AYA AFRICA’S THOUGHTS ON THE FINAL ONLINE MARKET INQUIRY PLATFORM REPORT
After numerous delays, the Competition Commission of South Africa submitted the final Online Intermediation Platforms Market Inquiry [“Inquiry”] report on 31 July 2023. As African countries continue to finalise negotiations related to the implementation of the African Continental Free Trade Area (AfCFTA) and develop a common position on the regulation of e-commerce through the AfCFTA Protocol on E-Commerce, this Inquiry provides a basis for the inclusion of the ‘unseen’ and ‘unheard’ micro, small and medium-sized enterprises (MSMEs) in ongoing research and debates.
The Inquiry can be instrumental in aiding African countries to harmonise legislation and protocols at regional and continental levels. (Further reading: Faith Tigere Pittet through her piece Designing AfCFTA E-Commerce Regulations for Africa’s Development, gives a timely and much-needed summary and set of policy and regulatory recommendations related to the development of Africa’s e-commerce architecture).
The premise of the Inquiry was to investigate how online platforms (including e-commerce), create unfavourable conditions for MSMEs and historically disadvantaged persons (HDPs) to compete and scale on these platforms. You can access the Summary of the Final Report Findings and Remedial Actions. The Inquiry focuses on South Africa’s leading online platforms, aiming to distinguish them from other participants and address potential issues through findings and remedial actions.
The thoughts of this article are a follow-up from a previous piece (AYA Africa supports a new future for SMEs on e-Commerce platforms) on the provisional findings in July 2022. AYA Africa commends this report for being the first of its kind on the African continent and hopes it leads to more research, dialogue, and implementation of inclusive strategies related to the digital economy that supports creating the Africa We Want through the African Union’s Digital Transformation Strategy for Africa (2020-2030).
Key Findings and Recommendations:
Online intermediation platforms, as per the terms of reference of the Inquiry include:
“…..platforms that facilitate transactions between business users and consumers (or so-called “B2C” platforms) for the sale of goods, services, and software, and the scope includes eCommerce marketplaces, online classifieds, and price comparator services, software application stores and intermediated services such as accommodation, travel, and food delivery…”
Online platforms play an integral role in connecting businesses (big and small) with consumers to sell products and services. Businesses that utilise either their own or third-party platforms in the form of online marketplaces and store apps have made it easier for consumers to compare similar products, make inquiries, and carry out online transactions.
For businesses that have taken their operations online, it has given them access to a broader market, more sales channels, and digital infrastructure for the purposes of transactions and sales. The report recognises that established and scaled online platforms (e.g. online marketplaces) with large data sets and consumer leads, have significant influence over competition and businesses that operate on their platforms and the wider ecosystem of digital commerce.
While platforms may not intentionally aim to affect competition, these effects can arise as a result of their business models. As a result, the market is divided into dominant scaled platforms at local and international levels (Amazon, Etsy, Jumia, Takealot, Alibaba, Shein, etc) that impact both platform and business competition.
This section of the Inquiry examines Google’s monopoly in internet searches with over 90% market share. Google’s dominance impacts customer acquisition, visibility, and website traffic. Consumers tend to click on the top search results, assuming their relevance. Over time, Google has given more prominence to paid results and its own properties compared to organic results, which has led to increased spending on paid ads by platforms. From AYA Africa’s internal research, paid-for results in the form of advertising spending on platforms like Google or Facebook are often too expensive and affect operational costs and cash flow. Which naturally leads to online businesses ‘flying under the radar’.
The report acknowledges that Google’s search evolution has favoured large platforms, as they have advantages in terms of budget size, contesting popular search terms, and quality measures.These same quality measures also influence organic results, favouring established platforms with greater resources for search engine optimization (SEO). This situation is compounded for small and black-owned platforms without significant backing, who have historically struggled to access financing for the purposes of survival and expansion.
The section concludes that Google Search’s dominance distorts competition among platforms. The proposed remedies focus on enhancing visibility for smaller South African platforms. For organic results, Google is required to introduce a platform sites unit to display smaller platforms relevant to searches, along with introducing an identifier and search filter for local platforms. For paid results, Google must provide advertising credits and training for smaller platforms and support measures for SMEs and black-owned firms. The question that arises is how best to implement this remedial action and create a veritable pipeline of SMEs that can compete at local and global levels.
In certain categories like shopping and travel, Google’s services compete with its own customers. Google’s ability to control the search page and algorithm allows it to influence the visibility of its own units compared to competitors. This has been found to distort competition, especially in the case of its Shopping Unit. The proposed remedies aim to address Google’s self-preferencing of its own units on search results pages, requiring changes to cease this practice.
This section of the report addresses the dominance of Takealot in the South African e-commerce market. Takealot holds a substantial share of online sales, including marketplace services. They enable businesses to trade within their platform by listing products on their website and utilising their logistics services. Smaller businesses rely heavily on Takealot for their online marketplace presence.
Similar to the case of Booking.com, Takealot enforces ‘narrow price parity’ on sellers, preventing them from offering lower prices on their own websites and discouraging them from developing alternative sales channels. The document finds that this practice distorts competition and mandates Takealot to remove this clause and inform all platform sellers.
