E-commerce giant Amazon's recent agreement to buy the Dubai-based e-tailer Souq.com marks a turning point for e-commerce in the Middle East.
The Amazon/Souq.com deal, which is thought to be worth more than $650m, has been in the pipeline since at least November, when Amazon founder Jeff Bezos visited the Middle East amid reports that Amazon was in talks to buy a stake – then said to be worth $1bn – in Souq.com.
Souq.com CEO and cofounder Ronaldo Mouchawar said that the acquisition by Amazon will allow Souq.com, which is already seen as the biggest shopping website in the Middle East, to offer a wider range of products and improve its delivery systems. Souq.com will be able to take advantage of Amazon's operational expertise and the economies of scale that come from being part of a global group. But it is thought that Souq.com will continue to operate under its own well-established brand name (at least initially).
The deal will give Amazon control of an established player in a regional market where there is significant potential for growth in e-commerce. For Amazon, Souq.com's existing operations and its knowledge of local markets must have made acquisition seem a better way to enter the Middle East than building a business in the region from scratch.
The Amazon/Souq.com agreement also marks the end of a drama in which Dubai property group Emaar Malls had reportedly made a last-minute $800m counteroffer for Souq.com, in an apparent attempt to derail the deal with Amazon. Emaar is planning its own Middle East e-commerce service, Noon.com, which was unveiled by chairman Mohamed Alabbar in November, with plans to launch in Saudi Arabia and the UAE, and later across the region, with an inventory of 20 million products.
Noon, which is raising funding of $1bn from Gulf investors, was initially expected to launch in January this year, but that did not happen, and the current schedule is unclear. Possibly, Noon is finding that getting a major enterprise off the ground has required more preparation than was allowed by the original, tight schedule. And now Noon will face tougher competition than it might have been expecting, since it will be up against what many see as the world's leading e-tailer.
Nevertheless, the arrival in the Middle East of a global leader such as Amazon should put powerful momentum into the development and growth of e-commerce in the region. And that should be reinforced by the growing investment from within as well as beyond the Middle East into e-commerce in the region.
E-commerce in the Middle East has been held back by difficulties around organizing deliveries and payments, as well as by a preference among local investors for more conventional sectors, such as property. Although figures for e-commerce in the region are sparse, it is clear that the sector is less advanced than one might expect given the relative affluence and high broadband connectivity in the GCC states.
That might all be about to change, and 2017 looks set to go down as the year when e-commerce in the Middle East began to live up to its potential.
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