The Competition Commission has published the provisional report of the 14-month Online Platforms Market Inquiry.

The release of the provisional findings and recommendations follows the evidence gathering, public hearings and in-camera hearings into online intermediation platforms, including e-commerce, applications stores, travel and accommodation platforms, food delivery and online classifieds.

The Competition Commission aimed to identify any market features that have adverse effects on competition among the various platforms, between businesses using these platforms and the participation of small and medium-sized enterprises (SMEs) and historically disadvantaged persons (HDPs) as both platforms and business users.

Stakeholders and the public have until August 24 to make submissions to the Inquiry on the provisional findings and recommendations, with a final report set to be released in November.

The inquiry will release another version of the main report in the next few weeks once overbroad claims for confidentiality have been resolved.

The inquiry identified leading platforms in each category, which are those that get the most consumer traffic, upon which the business users are relatively dependent and which are, or are likely to be, entrenched.

These leading platforms are Apple App Store, Google Play Store, Takealot, Booking.com, Airbnb, Mr Delivery, Uber Eats, Property24, Private Property, AutoTrader and Cars.co.za, as well as Google Search and its specialist search units such as Google Shopping and Google Travel.

The inquiry, which outlined the important role that Google Search plays in directing consumers to the different platforms, found that the prevalence of paid search at the top of the search results page, without adequate identifiers as advertising, raises platform customer acquisition costs and favours large, often global, platforms.

Further, preferential placement of their own specialist search units also distorts competition in Google’s favour.

Following this finding, the Competition Commission provisionally recommends that paid results are prominently labelled as advertising with borders and shading to be clearer to consumers and that the top of the page is reserved for organic, or natural, search results based on relevance only, uninfluenced by payments.

“The inquiry also recommends Google allows competitors to compete for prominence in a search by having their own specialist units and with no guaranteed positions for Google specialist units. The inquiry is also exploring whether the default position of Google Search on mobile devices should end in South Africa,” the Competition Commission said in its report.

Meanwhile, in software application stores, the inquiry found that there is no effective competition for the fees charged to application developers with in-application payments, resulting in high fees and application prices, with the inquiry provisionally recommending that applications should be able to steer consumers to external Web-based payment options, or alternatively a maximum cap is placed on application store commission fees.

The inquiry further found that price parity clauses, evident in travel and accommodation, e-commerce and food delivery, hinder competition and create dependency, with the inquiry recommending their removal.

“Wide price parity clauses prevent businesses offering lower prices on other platforms and narrow parity prevents businesses from offering lower prices on their own direct online channel,” the commission elaborates.

In property classifieds and food delivery, the inquiry revealed that new entrants and local delivery platforms face challenges signing up large national businesses, which undermines their ability to compete.

The report recommends facilitating the interoperability of listings on the leading platforms to support entrants.

In food delivery, the report notes that national restaurant chains often prevent franchisees listing on local delivery platforms, with the Competition Commission recommending this practice ceases along with any incentives provided by national delivery platforms to steer volumes their way.

“In food delivery, the inquiry also finds that the business model of substantial eater promotions, alongside high restaurant commission fees, can result in large surcharges on menu items which is not transparent to consumers and distorts competition with local delivery options. The inquiry provisionally recommends greater transparency on either the menu surcharge or the share taken by the delivery platforms.”

In terms of competition among businesses on the platforms and consumer choice, the inquiry found that, across all platforms, there is a tendency to sell top-ranking search positions to businesses which are not the most relevant to the consumer and constitute a form of advertising that is not transparent.

“This impacts on consumer choice and competition, especially for SMEs that cannot spend as much as large businesses. The inquiry recommends that advertising is clearly displayed as such and the top results are reserved for organic (or natural) search results,” it says.

In addition, the inquiry provisionally found that the extreme levels of fee discrimination against SMEs in online classifieds, food delivery and to a lesser extent travel and accommodation, hinders their participation and has no coherent justification.

A maximum cap on the fee differentials between large and small businesses, potentially at 10% to 15% is recommended, while in food delivery it is recommended that more equitable treatment also occurs in terms of marketing commitments made in exchange for lower commission fees.

Within the e-commerce segment reviewed, the Competition Commission provisionally recommended an internal structural separation of retail from the marketplace to implement equitable and competitively neutral processes after finding that conflicts of interest arise in operating a marketplace for third-party sellers and selling in-house retail products.

This could result in certain self-preferencing conduct such as product gating, retail buyers given access to seller data to target successful products, preferential display ads and promotions. The lack of a speedy resolution process also adds to the costs of sellers.

Takealot, in a statement post the release of the provisional report, said that it disagreed with some of the findings, noting that it is a proudly local business that enables South African SMMEs.

“We have and will continue to engage with the panel on the provisional findings and will respond to the panel in full before the report is finalised," Takealot says.

In software application stores, South African applications face challenges in being discovered amid competition with larger global application development companies.

“The inquiry provisionally recommends that application stores provide country-specific curation of application recommendations and provide free promotional credits to South African application developers to help get visibility,” the Commission comments.

Meanwhile, on the participation of HDPs, the inquiry has found that the digital economy is far less transformed than many traditional industries and there are considerably more challenges resulting from historic disadvantage, especially in funding and support.

“For HDP digital entrepreneurs, general wealth inequality presents a hurdle to seed funding from close associates, and the venture capital industry offers little at this stage.

“Beyond seed funding, venture capital funds only seek out HDP entrepreneurs where there is an express mandate by the investors which is rare beyond the South Africa SME Fund (a joint government and CEO initiative),” the report points out.

Recommendations include specific commitments on HDP mandates from private investors and for government to channel funds for HDP digital entrepreneurs through mandates to the venture capital sector along with requirements for transformation of the sector.

“As businesses on platforms, the same lack of assets and funding hinder HDP businesses onboarding and exploiting the opportunities provided by platforms. The inquiry’s provisional recommendation is that all leading platforms provide HDP businesses personalised onboarding, a waiver on onboarding costs and fees, free promotional credits, fees that are no higher than the best placed and the opportunity for consumers to discover HDP businesses on the platform.”

Finally, the inquiry has provisionally recommended that either guidelines or regulations be considered to address new leading platforms in established or new categories in future.