South Africa’s invisible mall

New research reveals that one of the fastest growing categories of online sales in South Africa is practically invisible, writes ARTHUR GOLDSTUCK.

Online shopping is usually associated with electronics, books, clothes and groceries, to take some examples of physical goods being bought on the Web and delivered in the real world. But the biggest growth trends are in an invisible market that comprises both purchase and delivery in the virtual world.

When MasterCard released the findings of its annual Online Shopping Survey this week, it focused on the highlight of the research: that 91% of South Africans who shop online are highly satisfied with their overall experience. This means that, once people are persuaded to shop online and that takes some doing they are generally happy with the experience. There are many exceptions, as suggested by the 9% or 1 out of 10 who are dissatisfied with their experience.

The real test of satisfaction is, of course, the returning customer. And here the picture is enoraging but not as massively positive: 76% of respondents return to an online shopping site that they have used before.

The highest spend by online shoppers is, not surprisingly, on travel products: air tickets, travel and accommodation. Behind these come concert and event tickets, and coupons from group buying sites. Arguably, all of these are virtual products that do not, up front, involve a physical purchase. But all do result in a physical outcome: a plane trip, a hotel stay, or a group purchase of a physical product.

But what comes next in the shopping popularity chart is entirely invisible: products or services in online or virtual worlds. This refers specifically to buying and downloading online games and purchases made within the games. It is these in-game purchases, for example, that are driving the massive revenues reported by the Chinese online portal Tencent, part-owned by South Africa’s Naspers. In the group’s annual results announced this week, it reported that Tencent and Russian portal Mail.ru had contributed R7,9-billion to the group’s R50-billion revenue.

The dynamics of in-game purchases are fascinating, particularly in China. It is one thing for companies like Tencent to generate billions from selling virtual assets that enhance the online experience. It is another story altogether when it becomes a viable career option to go full-time into gaming and acquire, trade and sell virtual assets. Because it often requires hours of dedicated gameplay to acquire such assets, many players would rather pay someone to do it for them.

That culture has not yet emerged in gaming in South Africa, but the willingness to pay for in-game items is clearly on the rise.

This suggests that, in future, mobile apps and purchases within those apps will also become a significant area of online spending for South Africans. Right now, it lurks near the bottom of the hit parade, behind music downloads, cosmetics and movie tickets. But given the rapid rise of smartphone and tablet use, we can expect apps to feature far more prominently next time round. Invisible retail may well, eventually, become the dominant form of e-commerce. But it will only happen once more people are willing to break the ice of online shopping.

World Wide Worx research shows that R3,6-billion was spent in online retail that is traditional retail products bought online in 2012. This is expected to rise by around 25% in 2013. Despite the increase, though, the number of people shopping online has barely shifted around 2,2-million.

The MasterCard survey in fact shows a slight decline in the proportion of highly active Internet users who shop online from 58% to 54%. The two sets of data are not incompatible though. World Wide Worx research shows that the number of people who have been online for more than five years broadly comparable to the number of highly active Internet users is rising fast. It will grow from 3,96-million in 2012 to 4,6-million in 2013. It means that, if the number of shoppers remains fairly stable, then the proportion of active users shopping will in fact decline as confirmed in the MasterCard study.

This poses a challenge to online retailers to take advantage of the growing number of active users who have the propensity to shop online but have not actually done so. They need to be converted by incentives, special offers and an unbeatable experience.

‚”Even though shopping online means that consumers are saved the inconvenience of parking, queues and crowds, they still prefer online stores that offer extra added value, with 65% of respondents indicating that promotional offers, discounts or free gifts are important when it comes to choosing an online retailer,‚” says Philip Panaino, division president of MasterCard South Africa.

Arthur Goldstuck is founder of World Wide Worx and editor-in-chief of Gadget.co.za. Follow him on Twitter on @art2gee