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ISSUE NO 50 ON THE MONEY

SOUTH AFRICAN ONLINE SHOPPING SHOULD GROW BY 20%

On the e-business readiness scale developed by Pyramid Research and the EIU, South Africa ranks as a third-tier country, well behind leaders such as the US and Singapore, but ahead of the majority of large emerging markets, including India, Mexico and China. At a very basic level, the market meets most of the conditions for a successful e-commerce environment. Nonetheless, these requirements are not met on a countrywide basis. Rather, the country is sharply segmented in pockets of very developed and underdeveloped markets, a lack of homogeneity that generally dilutes the potential of consumer-oriented e-commerce ventures by preventing the addressable market from reaching critical mass.

As Africa’s largest Internet market, South Africa’s addressable market for B2C would seem fairly sizeable. By developed market standards, however, South Africa’s Internet penetration is limited. With a total Internet user base of nearly 2.1m at the end of 2000, internet penetration is a mere 3.8%. More important, the growth of the internet user base has slowed substantially, a trend that is poised to persist over the next few years, and Pyramid Research forecasts a compound average growth rate of 10% between 2000 and 2005, well below the rate of more than 130% recorded between 1995 and 1999.

Within this group, the percentage of unique online shoppers (defined as the users who have made at least one online purchase within a specific time period) remains relatively small, accounting for about 15% of the total user base. While fairly steady, the growth of the online shopper base has been slower than anticipated. The next few years may prove more propitious to online shopping. Pyramid Research expects the number of online shoppers to rise by a compound average of more than 20% throughout 2005 to account for nearly 22% of the total user base, driven by a handful of catalysts:

• An increase in credit card penetration, as financial institutions strive to take advantage of the generally untapped black market, most notably the rapidly expanding black middle class - South Africa’s black population accounts for about 75% of the country’s population, but hold less than 10% of its credit cards.
• The development of alternative payment solutions for online transactions. Credit cards currently account for about 95% of all payments for online transactions, the balance coming from bank transfers or direct physical payments. Over the next few years, more alternative payment methods should come to the fore, most notably through smartcards or online settlement brokers, intermediaries that will handle consumer to business settlements.
• More offerings and more hype, based on the "If you build it, they will come" motto; the multiplication of online retailers and the accompanying marketing hype should help lure more Internet users to online shopping and prop up repeated usage by existing shoppers.

B2C revenues in the South African market are growing rapidly, reaching nearly US$440m in 1999 by various estimates, in line with the steady expansion of the online shopper base. A significant growth catalyst remains the relatively high revenue on a per-transaction basis. Indeed, the advantage of the Internet as a retail outlet seems particularly significant for high-end goods, most notably electronic goods such as personal computers or digital cameras, with the shopper having the ability to compare the attractiveness of various offers. While more shopping sites are starting to offer groceries and other low-end goods, the marginal costs from a shopper’s perspective are high when one includes delivery and other additional costs. As a result, South Africa’s average revenue per online shopper per transaction hovers around US$250 per month, more than double the nearly US$100 recorded in markets in the Middle East.

As the online shopper base expands and more low-end offerings penetrate the market, the average revenue per transaction will fall rapidly. Nonetheless, Pyramid conservatively estimates that total B2C revenue will rise solidly by an annual average of 20% to reach US$2.1bn by 2005, thanks mostly to the larger shopper base and improved online transaction processes.

In this context, the m-commerce uplift will be moderate at best. The adoption of Wireless Application Protocol (WAP) services has been slower than anticipated. As of late 2000, the WAP subscriber base included about 20,000 accounts only (less than 0.5% of the total mobile subscriber base), with less than 5% of these subscribers shopping online.

For the very few users venturing on the WAP-enabled online shopping territory, stock trading and other low-cost functions have accounted for the bulk of all transactions. M-commerce revenue should grow more quickly with next-generation mobile networks and the introductions of new applications from games to music. In the end, however, we anticipate that m-commerce will continue to account for less than 5% of all B2C revenues throughout 2005, despite experiencing triple- digit growth over the forecast period. Given the relative cloud of uncertainty regarding the applications that are likely to succeed in the local context, we believe our m-commerce forecasts err on the conservative side.

(source: Pyramid Research viahttp:// www.AfricaNewsNow.com )

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