E-commerce giant Amazon’s agreement to buy Middle East e-tailer Souq.com marks a turning point for e-commerce in the Middle East.
Middle East e-commerce comes of age
The value of the Amazon/Souq.com deal, which is expected to close before the end of 2017, was not revealed, but media reports say it is in excess of $650m. The deal seems to have 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 would allow Souq.com to offer a bigger range of products and improve its delivery systems. It is not clear if Souq.com, which says it is the biggest shopping website in the region, will retain its current brand or adopt the Amazon name. Amazon’s rationale for the deal seems to be that it will gain an established player in a regional market where there is significant potential for growth in e-commerce.
The closing of the Amazon/Souq.com deal marks the final act of a drama in which local reports said that Dubai-backed property group Emaar Malls had in recent days made an $800m counteroffer for Souq.com, in an apparent attempt to derail the deal with Amazon, which was agreed in principle last week, according to The Financial Times.
The motive for Emaar’s move on Souq.com presumably lies in the fact that Emaar is planning its own Middle East e-commerce service, Noon.com, which was unveiled by Emaar chairman Mohamed Alabbar in November and is set to launch in Saudi Arabia and the UAE, and later across the region, with an inventory of 20 million products. Noon is raising funding of $1bn from Gulf investors, with Saudi Arabia’s sovereign Public Investment Fund taking a 50% stake.
Noon was initially expected to launch in January this year but is now due to make its debut in the coming few weeks. Although Noon has given no reason for the delay, one might surmise 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.
But to take a wider perspective, the arrival in the Middle East of a global leader such as Amazon should put some powerful momentum behind the development and growth of e-commerce in the region. And that should be reinforced by the growing investment from within the region in e-commerce, as is the case with Noon.
E-commerce in the Middle East has been held back by difficulties over 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.
The Middle East gets serious about e-commerce, TE0015-000418 (December 2016)
Matthew Reed, Practice Leader, Middle East and Africa