by Herman Manson (@marklives) Neil Watson, CEO of Digital Planet, is one of South Africa’s original ecommerce entrepreneurs. He helped launch Digital Planet, a leading local e-commerce and logistics solutions company, in 1999. Watson has 16 years experience in the local e-commerce market, giving him a unique view of a market he estimates at over R5bn in value.
Digital Planet launched in 1999 — please give us some insight into how the company came about?
Back in 1998, the internet was in the middle of its first boom. Mark [Levy, business partner] and I were doing some travelling to the US, and it was clear the internet was going to be huge — so we started a company selling computers online. It was probably 12 years too early. Our operations and service department was done by one person for the first few years and they didn’t have much work to do.
How has your business evolved between then and now?
Over time, we’ve learnt all the lessons on how to run e-commerce in South Africa, from technology to logistics to customer service.We had to do it all ourselves and we soon realised that there was a market supplying these services to other companies. E-commerce service and logistics is a specialised industry and most companies aren’t geared to run it with their in-house staff. We now have a consulting department whose only purpose is to help our clients create an integrated online solution that works with their business model.
Our first major client was HP, who we built an online store for called hpshop. We built the online shop from nothing up to one of the biggest online IT e-commerce stores in the country — we still run it today. Eventually running other businesses’ e-commerce stores was a significantly bigger business than our own e-commerce store, so we decided to focus on that and close our own online store. It was the best decision we’ve made.
You’ve had a long term view on the local e-commerce market. What has been the most significant drivers for e-commerce adoption and growth in SA?
The government really let us down. Bandwidth costs and speed are the foundation of any e-commerce economy and, mainly due to poor government decisions, SA has been hampered in e-commerce growth.
Trust is a big deal in South Africa and it certainly impacts the speed of adoption. South Africans don’t feel safe and so their trust levels are low. We find the best antidote for this is having a positive personal experience. Customers usually get great service online and there are effective platforms for people to complain if they get poor customer service. E-commerce players are fanatical about their reputation as bad news can travel really fast online. Once most people have experienced online, they’re hooked. Receiving an online order is almost like getting a present from yourself.
Online banking has helped people feel more comfortable with financial transactions and is the first major step to transacting online. Smartphones have certainly helped but it’s still early days. On our sites, mobile traffic accounts for about 25% of traffic but its growing fast.
How big is the e-commerce market in SA today?
We estimate that online is approximately 1.3% of retail in SA at over R5bn.
How is mobile changing the commerce game in SA and across the continent?
Mobile search traffic on Google became bigger than desktop traffic last year in SA. From an e-commerce perspective, we’re seeing a constant growth every month. Mobile currently accounts for 25% of site traffic, up from 17% a year ago, but it only accounts for a small fraction of our sales.
For many people, smartphones are their introduction to the internet economy. Instant access to information changes the game and puts the power into the consumers’ hands. Gone are the days when retailers hold all the cards. With a few clicks you can check price and availability of almost any product. Prices are going to be under pressure and service levels will have to go up as competition becomes more fierce. Online education is already exploding and ultimately it will lead to a more prosperous Africa.
How competitive is the e-commerce market at the moment?
Our sites saw an average year-on-year growth of 40% in December [2014], with some well-established sites achieving over 70% year-on-year growth. That’s unheard of in traditional retail.
For anyone considering coming online, I’d say now is the time. Consumers are flocking online in droves and a site with a great value proposition and great customer service has a once-in-a-lifetime opportunity to be something big. There are only a few big players in SA so the market is wide open.
What is your take on the kalahari.net/takealot merger?
I think it’s bad for consumers. The two largest online stores are merging and it will result in less choice and less competition for consumers. The real opportunity will be for the smaller e-commerce players to come and fill the void while Kalahari and takelot focus on merging and fixing their new larger operations.
I expect to see many of the international big players in SA in the next 12–24 months. The market is now big enough for Amazon to look seriously at expanding to SA. Takealot and Kalahari are probably running scared at the prospect.
Do we have sufficient skills in the local market to build internationally competitive ecommerce businesses?
Stores like Mr Price have shown that South Africans have what it takes to build an international e-commerce business. There are, however, limited e-commerce skills in SA at the moment. When hiring our own staff we often spend months trying to find the right skills for our business (although we’re very particular about who we hire). However, with initiatives like Silicon Cape, we’re seeing fresh faces introduced into the industry all the time.
The relative weakness of our rand means our skills are cheap internationally, which offers a competitive advantage. SA’s biggest challenge is our physical distance from other countries. It adds an extra cost to logistics. Any significant international play will require international warehousing. We’re hugely optimistic about South African prospects world-wide.
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