The lack of wealth accumulation by historically disadvantaged persons (HDPs) due to exclusion from the economy under apartheid has created a substantial barrier to HDP tech entrepreneurs accessing pre-revenue funding from a family or associate “angel investor”, unlike their white counterparts.
This is according to the Online Intermediation Platforms Market Inquiry (OIPMI), which is the first of its kind for South Africa, released by the Competition Commission on Monday.
The inquiry found a distinct lack of participation by HDPs in online platform markets and even low representation among business users on the intermediation platforms.
“While in some cases this reflects the lack of transformation of the industries served by the platforms, such as tourism and estate agency, it is striking how even more untransformed the online economy is relative to the traditional economy in these categories. Given the pace of movement to the online economy, these barriers to participation threaten a new and deeper level of exclusion for South Africa,” the report stated.
Online intermediation platforms are defined as platforms that facilitate transactions between business users and consumers, so-called “B2C” or business-to-consumer platforms, for the sale of goods, services and software, regardless of whether the transactions are concluded on the platform itself, on the online site of the business user or offline.
Intermediation platforms include eCommerce, online travel agencies, food delivery, app stores and property/automotive classifieds, along with the role of Google Search in shaping B2C platform competition.
The report is a culmination of almost two years of investigations into local and international B2C online platform markets.
Some of the findings include that Google Search is a critical gateway to consumers for all platforms, and its business model of paid search alongside free results favours large established platforms.
“With regards to travel, Booking. com’s restrictions on hotel pricing on other online channels limits competition and creates a dependency that is used to extract higher commission fees.”
In terms of eCommerce, Takealot faces a conflict of interest on its site as its retail division competes with marketplace sellers leading to behaviour that has disadvantaged sellers.
Google Play and Apple App stores are unconstrained in the commission fees they charge app developers, and their global business model limits the curation and visibility of South Africa-paid apps.
“Competitors to Uber Eats and Mr D Food are disadvantaged by the lack of transparency on menu surcharges across platforms and restrictions placed on franchisees by national restaurant chains.
“Competitors to Property24 and Private Property are hindered by the lack of interoperability in providing property listings, and small estate agents and automotive dealers are disadvantaged by the discriminatory pricing of Property24, AutoTrader, and Cars.co.za that favour large national groups,” the Competition Commission said.
According to the report, intermediation platforms argue that they have no incentive to either exploit or discriminate (including self-preference) as otherwise they would simply lose businesses and send the platform into a vicious cycle or potentially even a death spiral.
The report also found that the largest global platforms in the categories considered by the inquiry pay substantially lower taxes than the corporate tax rate of 28% in South Africa.
“In a number of platform categories global platforms operate in South Africa and constitute leading platforms in their categories.
“These platforms typically reflect transaction income in their home countries rather than South Africa where the tax rates of the home country apply,” the OIPMI stated.
The report recommends that the government allocate funding to HDP entrepreneurs using the fund mandate model where venture capital firms are mandated to support HDP entrepreneurs only through both an incubator and funding programme and transform themselves.
Department of Trade and Industry Minister Ebrahim Patel said: “New platform economies have been characterised by high levels of market concentration with private companies often playing a role akin to that of a public utility.
Appropriate to these new sectors the challenge we all face is how to retain the dynamic benefits of competition in network industries that are often predisposed to concentration. We have also seen the investment and spending firepower that leading global players can bring to local markets.”
He said his department would study the report and support the full implementation of all the findings affecting industries.
Matzikama Black Business Alliance chairperson Sylvester Coetzee said training and funding was needed to empower rural communities in the digital space.
“For us to access these opportunities, it's about the will, administrative and political, and corporations working in our area to include small, micro, and medium enterprises (SMME) in local economic development strategies in the digital space. There are big opportunities locally and internally. We want to be part of that, it has to be opened up to everyone. The national government and local municipalities need to work together, to provide training, open wi-fi, and big corporations need to invest in the community in terms of corporate social investment projects,” he said.
Cape Times