On the 19th of May 2021, the South African Competition Commission ("Commission") formally initiated a market inquiry into the online intermediation platform market ("OIPMI") in terms of Section 43B(i)(a) of the Competition Act, 89 of 1998 ("the Act"). The Commission released a Statement of Issues and extensively engaged with stakeholders both through Requests for Information as well as an online survey for business users of online intermediate platforms.
We previously set out a brief analysis of the Inquiry and what it may mean for your business. By way of a brief refresher, online intermediation platforms are defined as platforms that facilitate transactions between business users and consumers ("B2C" platforms) for the sale of goods, services and software and is not limited to instances where the transaction is concluded on the platform itself but extends to transactions concluded on the website of the business user or even offline. It includes eCommerce marketplaces, online classified marketplaces, software application stores and intermediate services (accommodation, travel, transport and food delivery).
The Commission's engagement with stakeholders resulted in the publication of a further statement of issues as well as a document clarifying a number of queries raised regarding the scope of the OIPMI in August 2021. Further information requests have been directed at stakeholders (which the Commission pointed out includes stakeholders that do not necessarily fall within the scope of the Inquiry but broader engagement is said to be needed to ensure that the Commission understands the market and competition within it).
The Commission made it clear that the scope of the OIPMI is not limited to platforms which have a physical presence within South Africa but extends to foreign-based online intermediation platforms that have an economic effect in South Africa - it is clear that international platforms may, in some instances, be market leaders domestically in certain areas such as app stores and online travel and accommodation platforms. The OIPMI however expressly excludes e-hailing services.
The focus of the OIPMI is on whether there are any market features which may impede, restrict or distort competition and/or undermine the purposes of the Act. The primary focus is said to be on areas of already high usage or growing adoption by South African consumers which may be important areas of online activity in the foreseeable future.
A brief consideration of areas the Commission have identified - particularly problems - as well as the next steps in the OIPMI, are set out below.
FURTHER STATEMENT OF ISSUES
The Commission based its Further Statement of Issues on its initial observations and insights gained from the first phase of its information gathering and stakeholder engagement, to provide more detailed (and, in some instances, additional) focus areas in respect of which additional information is required from market participants.
One of the areas identified by the Commission in respect of each of the markets the Commission is focusing on, as being one in respect of which more information / clarity is sought relates to the participation of SMEs / HDPs.
As per its Terms of Reference, the Commission is focusing on the following markets within the online intermediation platform market:
- eCommerce Marketplaces
Early findings are that some of the early domestic entrants have failed to grow in line with the overall online market growth and, in fact, most eCommerce Marketplaces are loss-making.
The Commission has indicated that it needs to better understand the role of promotions and discounts as well as the way in which platforms rank products (particularly when it comes to their own products versus those of third parties).
Although exclusivity was considered to be a potential feature of the market, the Commission's initial findings indicate that exclusivity for branded supplier products is not a material feature of eCommerce platforms in South Africa. In addition, platform exclusivity also does not appear as a feature for third party sellers who are able to use both their own and other platforms. However, one of the features which warrant further investigation is that of the use of price parity provisions by platforms and the effect which this may have on competition in respect of eCommerce Marketplaces.
- Travel & Accommodation Platform Services
This has been divided into online travel agencies (where the entire transaction can be completed on the platform) and metasearch engines (which in the main merely provides advertising and leads for online travel agencies).
The Commission noted that this is one of the areas where global online travel services tend to be used by international travellers when looking for travel and accommodation options within South Africa and the African regions, and local online travel agencies are mostly used by domestic travellers - the local online travel agencies face severe difficulties in competing for international travellers to South Africa. In addition, own booking portals by accommodation providers doe not appear to provide a constraint on online travel agencies as they are unable to replicate the social media and search engine spend. As such, the online travel agencies are unavoidable partners, creating a situation of dependency.
Similar to eCommerce Marketplaces, price parity provisions are a feature of the market and tend to be quite problematic. A notable feature of the market is, however, the way in which customer search results are ranked, namely sponsored ranking. Sponsored ranking has resulted in interventions in other jurisdictions (notably the UK's Competition and Markets Authority and the European Commission), leading to a transparency solution (stating that those search results are "ads") being applied to some global platforms - this is however not the case with all platforms and South African platforms are not currently subject to this requirement.
- Delivery Platforms
The Commission have distinguished between restaurant food delivery and other store delivery categories. Although there has been a massive growth in the use of restaurant food delivery following the covid pandemic, this has not translated to a material change in the number of competitors or market structure - Mr D and Uber Eats still account for the majority of restaurant deliveries and a number of recent entrants to the market have actually closed despite the market growth.
Exclusivity clauses in respect of restaurant deliveries are not a prominent feature of the market, however it would appear as though there is some resistance by restaurants to listing on many of the available platforms - this is one aspect which the Commission wants to get further clarity on as it is not clear as to why this is the case. A more worrying feature of the market is the historic use of price parity clauses. Although these are no longer in use, the Commission intend investigating whether the restaurants are aware of this and whether they would price differently if so.
A key feature of the restaurant delivery platform market is the differentiation in commission charged to different business user segments, with the small independent restaurants being charged substantially higher commissions (this, in turn has a negative impact on the participation by SME's and HDP's) and the Commission is keen to ascertain why this may be the case and the impact which this has.
- Online Classifieds
Two areas where classified platforms play an important role in providing leads for the businesses involved are automotive (with the biggest players being Autotrader and Cars.co.za) and property (the biggest players are Private Property and Property 24).
It is clear that exclusivity is not a feature and, contrary to the situation with restaurant delivery platforms, businesses list on more than one platform - in fact, they are likely to list on both of the leading platforms. However, given the fact that classified leads are an important source of leads (which cannot be substituted by own websites as evidenced by the fact that most business users pay to list whilst maintaining a web presence) and the fact that business users are likely to list on the two leading platforms, there is not a lot of marketing budget left over for spending on other classified platforms. This may in fact be exacerbated by one of the features of the market in respect of property classifieds, namely the use of multi-year subscription agreements.
- App Stores
The most prominent software application stores relate to mobile devices, where Apple App Store and Google Play Store are the leading platforms - however, Samsung and Huawei are moving towards their own operating systems and app stores and the Commission needs to consider how this move will impact the market shares. Once the consumer has selected an ecosystem (be that apple or android), there is typically no competition for the app store as a source of apps.
NEXT STEPS
According to the timetable put forth by the Commission, virtual public hearings will be held in November 2021, with the provisional report set to be issued in May 2022.
The OIPMI's Terms of Reference, Statement of Issues, Further Statement of Issues and stakeholder responses can be accessed here: https://www.compcom.co.za/online-intermediation-platforms-market-inquiry/
Our Competition Law Team are able and willing to assist with any queries that you may have with regard to the Inquiry and its potential impact on your business.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
