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What Kalahari’s closure means for e-commerce

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Johannesburg – Killing off the Kalahari brand signals that South Africa’s e-commerce market may not have grown fast enough, analysts said on Monday. Gareth van Zyl

Johannesburg – Killing off the Kalahari brand signals that South Africa’s e-commerce market may not have grown fast enough, analysts said on Monday.

The Competition Commission (CompCom) in January approved a merger between local e-commerce brands Kalahari and takealot.

And this week, both e-commerce brands have announced that the Kalahari website will beclosed within a month. Fin24 understands that several Kalahari staff have been absorbed into takealot while others have found new jobs elsewhere.

US investment firm Tiger Global Management and media company Naspers [JSE:NPN] will each have an approximate 41% stake in the merged e-commerce business. Management and shareholders will own the remaining stake of the merged unit.

The folding of Kalahari into takealot is intended to boost the merged unit’s scale and supply in South Africa.

Data from measuring company Effective Measure has indicated that kalahari.com was South Africa’s biggest e-commerce website in December 2014 with 2 277 636 visitors to the site, while takealot.com had 1 737 672 visitors.

“I think they both realised one major thing: The biggest defining factor in online retail is scale,” Steven Ambrose, chief executive officer of technology research firm Strategy Worx, told Fin24.

“And neither of them independently had the scale to really perform at the sort of level that people assume the internet is capable of,” said Ambrose.

Research has indicated that the adoption level of e-commerce in South Africa is small compared to global markets.

A PricewaterhouseCoopers (PwC) survey results released earlier this year said that the value of online retail sales in South Africa is R5.3bn, which is not even 1% of total retail sales in the country. In the UK, internet sales accounted for 10.5% of department store sales, according to Statista.com.

“So, the whole promise of the growth of online retail in South Africa has been a bit of a damp squib,” Ambrose told Fin24.

“It’s not happened in the way that people anticipated or predicted it would,” he said.

In an interview with Fin24 earlier this year, takealot co-CEO Kim Reid was more upbeat about South Africa’s e-commerce market.

“The fantastic part about it is there’s an R800bn consumer retail market in South Africa today and that’s what we’re growing into. So, we’re not creating a new market; we’re basically feeding off that existing retail market,” he said.

Tapping an existing retail market, though, could be a challenge for South African e-commerce businesses that need large internet audiences.

South Africa’s number of internet users is expected to hit a “conservative estimate” of 18.5 million during 2015, according to research released by World Wide Worx Managing Director Arthur Goldstuck earlier this year. South Africa has a total population of just over 50 million.

Goldstuck in his research also noted that less than a million people are buying virtual products in South Africa – a sign pointing to low e-commerce participation levels in the country.

“In South Africa, how many people have access to online communications? How many people are enabled from a technology perspective to actually use e-commerce?” Mark Walker, the regional director for Sub-Saharan Africa at the International Data Corporation (IDC), told Fin24.

“There’s an access inhibitor,” Walker said.

“Also, it’s not only physical access or access via devices. It’s also the ability to spend online,” added Walker.

For instance, Walker said access to credit cards is a key requirement for numerous online shopping portals.

Yet statistics released by Kalahari in 2011 indicated that South Africa at that stage only had a 16.7% credit card penetration rate.

Walker further told Fin24 that the Kalahari-takealot merger poses questions about consolidation in the e-commerce space.

He said the trend globally is for smaller e-commerce firms to start operations and then possibly get merged or acquired into other businesses.

“It’s a scramble in the beginning. The most successful guys win out for that region or country. And then they will consolidate upward…to various holdings and mergers and acquisitions and so on,” Walker told Fin24.

“It can lead to all kinds of preferential agreements, arrangements.

“It cuts a lot of those smaller players out of the market,” Walker said.

Other analysts, though, have pointed out the potential positive benefits that a Kalahari-takealot merger can have for consumers.

“The merger is a positive development, as it takes an up-and-coming, creative and dynamic brand in takealot, and gives it the depth of customer base and history of an older brand that has appeared unable to innovate or shake off the drag of its legacy systems,” Goldstuck told Fin24 on Monday.

“The customers of both services win. It is also good for the industry, as it presents an opportunity for a truly stand-out retail e-commerce business in an environment where previously only larger airlines like kulula.com and smaller niche players like YuppieChef, Netflorist and Cape Union Mart seemed to have got it right,” said Goldstuck.

In the meantime, preparations are under way to close the Kalahari website and brand as takealot has launched a section on its site explaining how customers will be affected by the change.

It is unclear when exactly kalahari.com will close, but this is said to happen within the next month, marking the end an era for a brand that started in 1998 selling books, music and VHS titles.

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Crouching Yeti strikes

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Kaspersky Lab has uncovered infrastructure used by the Russian-speaking APT group Crouching Yeti, also known as Energetic Bear, which includes compromised servers across the world.

According to the research, numerous servers in different countries were hit since 2016, sometimes in order to gain access to other resources. Others, including those hosting Russian websites, were used as watering holes.

Crouching Yeti is a Russian-speaking advanced persistent threat (APT) group that Kaspersky Lab has been tracking since 2010. It is best known for targeting industrial sectors around the world, with a primary focus on energy facilities, for the main purpose of stealing valuable data from victim systems. One of the techniques the group has been widely using is through watering hole attacks: the attackers injected websites with a link redirecting visitors to a malicious server.

