South Africa’s Competition Commission has published its report outlining provisional findings and recommendations of its Online Intermediation Platforms Market Inquiry.
In response to the growing importance of the online economy and competition concerns in these markets emerging in other countries, the Competition Commission launched a probe into competition and participation in the online economy in 2021.
The inquiry identified leading platforms in each category of e-commerce – those that get the most consumer traffic – upon which the business users are relatively dependent, and which are, or are likely to be, entrenched.
These leading platforms are:
- Apple App Store;
- Google Play Store;
- Mr Delivery;
- Uber Eats;
- Private Property;
- Google Search.
In terms of competition among platforms, the inquiry made the following provisional findings and recommendations, amongst others:
- Payments: In 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’s recommendation is that apps should be able to steer consumers to external web-based payment options, or alternatively, a maximum cap is placed on application store commission fees.
- Parity clauses: Price parity clauses, evident in travel and accommodation, eCommerce and food delivery, hinder competition and create dependency. The inquiry recommended 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 channels.
- Market dominance: 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 found in property classifieds this is a result of the investment and support of large estate agencies in Private Property and recommended the divesture of their stake. Facilitating the interoperability of listings on the leading platforms is a further recommendation to support entrants. In food delivery, national restaurant chains often prevent franchisees listing on local delivery platforms and the Inquiry recommended this practice ceases along with any incentives provided by national delivery platforms to steer volumes their way.
- Food delivery: The inquiry found that the business model of substantial eater promotions alongside high restaurant commission fees can result in large surcharges on menu items which is not transparent to consumers and distorts competition with local delivery options. The inquiry recommended greater transparency on either the menu surcharge or the share taken by the delivery platforms.
In terms of competition among businesses on the platforms and consumer choice, the inquiry made the following provisional findings and recommendations, amongst others:
- Search rankings: Across all platforms there is a tendency to sell top-ranking search positions to businesses that are not the most relevant to the consumer and constitute a form of advertising that is not transparent. This impacts consumer choice and competition, especially for SMEs that cannot spend as much as large businesses. The inquiry recommended that advertising is clearly displayed as such and the top results be reserved for organic (or natural) search results.
- Fee discrimination: The inquiry found that the extreme levels of 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 inquiry recommended that a maximum cap is placed 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.
- Online stores: In eCommerce, the Inquiry found that conflicts of interest arise in operating a marketplace for third-party sellers and selling their 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 recommended an internal structural separation of retail from the marketplace to implement equitable and competitively neutral processes.
- App stores: In software application stores, the inquiry found that South African apps face challenges in being discovered in competition to larger global app development companies. The inquiry recommended that app stores provide country-specific curation of app recommendations and provide free promotional credits to South African app developers to help get visibility.
Takealot acknowledged the report’s release and said that does not agree with some of the provisional findings. “We have and will continue to engage with the panel on the provisional findings and will respond to the panel in full before the report is finalised,” it said.
A change for Google
Among other findings, the inquiry has provisionally found that Google Search plays an important role in directing consumers to the different platforms, and in this way shapes 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. Preferential placement of their own specialist search units also distorts competition in Google’s favour,” it said.
The inquiry recommended that paid results be 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 recommended 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. The inquiry is also exploring whether the default position of Google Search on mobile devices should end in South Africa.
BEE and historically disadvantaged persons (HDPs)
The inquiry 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 recommended specific commitments on HDP mandates from private investors and for 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 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.
Where to from here
Stakeholders and the public have 6 weeks to make submissions to the Inquiry on the provisional findings and recommendations.
All submissions should be sent to [email protected] by close of business 24 August 2022. Submissions should be substantiated with evidence where relevant.
The Inquiry will release another version of the Main Report in the next few weeks once over-broad claims for confidentiality have been resolved.
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. This means that the Inquiry may change its views on the findings and recommendations during this period of consultation and public submissions.