The global economy is in the midst of a new economic revolution. Central to this is the emergence of the digital economy, which for the past several years, has been changing and disrupting the ways in which companies work, allowing them to shift from traditional processes to online platforms that are less linear and more interactive. The emergence of the digital economy has resulted in the establishment of many new businesses, many of which have grown to be very large and significant economic players in a very short space of time, disrupting the status quo among the old guard. In response, many traditional businesses are evolving to online business models, often becoming platform providers themselves.
Typically, the participants in the platform economy are the platform provider, the end service or product provider/developer, and the customer.
A platform provides infrastructure that:
- allows the end service or product provider/developer market access to customers of more established companies;
- gives the customer more choice as to the products and services being offered; and
- enables the platform provider and the product/service provider/developer to interact with customers more efficiently.
As the platform economy grows, it poses a range of novel opportunities and challenges for platform providers and users that are increasingly complex, This includes dealing with data privacy and commercialisation and digitisation risk, direct marketing issues, regulatory requirements, and competition law risks. The recently finalised Online Intermediation Platforms Market Inquiry ("Inquiry" or "OIPMI") identifies many of the competition law risks associated with platform economies, many of which, in the Commission's view, are already manifest.
On 31 July 2023, the South African Competition Commission published the long-awaited final report and decision on the OIPMI. The Commission formally initiated the Inquiry on 19 May 2021 in terms of section 43B(1)(a) of the Competition Act, 1998 (as amended) (the "Act") because it had reason to believe that certain market features of online intermediation platforms may impede, distort or restrict competition, especially for historically disadvantaged persons ("HDPs") or small and medium enterprises ("SMEs").
This is the first market inquiry conducted post the Competition Amendment Act, 2018. This amendment brought about a significant change in the way market inquiries are conducted. Post the amendment, the Commission's findings following a market inquiry are binding unless contested by an affected party in the Competition Tribunal. Previously, the Commission could only make recommendations to parties following the outcome of an inquiry. Under the amendment, should the Commission find an "adverse effect," it is empowered to take all reasonable and practicable action to remedy, mitigate or prevent the adverse effect.
The types of intermediation platforms considered by the Inquiry and the main findings are as follows:
- eCommerce
The Takealot platform was found to be a dominant player in the eCommerce market in South Africa, holding a significant share of online sales. Concerns were identified regarding its business practices, including price parity restrictions, conflicts of interest with marketplace sellers, and using seller data for its own benefit. Additionally, there are complaints about the slow dispute resolution process and restrictions on HDPs participating on the platform.
To address these issues, the Inquiry imposed several remedies:
- separating Takealot's retail division from its marketplace operations to eliminate conflicts of interest;
- prohibiting retail services from accessing seller data for fair competition;
- ensuring fair access to certain brands for marketplace sellers;
- introducing a code of conduct and independent complaints channel to protect sellers;
- implementing a faster dispute resolution process;
- the "Buy Box" system must be re-engineered to prioritise the cheapest and fastest options for consumers rather than solely favouring Takealot's products;
- to promote inclusivity, an HDP program must be introduced, offering personalised onboarding, waived subscription fees, and advertising credit; and
- targeted groups within HDPs, such as female, youth, and rural enterprises, must receive business mentoring and funding assistance.
- online travel agencies
The main findings regarding online travel agencies ("OTAs") focused on Booking.com, the largest OTA for traditional hotel and accommodation establishments in the travel industry. Booking.com was found to impose wide price parity conditions, which require hotels to offer room prices no less favourable than those offered to other OTAs. These conditions have been removed in the European Union but still exist in South Africa, and are considered to be a hardcore restraint of trade.
Booking.com also enforces narrow price parity conditions, preventing hotels from offering lower prices on their own websites for online bookings. This discourages consumers from booking directly with the accommodation provider and may lead to higher commission fees for Booking.com, allowing it to strengthen customer acquisition or penalise hotels that deviate from its pricing policy.
The Inquiry also highlights that OTAs have mainly focused on established tourism destinations, making it challenging for black communities to compete in the tourism sector due to a historical lack of tourism infrastructure development.
To address these issues, the following remedies have been imposed by the Inquiry: Booking.com removes both wide and narrow parity obligations, and must implement significant programs to support the growth and promotion of SMEs that are black-owned and/or located in black communities on their platform.
- food delivery
The Inquiry found that UberEats and Mr D Food are the leading platforms in food delivery, benefiting from network effects by offering a wide variety of restaurants, both chains and independents. These platforms have sometimes charged below variable cost, leading to the exit of local delivery services. They also impose significantly higher commission fees on independent restaurants, resulting in higher prices for consumers.
