There are few ecommerce markets as exciting as the Middle East. The area contains some of the most wealthy people on earth. It features a market that will have a consistent growth due to technology becoming a focus as natural resources (oil) become less. Having customers with some of the largest amounts of income that can be spent on the latest technology fashion provides any ecommerce business with a large opportunity.
The ecommerce industry is still in its infancy as credit card penetration over the region is still low as customers are still using cash on delivery to purchase products. As trust grows ecommerce will become more mainstream in the Middle East.
Souq – the Amazon of the Middle East
Souq was founded by Ronald Mouchawar in 2005. It initially was an auction based platform linked to Maktoob (the largest Internet portal in the Middle East). Maktoob was acquired by Yahoo! In 2009 which was 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 lead by one of the Maktoob 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.
Souq generates between 35 – 40 million customer visits in the Middle East which they have grown by generating Middle East solutions for customer.
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 next 6 years Souq would recreate the Amazon infrastructure (logistics, third party selling and mobile commerce) that would lead to a huge moment in the Middle East when Amazon acquired Souq. The Souq acquisition provides the region with its largest ecommerce transaction and that could lead to more investment into ecommerce by investors.
Amazon’s changing acquisition plan
Amazon has only acquired vertical specific marketplaces (books, diapers and shoes) prior to purchasing Souq. 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. By purchasing Souq for $580 million, Amazon essentially becomes market leader in the Middle East without having to spend battling Souq which most probably have taken time and adversely affected how Amazon would be perceived in the Middle East. The acquisition price is considerably less than what Souq was valued at during their last round of funding (the business was valued at $1 Billion by investors). I believe that prior to the acquisition talks, Souq had generated interest from Amazon to become either 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. 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.
Souq unveiled collection areas
Souq unveiled 140 collection in Saudi Arabia which is their most dominant market. As Souq is now part of Amazon’s footprint I would not be surprised if more investment is seen into logistics into Bahrain, Abu Dubai to ensure that Souq covers a large part of the Middle East.
The impact that Souq will have
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. Amazon will invest capital into Souq to ensure that the business can grow their 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.
The Middle East provides cultural challenges for ecommerce businesses as deliveries are not to be received by females based on religious reason.This provides logistics solutions with another potential blocker to ensure that products can be delivered to customers.
Amazon also gains a group of executives that understand Middle East ecommerce and thus they will save capital in not needing to make mistakes based on incorrect assumptions and ideas that would not work in the region. Souq has created a trusted brand which customers love and I don’t see any reason why Amazon would rebrand Souq.
Souq will be able to leverage Amazon’s technology and have access to best practices in terms of third party sellers. Souq provides local insight for Amazon to leverage in house which will only lead to more Amazon growth in a region in which they had limited in house expertise.