Internet boom in SA?
South Africa’s lack of Internet and broadband penetration has, for a long time, held local online ventures at bay but this is changing and larger companies are starting to invest in websites and eCommerce ventures.
Recent deals
Some of the recent high profile deals involve large companies like Mvelaphanda, Naspers, Vodacom, Mail & Guardian, Moneyweb, ITWeb and Avusa.
Vodacom recently announced that it had acquired a stake in local multimedia website Zoopy, a sign that the cellular provider is expanding its media portfolio.
Vodacom has already made its intentions to expand its presence in the cellular and media space clear with initiatives such as The Grid and Yebo Radio. And an improved web presence will serve the company’s future need to generate more advertising revenue.
24.com’s acquisition of the social networking group Blueworld gives a strong indication that the company is following through on Naspers’ strong focus of online content platforms, communities and commerce.
Mail & Guardian’s buy-back of its Naspers-owned shares in its electronic business – with MG Online apparently valued at around R 40million – also sends a message to the market that smaller players are willing to invest in their online presence and take on traditional media houses.
Mvela’s recent multimillion-rand investments in both Moneyweb and ITWeb show that it is not only traditional communications companies who are realising the value and potential of local Internet brands.
Missed opportunities
The big media houses, including Naspers, Independent Newspapers and Avusa, have a strong grip on the local Internet market.
According to the latest Website Association of SA (WASA) and Online Publishers Association (OPA) stats, only two of the top ten websites in South Africa – Webmail and Mybroadband – are not owned by large corporates.
The top local brands are dominated by news websites such as News24, Independent Online, Health 24, The Times Online, Mail & Guardian Online and social and email portals such as MSN, Hotmail and 24.com.
The fact that most of South Africa’s big websites are associated with large publishing houses makes acquisitions in this market difficult and costly. This doesn’t mean that there aren’t still opportunities.
These opportunities are typically not only high profile websites in the media or social networking space but also eCommerce businesses raking in millions of rands. These opportunities are so obvious to knowledgeable analysts that some international firms are investing millions of rands in local eCommerce ventures.
The international firms may in fact catch some local players napping, forcing them to acquire some of these local eCommerce companies at a premium later if they want to establish a strong online business presence in South Africa.
Examples of valuable market leaders in the South African eCommerce market include BidorBuy, PrivateProperty, SafariNow, DatingBuzz, Jump Shopping, Gumtree, Kalahari.net and CareerJunction.
A few years ago potential investors stood a chance to buy a stake in some of these businesses fairly cheaply, but with international and local companies recognising their potential and pushing millions into these ventures those opportunities have come and gone.
Waiting too long?
Naspers’ recent £946 million (R14.7billion at the time) purchase of UK-based internet auction business Tradus may serve as an example to some local companies. An Israeli investor group, known as the Izaki group, made a speculated 2 000% profit from the Naspers deal since their initial investment in Tradus in 2005.
And no prizes for guessing where players like the Izaki group are now investing and looking for new opportunities. South Africa of course!
And with aggressive investment and acquisition strategies from international companies in developing countries like South Africa local players like Naspers, Avusa and others may be caught napping only to have to pay a premium later on to acquire valuable South African online brands.
Market speculation suggests that Naspers and other large corporates have been in talks with many of the strong online brands in South Africa, but that they are not willing to pay the price which these website owners feel is fair.
While overlooking international investment opportunities and having to pay a premium at a later stage may be forgiven – like the case was with Naspers and Tradus – a lack of insight into the local online market should not be as easily excused.
As broadband penetration increases and the local population warms up to using the Internet for more than just email and online banking many business opportunities will arise.
The rewards will be significant for companies making wise investments in the online space, with returns of 2 000% – as in the case of the Izaki group – not simply being a lucky strike.
Internet boom in SA? – give your views
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