Charge of the virtual elephant
THERE is a new elephant in the corner of the retail room. Even as the e-commerce boom finally arrives in South Africa — new World Wide Worx research indicates that online retailing rose 31% last year, and is likely to rise 35% this year.
The sector is about to witness a boom within the boom.
The rise of virtual products (intangible goods that cannot be resold) was highlighted this week in a study by Master Card in 20 countries, including South Africa. The card company’s 2014 online shopping behaviour study included the six sites most used by South Africans for shopping online in the past three months.
The first three were no surprise: Naspers-owned Kalahari.net, social shopping site Groupon and online auction site BidorBuy.com. Of South Africans shopping online, 35%, 13% and 12%, respectively bought on these sites.
In fourth place, relative newcomer takealot.com had the biggest rise in the share of shoppers of any site in the country, from 4% a year earlier to 11%. It was followed by Amazon.com, the biggest foreign site in the local mix, with 10% of online shoppers, and classifieds site Gumtree, with 8%.
And then there’s the virtual elephant in the room: from almost nowhere, suddenly claiming 7% of local online shoppers, came Apple’s iTunes and app store. But that was just the tip of the elephant’s trunk. All respondents, representing 4.6 million highly active internet users in South Africa, were asked if they were aware of virtual items, credits, or upgrades within games or apps. About 91% said they were. And a quarter — more than 1.2 million people — had made a purchase in this way.
Such items are also known as “in-app” purchases. They are usually invisible in the virtual storefront of app stores, games sites and download platforms. Even when a game is free to download and play, users often find themselves faced with the option of making a purchase during the game to advance more quickly, or to unlock more levels, characters or scenes. That was the key to the massive valuation that the “free” Facebook game Farmville afforded its creator, Zynga. It is the key to the past week’s huge valuation of the dodgy maker of the Candy Crush mobile game, King, because it rakes in close to a million dollars a day from inside the app.
“Shopping” is almost too dignified a term to describe this form of impulse buying. I
It gets you when the need for instant gratification is highest
call it “ambush retailing”: it is the one form of purchase that the user does not expect to make or even want to make, but he is faced with the choice, suddenly, at the moment when the need for instant gratification is highest.
At the same time, however, it is a powerful pointer to the future of e-commerce, and might even influence traditional products. We’ve long seen it in the printer and razor markets, in which the machine itself is dirt cheap but the refills are hideously expensive. Now, the entire software industry has a body of evidence to persuade it to explore similar models. You can have your word processor for free, but if you want to unlock the “bold” text function, “please type in your credit card number here”. After all, it’s money for nothing.
Arthur Goldstuck is founder of World Wide Worx and editor-in-chief of Gadget.co.za. Follow him on Twitter on @art2gee