Recently Kaspersky Lab has discovered a number of servers, compromised by the group, belonging to different organisations based in Russia, the U.S., Turkey and European countries, and not limited to industrial companies. According to researchers, they were hit in 2016 and 2017 with different purposes. Thus, besides watering hole, in some cases they were used as intermediaries to conduct attacks on other resources.

In the process of analysing infected servers, researchers identified numerous websites and servers used by organisations in Russia, U.S., Europe, Asia and Latin America that the attackers had scanned with various tools, possibly to find a server that could be used to establish a foothold for hosting the attackers’ tools and to subsequently develop an attack. Some of the sites scanned may have been of interest to the attackers as candidates for waterhole. The range of websites and servers that captured the attention of the intruders is extensive. Kaspersky Lab researchers found that the attackers had scanned numerous websites of different types, including online stores and services, public organisations, NGOs, manufacturing, etc.

Also, experts found that the group used publicly available malicious tools, designed for analyzing servers, and for seeking out and collecting information. In addition, a modified sshd file with a preinstalled backdoor was discovered. This was used to replace the original file and could be authorised with a ‘master password’.

“Crouching Yeti is a notorious Russian-speaking group that has been active for many years and is still successfully targeting industrial organisations through watering hole attacks, among other techniques. Our findings show that the group compromised servers not only for establishing watering holes, but also for further scanning, and they actively used open-sourced tools that made it much harder to identify them afterwards,” said Vladimir Dashchenko, Head of Vulnerability Research Group at Kaspersky Lab ICS CERT.

“The group’s activities, such as initial data collection, the theft of authentication data, and the scanning of resources, are used to launch further attacks. The diversity of infected servers and scanned resources suggests the group may operate in the interests of the third parties,” he added.

Kaspersky Lab recommends that organisations implement a comprehensive framework against advanced threats comprising of dedicated security solutions for targeted attack detection and incident response, along with expert services and threat intelligence. As a part of Kaspersky Threat Management and Defense, our anti-targeted attack platform detects an attack at early stages by analysing suspicious network activity, while Kaspersky EDR brings improved endpoint visibility, investigation capabilities and response automation. These are enhanced with global threat intelligence and Kaspersky Lab’s expert services with specialisation in threat hunting and incident response.

More details on this recent Crouching Yeti activity can be found on the Kaspersky Lab ICS CERT website.

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R5m in software fines

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South African companies paid almost R5.2 million in damages for using unlicensed software in 2017 up from R3.6 million in 2016.

This is according to data from BSA | The Software Alliance, a non-profit, global trade association created to advance the goals of the software industry and its hardware partners.

The significant increase in unlicensed software payments – which includes settlements as well as the cost of acquiring new software to become compliant – is the result of more accurate leads from informers, says Darren Olivier, Partner at Adams & Adams, legal counsel for BSA. In 2017 BSA received 281 reports in South Africa alleging the use of unlicensed software products of BSA member companies – this up considerably up from 230 leads in 2016.

“BSA’s recent social media campaign also helped to create awareness among local companies about the need to comply with existing legislation in order to avoid legal action,” Olivier says.

The result has been a 13% increase in settlements paid in 2017, with the settlements total reaching almost R2.5 million.

While the average settlement paid by companies in 2017 was around R36 094, in some cases the amount owed was far greater, as is evidenced by Shereno Printers, a print and design company based in Gauteng, which ended up paying a hefty settlement amount of R260 000 last year in an out of court settlement.

The company’s case was in line with a broader trend, which saw the print and design industry as a whole rank among the top sectors plagued by unlicensed software.

Aside from settlements, companies also paid more than R2.6 million in licenses purchased to legalise their unlicensed software.

And the ramifications of software piracy extend beyond financial implications. “It also results in potential job losses and loss in tax revenue. This is not to mention the financial and reputational damage brought about by security breaches and lost data,” comments Olivier.

As unlicensed software has not been updated with the latest security features, it leaves businesses vulnerable to cyberattack, he explains.

This is a particular problem for companies operating in South Africa where economic crime has recently reached record levels, according to the Global Economic Crime Survey. Indeed, 77% of South African organisations have experienced some form of economic crime. What’s more, instances of cybercrime totalled 29% of economic crimes reported.

This in turn, raises questions around government policy and the adequacy of existing copyright legislation, which only enables the registration of copyright in films, but not in computer programs.

Olivier notes that it is likely the percentage of unlicensed software on South African computers has increased over the past year. “We received many more leads this year, which is an indicator that the amount of pirated software is greater than in previous years,” he comments.

Often unlicensed software is not so much a case of deliberate piracy as it is a result of poor software asset management (SAM).

“For this reason, the BSA encourages all businesses to ensure they have effective SAM practices in place. Companies should be able to confirm what software they are using and are licensed to use – this will help them to identify unlicensed software and can also bring about cost savings. Even the most basic SAM practices such as regular inventories and software use policies can help,” says Chair of the BSA SA Committee, Billa Coetsee.

With this in mind the BSA offers a range of SAM solutions, not only to help organisations reduce legal and security risks, but also to create business value.

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