The Inquiry identifies various conduct issues, including biassed product gating, use of seller data for self-benefit, and pressure on suppliers to soften competition. Takealot, while hosting third-party sellers, also competes through its Takealot Retail division, creating a conflict of interest. This setup allows Takealot to set marketplace rules while competing with sellers. An entity that was overlooked in the report, namely Bob Go, which was formerly UAfrica, not only is the company a logistics provider but added e-commerce to its stable of services.
To address these conflicts of interest, the Inquiry recommends that Takealot segregate its Retail division from Marketplace operations, prevent retail services from accessing seller data, and halt unilateral brand competition restrictions. Other measures include extending the employee code of conduct to include actions harming marketplace sellers, introducing a dispute resolution process, and re-engineering the Buy Box so that it shows the lowest price irrespective of whether the item is in Takealot’s warehouses.
The Inquiry also points out that the eCommerce business model creates hurdles for historically disadvantaged businesses (HDPs). To address this, the Inquiry recommends that Takealot implements an HDP Programme that offers personalised onboarding, fee waivers, advertising credits, rebates, and support for targeted HDP groups. Although many will question how viable this programme will be going forward, it is imperative that beneficiaries of the proposed HDP Programme are in a competitive position and that they produce quality products that consumers are willing to purchase.
Regarding potential new entrants like Amazon into the South African e-commerce market, the Inquiry states that they would be subject to similar provisions as Takealot if they were to enter the South African market.
The report’s findings discuss how the exclusion of HDPs from economic opportunities during apartheid has hindered HDP tech entrepreneurs in South Africa from accessing early-stage funding compared to their white counterparts. This lack of funding is exacerbated by the small and non-transformative venture capital (VC) industry in the country.
It must be understood that capital from VC funds will flow more ‘freely’ to HDP tech entrepreneurs if they offer attractive business proposals that have veritable proofs of concept. Such funding can be ‘underwritten’ with government support that encourages VC funders to take greater risks to find startups founded by HDPs that have the potential to scale and create a ‘pipeline’ of scalable businesses that help grow the economy and provide jobs.
The Inquiry proposes that government interventions, similar to global practices of supporting tech startups, are needed to address this issue. For interventions of this nature to have an impact requires targeted programmes that include the informal sector and the township economy to fast-track the role out of technical skills and low-tech solutions that are not data intensive.
The report proposes that the South African government could offer financial instruments like first-loss funding and convertible loans to encourage private investment in startups. The report suggests allocating government funds to support HDP digital economy startups, administered through agencies like the Department of Trade, Industry and Competition (DTIC) and the Department of Small Business Development (DSBD), with a focus on fostering an online presence. The recommended measures include supporting incubators, setting transformation targets for VC funds, and integrating online presence funding into existing SME and HDP business support programs. This must be done with greater urgency and avoid the business-as-usual mentality.
Online platforms commonly offer businesses enhanced visibility on their search results pages, which users tend to click on more often. This leads businesses to pay for better rankings, generating revenue for the platform. However, this could mislead consumers if they’re not aware of paid listings. Unlike international platforms complying with consumer protection laws, many domestic ones do not label these paid listings as ads. This distorts consumer choice, hampers fair competition, and disadvantages small businesses that can’t afford visibility purchases. To address this, the proposed solution is for South African platforms to label paid listings as ‘promoted’, ‘sponsored’, or ‘Ad’, aligning with the Advertising Regulatory Board’s Code. Additionally, platforms should adopt a responsible advertising code.
The remedial actions that have been recommended need further engagement from stakeholders. For MSMEs to participate in the digital economy, they need to actively offer services and goods that are competitive. This has to be non-negotiable.
E-commerce cannot operate in a vacuum, or it is doomed to fail. It is interlinked with sound infrastructure, data costs that are affordable, a reliable electricity supply, logistics, and last-mile delivery solutions. Furthermore, goods, especially creative goods, must be made for delivery in reasonable time frames otherwise consumers will continue to flock to online platforms like Takealot, Superbalist, and Shein, which will continue to hinder the development of locally handcrafted goods and ‘Africa’s slow fashion’ revival.
There is also a need for more support for MSMEs to improve the quality of goods and services they render. More work needs to be done by agencies like the South African Bureau of Standards, Sector Education and Training Authorities (SETAs) entities involved in spearheading entrepreneurship to ensure MSMEs are compliant with local and international standards. This is where real local, regional, and continental value addition will occur.
Lastly, we cannot overlook the slow pace at which government institutions that promote business and policy-makers operate. This is critical considering how agile the digital economy is and how quickly the landscape changes. They must be forward-thinking in the solutions and policy directives they initiate.
CALL TO ACTION
AYA Africa advocates for MSMEs to become more active participants in the digital economy and drivers of the African Union’s Digital Transformation Strategy for Africa (2020-2030). The plea is that those who are in a position to support local MSMEs, be they online or still finding their way there, do so without hesitation. To the owners of MSMEs, especially those involved in the creative economy, keep striving to improve on your tech skills and what you offer. The results may not be immediate, but with persistence on your part, the fruits of your labour will manifest in interesting and unexpected ways.
To governments on the African continent, what we need from you is not to reinvent the wheel but to implement agreed protocols and adopt a common position on the digital economy that integrates our regions for the Africa We Want. The Online Intermediation Platforms Market Inquiry is a seminal step in understanding online platforms and helps promote the AU’s Digital Transformation Strategy for Africa (2020-2030). It is a strategy document that we can all rally around and make a lived reality, but it requires a more entrepreneurial and tech mindset from state actors.