capital funds only seek out HDP entrepreneurs if they have an express mandate. The inquiry recommends specific commitments on HDP mandates and transformation of the sector.
• The same lack of assets and funding hinder HDP businesses onboarding and exploiting the opportunities platforms provide. The inquiry’s provisional recommendation is that all leading platforms provide HDP businesses personalised onboarding, a waiver on onboarding costs and fees, free promotional credits, fees that are no higher than the best placed and the opportunity for consumers to discover HDP businesses on the platform.

The inquiry provisionally recommends that guidelines or regulations be considered to address new leading platforms in established or new categories in future.

Stakeholders and the public can now make submissions to the inquiry on the provisional findings and recommendations by sending submissions to oipmi@compcom.co.za by close of business 24 August 2022.