The provisional report provides data on the state of competition in digital markets and recommendations for the nation's largest platforms.
On July 13, the South African Online Platforms Market Inquiry (“The Inquiry”) released its provisional report with 14 months of results. The report presents data from the organization's public and in-camera hearings into online intermediation platforms including eCommerce, app stores, travel & accommodation platforms, food delivery, and online classifieds.
The purpose of the Inquiry has been to identify market features that have adverse effects on competition amongst platforms, between businesses using these platforms, and the participation of SMEs and historically disadvantaged persons (HDPs) as both platforms and business users.
The Inquiry’s findings and recommendations apply to the leading platforms in each category. These are the participants with the most consumer traffic, on which business users are dependent, and which are or are likely to be, entrenched. These are Apple App Store, Google Play Store, Takealot, Booking.com, Airbnb, Mr Delivery, Uber Eats, Property24, Private Property, AutoTrader and Cars.co.za, and Google Search (including its specialized search units such as Google Shopping and Google Travel).
Google Search has been provisionally found to play an important role in directing consumers to different platforms and thus shaping platform competition.
- The prevalence of paid search at the top of the search results page without adequate identifiers as advertising raises platform customer acquisition costs and favours large, often global, platforms.
- Predominant placement of proprietary, specialized search units also distorts competition in Google's favor.
- According to preliminary recommendations, paid results should be prominently labelled as ads, with borders and shading so that it is visually clear to consumers. The top of the page should be set aside for organic, relevant search results, uninfluenced by payments.
- It is also recommended that Google allow competitors to compete for prominence in search results by having their own specialist units and with no guaranteed positions for Google's specialized units. The Inquiry is also exploring whether the default position of Google Search on mobile devices should end in South Africa.
Other digital platforms
The provisional report presents the following conclusions and recommendations regarding competition amongst platforms:
- Software app stores lack effective competition for the fees charged to app developers with in-app payments, resulting in high fees and app prices. A provisional recommendation is that apps should be able to steer consumers to external web-based payment options, or alternatively a maximum cap is placed on app store commission fees.
- Price parity clauses in travel & accommodation, e-commerce and food delivery, hinder competition and create dependency, so the Inquiry recommends their removal. Wide price parity clauses prevent businesses offering lower prices on other platforms and narrow parity prevents businesses from offering lower prices on their own direct online channel.
- In property classifieds and food delivery, new entrants and local delivery platforms face challenges signing up large national businesses, undermining their ability to compete. The Inquiry provisionally finds in property classifieds this is a result of the investment and support of large estate agencies in Private Property. A further recommendation to support entrants is to facilitate the interoperability of listings on leading platforms. In food delivery, national restaurant chains often prevent franchisees listing on local delivery platforms. It is recommended to stop this practice.
- In food delivery, the Inquiry also finds that the business model of substantial promotions, along with high restaurant commissions, can result in large surcharges on menu items which is not transparent to consumers and distorts competition with local delivery options. Preliminary recommendations dictate greater transparency on either the menu surcharge or the share taken by the delivery platforms.
Businesses on the platforms
The Inquiry’s provisional findings and recommendations in terms of competition amongst businesses on the platforms:
- Across all platforms there is a tendency to sell top ranking search positions to businesses which are not the most relevant to the consumer and constitute a form of advertising that is not transparent. This impacts on consumer choice and competition, especially for SMEs that cannot spend as much as large businesses. The Inquiry recommends that advertising is clearly displayed as such and the top results are reserved for organic search results.
- Fee discrimination against SMEs in online classifieds, food delivery and to a lesser extent travel & accommodation, hinders their participation and has no coherent justification. The recommendation is to set a maximum cap on the fee differentials between large and small businesses, potentially at 10-15%. In food delivery it is recommended that more equitable treatment also occurs in terms of marketing commitments made in exchange for lower commission fees.
- In eCommerce, the Inquiry finds that 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 lack of a speedy resolution process also adds to the costs of sellers. The Inquiry provisionally recommends an internal structural separation of retail from the marketplace to implement equitable and competitively neutral processes.
- In software application stores, the Inquiry provisionally finds that SA apps face challenges in being discovered in competition to 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 SA app developers to help get visibility.
The Inquiry has found that the digital economy is far less transformed than many traditional industries, and there are considerably more challenges resulting from historic disadvantage, especially in funding and support.
- For HDP digital entrepreneurs, general wealth inequality presents a hurdle to seed funding from close associates, and the venture capital industry offers little at this stage. Beyond seed funding, venture capital funds only seek out HDP entrepreneurs where there is an express mandate by the investors which is rare beyond the SA SME Fund (a joint government and CEO initiative). The Inquiry recommends specific commitments on HDP mandates from private investors and for the government to channel funds for HDP digital entrepreneurs through mandates to the venture capital sector along with requirements for transformation of the sector.
- As businesses on platforms, the same lack of assets and funding hinder HDP businesses onboarding and exploiting the opportunities provided by platforms. 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 provisional findings and recommendations will now be subject to a period of public comment and stakeholder consultation before a final report is released in November 2022.