Online marketplaces: The new commerce power players

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Marketplaces have been at the core of commerce for thousands of years, and they continue to serve in gathering merchants and people who come together for the purchase and sale of goods and services.

While marketplaces have always been at the core of economic prosperity for the cities and nations that had them, they have evolved over time – not the least from seasonal marketplaces where traders gathered in old time to permanent geographic locations, such as the famous Souk al-Khalili in Cairo and Souk al-Hamidiya in Damascus, and into modern malls such as Dubai Mall, in the Emirate of Dubai.

Yet the internet introduced a new dimension to marketplaces, allowing pioneering start-ups to build and own generic and specialised marketplaces, focused on bringing together sellers and buyers on a technology and marketing platform.

The internet has also allowed these start-ups to own such marketplaces while extending their business models from renting spaces to charging a commission on every transaction taking place in these new digital marketplaces, and offering value added services to merchants and users. Most importantly, while traditional marketplaces were exclusive territory for owners of large capital and real-estate, new online marketplaces are now being built by smart entrepreneurs capable of recognising an opportunity and executing on it in an efficient and aggressive manner.

Moreover, the cost of building an online marketplace today is only a fraction of the cost of building a traditional one, with potential and scalability that is an infinite multiple of that of traditional markets.

Early online marketplaces were initially launched as an extension of traditional marketplace categories, such as fashion, electronics, and books. Today, generic online marketplaces, which include the famous Amazon.com and eBay, have grown over time to encompass all kinds of goods and services. 

Furthermore, the nature of the Internet as a ubiquitous and seamless network allowed for the creation of new specialized markets for industries that never had their own marketplaces. Examples of such categories include transportation, healthcare, and financial services. The creation of these marketplaces has allowed consumers to request services from local and regional organizations across borders.

This in turn led to the creation of several billion dollar companies, including the likes of Uber in the transportation sector, which connects passengers with limousines, MoneySuperMarket, which lets users compare financial services and products (more recently automotive services and home repair services) and procure them online from providers.

With the growth of internet users in the Arab world reaching more than 135 million users today, and the proliferation of smartphone devices reaching 84 percent in countries such as the United Arab Emirates and Saudi Arabia, the time for online marketplaces in the Arab world has come.

During the past two years or so several marketplace categories have emerged as mature categories in the Arab world, with undisputed leaders operating efficient marketplaces and growing at record rates, all while requiring a fraction of the investment of a traditional marketplace.

In the automotive sector, traditional car dealership markets have now been replaced by startups that allow users to sell their cars in record time and with a fraction of the hassle of selling through traditional car dealerships. SellAnyCar.com is one such startup; it was founded in the UAE and has now expanded into Turkey and Saudi Arabia. 

Another is the automotive section of the leading Arabic classifieds website, Opensooq.com, which offers more cars for sale and requests to buy cars than any traditional cars marketplace in the Arab world, all at a fraction of the cost it takes to build and operate a traditional car dealership, and with unsurpassed convenience and market efficiency.

In the transportation sector, startups like EasyTaxi now allow users in Saudi Arabia, Jordan, Kuwait, Qatar, and Bahrain to order taxis with a tap of a button on their smartphones, using a free app that automatically matches users with taxi drivers nearby.

Not only does this startup improve the efficiency of taxi drivers, saving them the hassle of wandering in the streets, but it also offers safety and comfort especially for passenger categories such as women and teens, and reduces pollution and power consumption.

Innovative marketplaces that did not exist before the Internet are now also available in the Arab world. They include ReserveOut.com, which acts as a marketplace for restaurant reservations, allowing users to discover new venues and guarantee immediate and free reservations from the comfort of their desks or through their smartphones.

Online food ordering marketplace, hellofood, is now probably the largest food court in Saudi Arabia, Jordan, Qatar, and Lebanon, allowing users to order in food from their favorite restaurants, rendering old business models such as food ordering by phone or through catalogues obsolete.

The technology and user experience components of online marketplaces have already been commoditized. This in turn means that marketing and execution are the key aspects for the success of online marketplaces. First mover advantage has also become key to leading marketplaces; early market entrants tend accumulate the largest number of service providers and users, and therefore they get even bigger and more successful with time.

Furthermore, unlike traditional marketplaces, which allow competition the opportunity to start in new geographic locations in the same country, the national and cross-border nature of the Internet means that the leading online marketplace will make it very difficult for competition to gain market share. In fact, in many of the cases there is only a handful of winners in each category.

So far, new start-ups built by smart founders and supported by strategic value-adding investors are winning marketplace categories one by one in the Arab world. Meanwhile, very few traditional marketplace players have understood the major shifts taking place in the market, in addition to the change in tastes and the consumer behavior of new millennials in the Arab world.

This does not appear to be changing in the near future. Smart stakeholders should move fast to leverage any remaining value proposition they have through their existing relationships or capital availability, and partner-up with leading Internet market players before it's too late.

Khaldoon Tabaza is the founder and managing director of iMENA Holdings, an investor and operator of online businesses in the Middle East and North Africa

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