By Neil Halligan
E-commerce experts say retailers will have to up their game following Amazon’s acquisition of the UAE online retailer this week
The impending entry of global e-commerce giant Amazon to the Middle East region is likely to reverberate across the retail industry for some time.
While no-one can predict with certainty the full impact of Amazon’s acquisition of Souq.com this week, it’s certainly going to wake up what has been a sleeping giant in the region.
Advisory firm AT Kearney said in its GCC e-commerce market study last year that the region has the potential to become the world’s fastest growing online market.
With an estimated size of $ 5.3 billion (AED 19.4 billion) in 2015, e-commerce at present contributes only around 0.4 percent to the region’s GDP. However, the study predicted the market could quadruple its value to $20 billion by 2020, if the right enablers were put in place.
Fadi Ghandour, managing partner at Wamda Capital and founder of logistics firm Aramex, said the acquisition of Souq.com is a massive vote of confidence in the region, and its emerging e-commerce sector.
“This is the final recognition that the technology and digital industry in the region is happening and Amazon is the big statement on this,” Ghandour told Arabian Business.
“There is no-one bigger and more capable than Amazon, maybe Ali Baba. Maybe it will get others to pay attention to the region, like we have seen in previous experiences.
“I think you will see a lot more activities, and possibly some other consolidations. There are smaller companies, like Namshi for example, who will have to be creative and capable of staying and competing in the market. But it also means that they will also be targets [for acquisition].”
Ghandour is well versed in Amazon’s existing operations in the Middle East, having helped introduce the online retail giant to the region.
He said: “Amazon did not come to the region for Souq alone. Amazon came to the region because they saw the potential.
“I know, because my history is in Aramex, and the history of Aramex is introducing Amazon to the region. When Amazon started selling in the region, it was through the shop and ship product [model] that Aramex created and eventually it started going directly through Aramex.
“What Amazon sells to the region in e-commerce, if I can estimate it, they are already doing in the region of $150 million to $200 million worth of sales. It's a small amount for a company like Amazon, but it's not a small amount for the region.
“Whoever is going to play in that space is going to have to face a company that is going to bring all of its capabilities.”
Omar Kassim, founder and CEO of e-commerce platform JadoPado, described the acquisition as “a watershed moment for the region’s e-commerce space”.
“It validates the businesses that we've been busy building, and should be an inflection point at which we see new businesses and concepts come to market together with more capital flowing into the sector from investors of all types,” he said.
Paul Cuatrecasas, CEO of Aquaa Partners and expert on non-tech acquisitions of tech companies, said the acquisition will not necessarily accelerate e-commerce in the region.
“It’s already ramping up at around 30% year-on-year, but longer term, the deal may well prove pivotal because Amazon is determined to succeed in the region and Souq.com will have access to Amazon's technology, data, resources and experience,” he added.
Traditional models no longer sustainable
Ghandour said the traditional model of retail will see a shake-up as disruptive e-commerce models start to have a greater influence on retail processes.
“Just as Walmart, a $400bn sales company, needs to pay attention in the US, I think retailers [here] need to pay attention,” he said.
“The traditional models could have stayed a bit dormant when Souq was around because Souq did not have the massive and deep pockets that Amazon does. When Amazon comes we will see that traditional models are no longer sustainable.”
Kassim said industry players would be hard-pressed to compete Amazon head-one. “It is likely that Amazon will place significant additional capital behind their purchase to cement their position,” he said.
“Their deep operational capabilities will make it that much harder for anyone else. It's why we've evolved our business toward e-commerce technology and bringing an e-commerce platform - JadoPado hotcake together with a new enterprise vertical to market.”
Jadopado’s Kassim said the next five to seven years will be a very interesting period for digital.
“I think [the Souq.com acquisition] will be the catalyst that gets every major retailer to figure out why their existing e-commerce strategies - for those that have them - aren't getting the right concepts to market in a timely manner. And for those that [still can’t], to work out how they can acquire the right businesses, teams and talent to digitise their businesses.”
Ulugbek Yuldashev, CEO and founder of AWOK.com, said the acquisition is unlikely to have any impact on smaller e-commerce companies in the country.
“We don’t see the possibility of any of the major e-commerce players controlling 60 to 70 percent market share. It will never happen and hence we will still have e-retailing companies concentrating on niche product ranges such as fashion, bags and shoes,” he said.
Yuldashev said three-year-old Awok.com, which follows an inventory not a marketplace model, has been able to take the number two slot in the UAE e-commerce industry and been investing heavily in building infrastructure and technology.
“Though our inventory model, we have been to maintain quality and adhere to our delivery times,” he said.
Steve Plimsoll, PwC Middle East, chief digital and data officer, added: “Local retailers are going to have to significantly lift their game. The acquisition will accelerate the transformation of e-commerce in the region from poor quality transactions to truly customer centric experiences.
“Most importantly, we'll see an increase in consumer activity and shift to online-based on the Amazon brand's high level of trust and heritage in innovation.”
New player in Noon.com
Meanwhile, the impending arrival of Noon.com on to the region’s e-commerce scene will add a differet type of competition to what’s already in the marketplace, said Ghandour.
“[Noon founder] Mohammad Alabbar has an advantage which is quite powerful, which is that he has a huge offline offering. There is something to be said about the physical infrastructure on the ground.
“He already has the logistics in Aramex, so he needs to see how he will be able to create that formula that brings his offline power into the online world and make sure that Noon is doing that. But he needs to do it quickly.”
Kassim said the length of time it has taken Noon.com to ready its product for market “speaks to not only the difficulty of bringing a viable product to market in our space, but the pace at which it needs to happen”.
But Cuatrecasas said the launch of Noon.com will shake things up even further.
“One reason Souq needs to be concerned is that it appears Noon.com has a different vision to Amazon – one that may well engage consumers on an emotional level.
“If they get the branding right and start engaging a millennial audience, there’s no reason why Noon.com couldn’t cause Souq.com some serious problems,” he added.
“But to be able to compete effectively, Noon.com will need to quickly demonstrate it can match Souq.com’s range of products and delivery offering, and that may be difficult. Noon.com will be competing against the might of Amazon's technology.”For all the latest retail news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
let the games begin.
I've been Amazon for many years then lately using Souq a lot in Dubai. Got impression it was better, not the technological part (amazon AWS etc is just awesome), but something with the whole buy and presentation process, it just works better and is more "likable".
So sad they are selling. They should continue and expand instead, if they would open up in Europe I would prefer Souq before Amazon. I guess that was what Amazon figured out as well.
Used to shop through souq.com, poor customer service handling turned me off. I am still a fan of e-commerce but doing my business with other service providers who are able to provide me better customer service (eg. dessert cart, awok.com and crazy deals). I had a good experience with amazon when I was in the US for a month long vacation. I hope that service culture will rub off with souq.com and I might just use them again.
Exciting as this is, the pricing of this deal - well under Souq's valuation of $1bn in its last round - seems to have crept under the radar. Lots of earlier investors are likely to have lost a fair amount of cash, and I'm not sure how well the founders will have done out of it as a result.
It is refreshing to read a positive comment on this forum as opposed to the usual whining and the acrid remarks coming from self-proclaimed, know-it -all commentators.
Hopefully this will put a stop to all of the fakes.
Yup. This was not a good deal. Seems like the investors wanted to pull the plug but found a knight in shining armour in Amazon. Amazon got a great discount.
Valuations need to be proven and a discount in this case is absolutely warranted when you look at the fact that the strategic alliance and infrastructure that amazon brings to the transaction is immense, as well as a ready made and highly known name and customer base.....simple really.