Online boom set to boost SA commerce

Electronic commerce has never really been factored into any snapshot of South Africa's economic performance in the world of import/export, but it's playing an increasingly important role in determining the country's place in international markets.

Historically, e-commerce has formed an insignificant portion of the country's buying and selling behaviour, especially across borders, but that's changing fast.

South Africans spent more than R2-billion online in 2010 (excluding air tickets and accommodation), up 40% over the previous year. The market is expected to grow at 30% again in 2011, with sustained or even accelerated growth in future.

Kevin Meltzer, co-founder of online agency Consology, says SA's e-commerce sector is set for a massive boom, but most local companies are not geared up to deliver the sort of online experience that their customers will demand from them in a globalised marketplace.

"The SA e-commerce market will soon pass the tipping point, but many of the country's biggest brands have yet to catch up with the expectations and needs of their consumers in the online space."

He says the massive challenge that lies ahead for local companies is to get their online service levels up to the benchmarks set by companies such as Amazon.com and Apple. "Most South African e-commerce operations still lag the best practices of their international competitors in areas such as user experience, functionality, customer service and back-end efficiency.

"Take the example of Zappos.com, now part of the Amazon group. It has a 365-day return policy for any product it sells online, with free shipping for the return. If you call its contact centre to look for a product it cannot source itself, it will search competitors' sites and refer you to someone who can help you.

"Or consider the almost uncanny accuracy with which Amazon can recommend products to you that match your taste, because of its powerful CRM systems and recommendation algorithms. Few local ecommerce operations can compete with these companies, which are simply a click away from their customers," says Meltzer.

"Although it isn't always cost-effective for consumers to import physical goods bought from an international online retailer into SA, international competition for local online retailers is set to get much fiercer as foreign companies move into the local market, and as we see mainstream acceptance of digital goods such as e-books."

Groupon has made a play for the South African market through its deal with Twangoo and international hedge fund company Tiger Global Management has moved into the market by acquiring online retailer Take 2. Walmart - no slouch in the e-commerce space - may also look to revamp Massmart's online presence.

Says Meltzer: "Companies which sell goods that can be turned into virtual products - such as movies, books, music and software - are especially threatened by international ecommerce giants.

"For example, Facebook knows more about its South African users' music and movie interests than the local cinema chains and retailers do."

This is a powerful advantage for a company that could extend its reach into e-commerce. Facebook is already moving in this direction, through a partnership with Warner Brothers, to stream rented video to its users.

"There is a whole emerging group of young consumers who are entering the world of e-commerce for the first time, by buying songs from iTunes and apps from the Android store," says Meltzer. "South African companies must think about how they will turn them into their customers."

Against this backdrop, local companies need to be upgrading their online presences to match the best that the world has to offer - logistics, customer service and back-office processes all need to be re-evaluated.

"Companies need to be harvesting customer data and using it for a competitive edge. They also need to plan for emerging trends, such as location-based services and mobile commerce. There is massive potential in the South African e-commerce market as more consumers move online, and those who already have internet access become more comfortable transacting online.

"However, companies that want to compete in this space will need to be truly world-class and offer some unique local value to stay ahead of their international competitors."