Depending who you listen to, Internet commerce has either flopped or is booming. Either way, there are South Africans who are making a lot of money from it, reports Arthur Goldstuck
IT is the numbers, in the end, that impress, and there are enough of those to show that the Internet has become big business in South Africa.
The big milestones can probably be summed up in seven distinct figures:
* R50-million. That’s the price at which Dimension Data valued Internet Solution when they paid R12,5-million for a 25% share in the country’s largest corporate service provider.
* R30-million. The total turnover reflected in online share dealings during the first four months of trading at the online brokerage offered jointly by Woza and stockbroking firm Martindale, Stacey & Du Toit.
* R20-million. The value pasted on Web design company VWV Interactive, when DataTech and Primedia each acquired a 24,5% share of the company for a total of around R10-million. VWV claimed a R60-million turnover in interactive business last year.
* R5-million. The total value of approved online finance applications at Wesbank’s Web site during its first six months of operation.
* R3-million. That’s the online sales target set for 1997 by One World CDs, a Gauteng-based retail music chain, with three outlets, which is now aggressively targeting the Web.
* R800 000. Said to be the amount South African Airways has spent on its Web site – developed by VWV and probably the most expensive on the continent – so far.
* R450. That’s the average monthly premium paid for insurance policies bought off the InsureSA Web site.
The turnover at Woza’s online brokerage (www.woza.co.za/broking/index.htm) holds a clear lesson for any site offering online commerce: make the experience painless for the user.
It is in ignoring this rule that many of the early banks on the Internet are falling short of expectations.
If, for instance, Nedbank finds that transactions at its online banking service Netbank (www.nedbank.co.za) are falling short, they can blame it on a tortuous process that includes both downloading security software and standing in a queue at a bank.
Rather than plough through the problem, Woza waltzes around it with a validation system that requires a phone call and an e- mailed pin number.
Users have taken to the system with enthusiasm. “We now have 530 investors registered with the service,” says Woza founder Kevin Davie. “In the next few days we will, with Martindale, Stacey and Du Toit, launch a site selling three discounted unit trusts.
“We have sold about R200 000 of Coronation unit trusts, but believe we are still getting the message across that these products are available on the Net at less than half the usual cost.”
Woza has also just launched a property section, starting with 45 houses for sale and another 30 on the way – with zero commission as the bait. Woza offers two key lessons to its floundering competitors: easier access and better prices.
Another lesson can be found in WesBank’s experience. In its first six months, its Web site (www.wesbank.co.za) generated 143 applications for finance. The message is that you don’t need a million visitors to your site a year if you can attract just a hundred who will do business with you.
Numerous other Internet commercial players share the view that sales are not the bottom line at this stage.
Attorneys Howard Lang & Partners (http://www.pix.za/dragnet/hlp.htm) has not measured the value of the site in terms of bottom line. Lang says income generated to date from the Web site is around R4 000, which “has just about covered the cost in regard to our Web presence”. However, four visitors to the site have become clients of the firm.
Such figures stand in sharp contrast to Internet business that relates directly to the structure and content of the Net.
When Internet Africa and Pipex merged at the beginning of 1996, the deal was valued at R17,5-million. The company has since grown dramatically, under the name UUNet Internet Africa, and is probably worth more than double that.
Already Internet Solution appears on track to justify Dimension Data’s R50-million evaluation of the company.
This year has seen no less dramatic deals. Primedia bought into Internet Africa and joined Internet Africa’s holding company, DataTech, in the R10-million purchase of 49% of VWV Interactive. That price tag is justified partly by VWV’s ability to create high-end Web sites, but largely by its ability to sell major corporations on these sites.
Most Web design companies budget major sites at between R100 000 and R500 000. Banks are paying in the upper regions of that range for their secure transaction sites, but even graphically dazzling sites without too much interaction do not look too shabby.
Less complex sites are still setting site owners back by between R40 000 and R80 000. Anything costing less than that is usually the work of a one-person outfit that will soon be swallowed up by gainful employment. These prices, however, are not where the spending stops.
Typical monthly “maintenance” fees come in at R25 000 upward depending on the volume of updates required. With a good maintenance contract, a Web design company would be doing well, even giving sites away for free, but demand is such that no one is in a rush to offer that little come-on.
Right now, in other words, it is the service and presence providers which are rolling in the bucks. Some would say that is appropriate since they are creating the framework within which subsequent Internet commerce will be conducted. And, since the framework is still at an early stage of its development, not much can be expected by way of direct retail revenue.
Nevertheless, that not-so-old Hollywood adage that “if you build it, they will come”, does apply to several categories of online business.
For instance, investments remain one of the most popular categories of online commercial activity in South Africa, spurred on by the proliferation of unit trust and insurance sites. However, not all of these are customer-friendly or effectively implemented.
The Standard Bank Unit Trust site is a nightmare for anyone without a fast connection or plenty RAM, and back office implementation seems non-existent. And while Sanlam’s unit trusts site is far more easily navigable, it also appears to lack back office support.
This is in stark contrast to dedicated online services like Unit Trusts South Africa and InsureSA (www.insuresa.co.za), which act as brokers for all players in their respective industries. InsureSA also offers a quote request service through which users can “configure” their ideal insurance “packages” via e-mail before deciding to buy.
The average value of premiums taken out is R450, making for a daily turnover of around R1 000.
Straight product sales are having a hard time taking off, partly owing to the blurring of the edges between a Web site’s marketing and sales functions.
For instance, Supercall, which sells cellphone supplies, is unable to measure the impact of its Web site on sales. “The site has been operational for more than six months and each month there has been about a 25% increase in sales, which can be accredited to advertising through the usual mediums and word of mouth, along with consumers surfing the Net,” says Jason-Jon Gass, online sales and support manager.
One World CDs believes that, given the appropriate interface to promote ease of purchase, the market can be persuaded that it is ready. One World CDs has set itself a budgeted target of R3-million in turnover from its Web site (http://www.intekom.com/alive/music.stm)
for 1997, of which up to 90% will occur during the second half of this year once they have adopted the secure electronic transactions standard, says Alan Levin of Intekom, which is developing the site.
Levin previously developed the Two Oceans Trading online mall (http://www.two oceans.co.za), which he calls an “online community of transactions”.
“People are spending money,” says Levin, “but aren’t realising what a fantastic channel the Internet is for making orders. The basic requirement for all stores at Two Oceans Trading is that transactions are processed on secure servers and that they can deliver in South Africa within 24 hours.
“People develop a relationship with their merchant via e-mail. That is crucial to Internet commerce: the personal element has to remain; there is no way it will become fully automated.”