I have been amazed and impressed at the volume of web start-ups in South Africa that are modelled on established and well developed international internet businesses.
I am even more amazed at the positive reception and massive uptake with which the South African public have responded.
In specific, I am referring to three types of web-business: penny auction, coupon and limited-time deal sites.
Penny Auction
The pay-to-bid auction (penny auction) is a great business concept. The main premise for a consumer is that high-value items can be purchased at a fraction of their retail prices. An item is up for purchase under a relatively standard auction model with the following exceptions: there are standard (small) bid increments, and all bidders pay to bid.
An item on auction usually starts at R0.00 and each bid submitted increases the purchase amount by a set amount (usually between 1c and 5c). The auction timer (in place of the auctioneer’s “going, going, GONE!”) counts down, and once it reaches zero, the highest bidder wins the auction. Each bid placed increases the time left on the timer by a few seconds.
The average price for bid credits across the various sites is R5.00. One usually has to purchase a ‘bid pack’ consisting of at least 20 bid credits. It takes between 1 and 4 bid credits to place a bid in an auction – the amount of credits is usually dependent on the item’s value.
Here is an example to illustrate, taken from the Smokoo website:
An Apple iPod Touch (value R3,999.00) was up for auction. Bid increments were 5c, and each bid cost R5. The final selling prices was R251.10. “Zakwan” won the auction, using 106 bids (cost of R530.00). So his outlay was around R800, and he bought an item worth around R4k. He is very happy.
Smokoo is much happier. That selling price of R251.10 translates to 2,511 bids. At R5.00 a bid, Smokoo grossed R25,110.00 for this auction. That’s a profit of over R20k. And they didn’t actually pay R4k for the iPod; they got dealer price.
The best auction yet (for the sites themselves) is without a doubt the auction of bid packs. They technically come at zero cost but have a large perceived value to bidders. These bid pack auctions are well received and often bring in a large profit. My guess is that this is really where the money is at for the penny auction sites.
I have used Smokoo as my example as they are by far the most dominant penny auction presence in SA. They weren’t first however (I think that credit goes to Bidchaser), and they definitely aren’t the last.
These sites are popping up in many places, however not all are making the cut. Yourbid opened up in late 2010, and as of writing this still has a banner telling visitors that no auctions will occur over the festive season but will start mid January (they haven’t started).
Examples:
Coupon
Coupon sites encourage mass purchase of goods and services at a discounted rate. A special price is advertised on the site for a 3rd party company. Examples range from restaurant vouchers (pay R100 to get R400 of food) and spa discounts to holidays and self defence classes.
Usually, there is a certain purchase trigger where a minimum number of purchases are required to get the special price. This encourages users to market the coupon deal within their social networks and thus generate exposure and higher sales for the coupon site.
As far as I understand, the site itself gets half of sales, with the 3rd party provider getting the other half. The benefit to the 3rd party is obviously advertising and exposure to an extent that they would never be able to get via traditional advertising media at a similar price.
This model has been very successful overseas and there is already an interest in the South African sites from international buyers. The international coupon giant, Groupon, recently purchased the local coupon company, Twangoo. I assume that this is the plan for most of the companies launching these coupon sites; it’s the web entrepreneur’s dream: create site, generate interest, sell for millions.
Examples:
Limited Time
Lastly, the limited-time offer sites. These sites offer up a single item each day at a generally competitive price. However, one needs to move quickly as each deal lasts only 24 hours (and sometimes even have limited stock). The web benefit of theses sites is that they are often assured consistent repeat traffic, as users return to the site daily to see the ‘catch-of-the-day’.
Examples:
It really is about time that the companies in SA, a country with a huge web-access penetration, start making better use of the internet as an income driver. Hopefully instead of just seeing emulations of foreign ideas, we will start to see some innovation which can be exported.
Penny auction sites are rife with Bots. They are now being threatened in SA to be classified as Gambling. The auctions are rigged most of the time and its not really a good industry to try and stand out as the honest penny auction site so the simple thing to do is assume they are all cheats. Auctions like that are not even studied in academia because they are inherently unfair.
ReplyDeletehttp://mybroadband.co.za/news/business/18021-Smokoo-penny-auctions-and-Consumer-Protection-Regulations.html
http://mybroadband.co.za/news/internet/18445-Smokoo-may-become-illegal-gambling-DTI.html
Vima,when you say rife with Bots, do you mean bots that are created and administrated by the sites themselves to drive up bidding, or bots used by users to try statistically win auctions?
ReplyDeleteWith respect to the sites being termed illegal gambling, I think that Smokoo et al will try work their way around that by pointing out that one can buy any product on which you have bid directly from them, minus the value of the bids that you have spent on that auction. The argument will be that it is a legitimate e-commerce site that also gives users an opportunity to get products at a good price. Their argument will probably centre around trying to prove that users of their site would have bought the items on auction anyway.
I don't agree with that argument, nor do I actually support penny auction sites myself. They are most definitely a form of gambling. I reckon there will be some very interesting case law arising from penny auction sites v. the state in the next few years.