As a result of their ability to extract higher commission fees, UberEats and Mr D Food engage in aggressive promotions and subsidised delivery. Local delivery services in smaller towns and townships, operated by resident entrepreneurs, offer a different model but struggle to compete effectively due to wide price parity clauses and consumer unawareness of commission fees.
To address these issues, the following remedies were imposed by the Inquiry:
- requiring UberEats and Mr D Food to notify consumers about the commission fees charged to restaurants and informing restaurants about this requirement's removal;
- UberEats must implement a standardised tiered commission fee structure for independent restaurants; and
- Mr D Food must provide promotional rebates and advertising credits for independents.
The remedies aim to increase transparency and fairness in the food delivery industry.
- app stores
The main findings regarding app stores reveal that Google Play and the Apple's App Store impose unrestricted commission fees on developers of "paid" apps, potentially affecting their revenue. Moreover, anti-steering rules limit app developers from guiding users to their websites and payment options, which hampers competition. Additionally, despite generating substantial revenue from South Africa, both stores lack South African app curation, thus obstructing domestic app developers' opportunities to compete effectively.
To address these issues, the following remedies have been imposed:
- allowing app developers to direct consumers to their websites;
- ensuring that they can freely use content purchased from external sources;
- implementing measures similar to Europe's Digital Markets Act, such as fair and reasonable pricing; and
- requiring the curation of South African along with advertising credits for local app developers.
- property/automotive classifieds
The property online classifieds market is dominated by Property24 as the leading platform, closely followed by Private Property. Private Property's success in securing listings can be attributed to its partnership with large national estate agencies facilitated by Rebosa, the industry association. However, estate agents' use of syndication software limits listings to only Property24 and Private Property, preventing other platforms from competing. Property24 and Private Property charge for incoming listings, making it challenging for other platforms to enter the market. Additionally, multi-year contracts with clients further limit opportunities for competitors. Rebosa actively promotes Private Property, favouring its position in the industry.
To address these issues, the following remedies have been imposed:
- Property24, Private Property, and PropData must offer interoperability at no cost to estate agents, allowing them to feed listings to other platforms;
- Property24 and Private Property must stop charging for incoming listings and entering into multi-year contracts;
- Rebosa must cease support for Private Property as the preferred platform; and
- the Commission will make an application to the Tribunal for the national agencies to divest their shareholding in Private Property.
Autotrader and Cars.co.za are the leading platforms in the Automotive Classifieds market, holding 80% of the combined market share. These platforms engage in extensive price discrimination, favouring larger agencies and dealers with more listings.
To promote fairness and competition, prices must be substantially reduced for SMEs to align with larger ones. Property24 and Autotrader should introduce Small Independent Business Packages with pricing close to that of other business users and later reduced even further. Cars.co.za must adjust its pricing to align with the weighted average cost per listing of its other packages and introduce a premium offer. Additionally, all leading platforms, excluding Private Property, must implement an HDP program, offering benefits and services to HDP agents and dealers at no cost.
- the role of Google Search in shaping business-to-consumer platform competition
The role of Google Search in shaping business-to-consumer platform competition is significant, as it holds a dominant position with over 90% market share across devices. The Inquiry found that visibility on Google Search profoundly impacts website traffic and discoverability, with users often clicking on the top-ranking pages. Paid results and Google's properties receive more prominence, leading to substantial advertising expenditures. Moreover, large platforms have an advantage due to their budget size and search engine optimisation capabilities, while black-owned platforms face disadvantages in accessing domestic venture capital sources.
To address these issues and promote fair competition, the following remedies have been imposed:
- Google must introduce a free carousel displaying smaller South African platforms relevant to searches and enhance organic results with content-rich displays;
- Google must introduce a South African flag identifier and search filter which could help consumers easily identify and support local platforms competing against global ones;
- Google must provide advertising credits and free training to small platforms for customer acquisition and optimize advertising campaigns;
- to support SMEs and black-owned firms, Google must allocate funds for training, product support, and other measures to offset the competitive disadvantages they face on Google Search; and
- Google must stop favouring its products in shopping and travel units on the search results page and comply with provisions similar to those implemented in Europe through the Digital Markets Act to address self-preferencing in South Africa.
These findings and remedies represent a regulatory response aimed at tackling concerns in a rapidly evolving sector, which holds significant importance for the South African economy. The Commission has taken far-reaching decisions to address its concerns (which some commentators consider to be controversial and potentially overstepping the powers assigned to the Commission in terms of the Act). It will therefore be interesting to see whether any of the platforms impacted by the Commission's remedial actions appeal or otherwise comply with the recommendations. Equally, it will be interesting to see if the Commission's interventions have the desired effect and how these two, potentially conflicting measures will impact the manner in which any subsequent market inquiries are run.
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