By Hendrik Laubscher, Buy Box Experts
There are few e-Commerce markets as exciting as the Middle East.
The area contains some of the wealthiest people on earth, and a market likely
to experience consistent growth due to technology becoming a focus as natural
resources (oil) diminish.
Although the e-Commerce industry is still in its infancy in the
region — credit card penetration is still low as customers still largely
use cash on delivery to
purchase products — as trust grows and credit use increases, e-Commerce will
become more mainstream. At that point, the large population of wealthy
consumers looking to spend their disposable income on the latest technology and
fashion provides any e-Commerce business with a huge opportunity.
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Souq: The Amazon Of The Middle East
Founded by Ronald Mouchawar in 2005, Souq was initially an auction-based
platform linked to Maktoob, the largest Internet portal in the Middle
East. Maktoob was acquired by Yahoo! in
2009, in the first real acquisition in the Middle East Internet space.
This acquisition provided the capital for the formation of one of Souq’s
earliest investors, Jabbar Internet Group. The Jabbar Internet Group was led by
one of Maktoob’s founders, and I believe he understood the value that Souq
would have long-term.
Souq received investment from prestigious emerging market
investors Naspers and Tiger Global, which highlights the opportunity seen by
investors. Souq moved to the marketplace model in 2011, and currently generates
between 35 and 40 million customer visits in the Middle East.
According to SimilarWeb, over the
past year, souq.com received an average of 39M global monthly visits, 68% of
which were on desktop. This figure represents an increase of 21% since February
2015. Egypt provided the greatest amount of traffic to souq.com at 47% over the
past year, followed by the United Arab Emirates and Saudi Arabia, with 22%
each.
In the following six years, Souq would attempt to re-create
Amazon’s infrastructure (logistics, third-party selling and mobile commerce), a
play that led to a huge moment: the acquisition of Souq by Amazon. This
acquisition delivered the region’s largest e-Commerce transaction, one that
could lead to even more investment into e-Commerce.
Amazon’s Changing Acquisition Plans
Prior to purchasing Souq, Amazon had only acquired
vertical-specific marketplaces (books, diapers and shoes). Amazon generally
believes that they can enter a market and then use their capital resources to
impact competitors, which will then lead to an acquisition. But by purchasing
Souq for $580 million, Amazon essentially became the market leader in the
Middle East without having to spend time battling Souq, which most probably would
have adversely affected Amazon’s perception in the Middle East market.
To Amazon’s advantage, the acquisition price was considerably
lower than Souq’s valuation ($1 billion) during their last round of funding. I
believe that prior to the acquisition talks, Souq had generated interest from
Amazon to become an investor in Souq. This was before the last
round of funding, which was done by a mix of new and existing investors. While
Amazon and Souq were in the midst of their acquisition talks, Souq received an
unsolicited offer from eMaar Malls for a reported $800
million. But Amazon ensured that they had first right of refusal to any
outside offer from another potential acquirer and a 30-day window to purchase
Souq from investors.
The Impact Souq Will Have On Amazon
Souq provides Amazon with direct access to a market that has
huge upside ($20 billion by 2020) without
Amazon having to battle any local competitors. Souq has also created a trusted
brand that customers love, and I don’t see any reason why Amazon would rebrand
Souq.
Amazon will likely invest capital into Souq to ensure that the
business can grow its efforts outside the United Arab Emirates. Secondly, Souq
already has ensured that they have gone through all the various legislation
found in the various countries which will allow them to deliver packages and take payment in
the correct manner. As Souq is now part of Amazon’s footprint, I would not be
surprised if more investment is seen into logistics into places like Bahrain
and Abu Dhabi to ensure that Souq covers a larger part of the Middle East.
The Middle East does pose cultural challenges for e-Commerce businesses,
as deliveries are not to be received by women based on religious dictates. This
provides logistics solutions with another potential blocker to ensure that
products can be delivered to customers. But at the same time, Amazon also gains
a group of executives that understand Middle East e-Commerce, so they will save
capital and avoid making mistakes based on incorrect assumptions and ideas that
won’t work in the region.
Finally, Souq also will be able to leverage Amazon’s technology
and have access to best practices in terms of third-party sellers. Souq also
provides local insight for Amazon to leverage in-house which will only lead to
more Amazon growth in a region in which they previously had limited in-house
expertise.
Hendrik
Laubscher is the Marketplace Research Director at Buy Box Experts. He is an
experienced e-Commerce executive who worked for the largest emerging markets e-Commerce
investor and the largest product search engine in Africa. He is an industry
expert in global e-Commerce and international
