Is the Kalahari, Takealot merger really in everyone’s best interests?

Early on Tuesday news emerged that two of South Africa’s ecommerce giants, Takealot and Kalahari, would be joining forces. But just how good is the deal for ecommerce in South Africa.

Until now, the Tiger Global-backed Takealot and Naspers-owned Kalahari have probably been the fiercest rivals in the South African retail ecommerce space. Speak to people who buy online regularly and they’ll give you myriad reasons for choosing one over the other, ranging from delivery times to customer service and even the respective corniness of their advertising.

That competition has helped drive innovation in the space, to the point where it’s now worth more than R4-billion, with both companies snapping up smaller ecommerce stores.

A couple of months back for instance, Takealot bought out design curation outfit Superbalist, a purchase that could only have been aided by the US$100-million injection it received from Tiger Global in mid 2014. A previous investment from the New York-based hedge fund allowed it to buy a controlling stake in takeaway delivery service Mr Delivery, something which allowed it to boost its logistics capabilities.

Kalahari meanwhile is one of South Africa’s oldest ecommerce properties and is at the spearhead of Naspers’ online retail efforts in the country. Small wonder then that the emerging markets media and internet giant decided to bring a number of its smaller ecommerce properties into the Kalahari fold when it shut down its African Internet Accelerator Programme back in February.

At the time, the line coming from Naspers at the time seemed to suggest that it was pushing its resources into Kalahari precisely so that it could take on the likes of Takealot.

A joint press release from the two companies announcing the merger – Takealot seems to have won the naming battle, so South Africans won’t have to get used to a new name – suggests that it is necessary if a South African online property is to have any hope of taking on big international names such as Amazon and Alibaba.

But what does that mean for South African ecommerce in general?

The great ‘what now’

If the new entity succeeds as intended, it has the potential to work out great for South Africa in the long run.

Combine Naspers’ valuable experience when it comes to launching new properties, especially in emerging markets, with Takealot’s knack for efficiency and innovation and you have a potentially potent combo. That in turn means South Africa could stand to see very real material gains.

That kind of success story would probably inspire a lot more people to get into the already growing ecommerce space.

There may however be fears that if Takealot, in its new guise, gets too big it’ll simply hoover up any new ecommerce players that present even a whiff of competition.

Thing is, that doesn’t really tend to happen in the tech space. Yes, Google dominates search and Facebook has by far the most users out of any social network but success tends to beget success. People can’t take the same approach, so they’re forced to take fresh ones. That’s why we have things like Instagram and Twitter. And as space’s mature so new opportunities open up, which is why Snapchat was able to turn down a US$3-billion buyout offer from Facebook.

Yes, the new mega Takealot might try and buy the odd niche outfit, but there are plenty of others that it won’t touch. No matter how large, the new outfit’s range of goods, there will always be companies that it’s better to leave alone either because they offer no genuine threat or because they’re niche enough that they won’t really fit with what Takealot is trying to do.

An increased focus on ecommerce in South Africa could actually see those self-same niche players thrive as never before.

There will be disruption

The short to medium term meanwhile is less clear. One thing that is clear however is that there will be disruption.

One potential source of that disruption is the South African ecommerce companies in the immediate tiers below Takealot.

If they’re clever, they’ll use the merger and the inevitable period of consolidation immediately following it to move fast and make serious plays on the market.

One company capable of doing this is Wantitall. Its model is probably the closest to that of Takealot, albeit with a substantially more limited range, and it will have also benefited from the latter’s Superbalist buyout, having been an equity partner in the design curation shop.

Then there’s Neil Smith, Waine Smith and Jose Pereira. The trio were the original founders of Take2, which later rebranded as Takealot, and (having served out their restraint of trade period) in June launched their new ecommerce play Raru. With the kind of experience they have in the space, anyone ruling them out of a second success would be foolhardy.

Another possible source of disruption could come from job losses. Neither party has said anything about that yet, but with an inevitable skills crossover in many departments, it’s hardly worth ruling out. That’s even truer when you look at Naspers’ track record when it comes to consolidating properties within its fold.

For many those losses could be devastating, but the packages given to those affected could also see a glut of people with relevant experience and enough startup capital to build the ecommerce shop they’ve always wanted.

It’s pretty clear then that the question isn’t about whether the Takealot/Kalahari merger is good for South African ecommerce space, but which players in the space it’s good for.