By Courtney Trenwith
Co-founder and CEO Ronaldo Mouchawar opens up about the $580m Amazon deal and how it will initiate an historic new era for e-commerce in the Arab world.
His father was a Syrian merchant, now Ronaldo Mouchawar is mixing with the biggest e-commerce company in the world.
Weeks after finalising the $580m sale of Souq.com to Amazon, the co-founder and CEO has just returned from his first real holiday in “years”. The break seems to have done him good. For a man who weeks ago closed one of the most talked about transactions in tech, he appears carefree.
But while laid back, he is absolute about the job ahead: “this is day one in our integration” he repeats throughout our interview. The phrase reminds him of the work ahead as much as it attempts to sedate anyone trying to extract details of what this historic deal means for the future of Souq.com and e-commerce in the region.
“A lot of work is taking place to figure those [details] out,” Mouchawar says.
“More [product] choice is critical, but also how we can tap into the global presence of Amazon, across multiple geographies and market places.”
For Souq.com there is no doubt joining the Amazon family, which also includes Alexa, Goodreads and Zappos, is a coup. But it is far more significant than the impact on one business. The entry of the $475bn giant to the Arab world is expected to advance the region’s e-commerce industry faster than any organic growth has been able to.
“The potential in this region is massive,” Mouchawar declares. “Online will continue to grow and now with Amazon and the know-how and technology and product selection that Amazon brings, and its focus on … consumers in the region, I think it’s really a good time for everyone.
“This investment will attract more investment into the sector - from current retailers that are trying to do online channels to global retailers - in this region.”
Online sales account for just 2 percent of total retail sales in the Middle East. That compares to about 9 percent in the US, 17 percent in the UK, and 15 percent in China, according to various analyses.
“So we feel online is growing faster [in the Middle East] and this is where the opportunity is for everyone,” Mouchawar says.
The mere interest of Amazon founder and CEO Jeff Bezos - whose personal wealth has soared one-third to more than $82bn in the past year thanks to his unstoppable expansion - hints at the value of such opportunities.
“He came to the region very excited about the potential,” Mouchawar says. “He’s been to multiple countries in this region and saw the opportunity, the youth, the mobile penetration, the infrastructure. We’re all connected consumers so there’s no reason why e-commerce won’t grow faster.
“Clearly, he also has a very long-term vision.”
Indeed, everyone, to use Mouchawar’s description, is going online, from established retailers to niche offerings launching into what is still a relatively blank canvass in the Arab region.
One such newcomer is noon.com, the $1bn e-commerce site backed by Mohamed Alabbar (chairman of Emaar Properties, whose subsidiary Emaar Malls had attempted to purchase Souq.com) and Saudi Arabia’s sovereign wealth fund, Public Investment Fund. Its launch has been delayed and Mouchawar is reluctant to be drawn on whether the e-commerce site would be a competitor.
“I don’t know noon.com’s strategy, we solely focus on our strategy. Once it is out we’ll look at it,” he says.
“In every geography, you always have multiple players in every category. The ones that grow are the ones that focus on and serve the customers.”
Organic growth in the sector also will ensure any new entrants consume little of Souq.com’s current revenues – although market share is bound to be contested.
“E-commerce is growing in the region at 35-45 percent year-on-year. We know that retail is growing at single digits, and we expect us - being a leader - to drive that growth, if not take it further. It’s only natural, because [online retail accounts for] only 2 percent [of total retail] and to get to 10 and 12 [percent] you have to almost double [revenues] in the next three years, and we’re already seeing that in many of the categories.”
The Middle East is not the only region Amazon has been scouting for expansion. In April the online retailer revealed it was searching for a 93,000 square metre warehouse to become its first fulfilment centre in Australia; in June it announced it was buying US grocery retailer Whole Foods for $13.7bn; in July it continued its Asian push, launching Prime Now in Singapore; and earlier this year it said it intended to invest $5bn in India.
The rapid expansion across the globe was kept apace with the Souq.com deal, which, by most standards, was completed at breakneck speed. Conversations lasted barely a few months.
“It was an incredibly fast process,” Mouchawar agrees. “I think we both understand we’re in a similar business. They’re keen on the region; we know the region well and we’ve done a lot of the work to enable this.”
The deal moved so quickly that anyone else interested in scooping up the first unicorn in the Arab world barely had time to move. Emaar Malls revealed its interest in March, but despite its significantly higher $800m offer, it came to the party too late in the game. Mouchawar says Souq.com was already “at the end of the process” with Amazon when Emaar Malls made its formal proposal.
“We had already gone through the paperwork with Amazon. We chose what we think was the right partner for the company,” he says.
“In these things, we have shareholders, we have employees and, overall, [we chose Amazon] for the best interests of our customers. This was our shareholders’ decision; everyone as a team was supportive.
“And we think this is historic for the region - that a global player such as Amazon, who is very strategic and operates e-commerce [globally] would acquire a local company. We know the region well [and] Amazon has the technology; the combination will create an even bigger opportunity for us and our customers, not only locally but even globally.”
But the elephant in the room is, if Souq.com was valued at $1bn after its second and last round of funding in 2016, then why did its shareholders sell out for nearly half that value?
“There are many components of the deal; I won’t get into those,” Mouchawar says, reluctant to address the question. “Valuation is set around multiple components and for us the focus is, what do we need to do next? So, there were different terms [of valuing a company] and I’ll leave it at that.”
He will not divulge the cream left after the sale, but insists he and investors, including South Africa-based technology and media group Naspers, investment firm Tiger Global, Jaber Internet Group and Standard Chartered, were satisfied with the outcome.
“If you look at overall what we have raised and the exit value, definitely, investors have made some returns,” he says.
Mouchawar also will retain his role leading Souq.com, as a subsidiary of Amazon. Whether the name stays, however, is not guaranteed.
“We’re still trying to figure that out,” Mouchawar concedes. “We’ll see how that evolves.”
In the 10 years since it launched as an online auction site, it has evolved into the region’s largest online marketplace, with 8.4 million products, 45 million visits per month and 3,000 employees. It has core operations in the UAE, Saudi Arabia and Egypt, as well as delivery options to the rest of the GCC.
There will likely be expansion in the long-term – after all, it is now owned by a company that is currently forging one of the most aggressive expansion plans globally – but Mouchawar is cautious of spreading Souq.com too far, too quickly.
“While we always review and see where we need to go next, I still feel those [existing] markets are massive and we should serve our customers [there] better [first],” he says.
“Making sure all the choice [of products] is available for all the markets in the GCC - optionality is important – and working on the supply chain. Making sure all these customers in these markets get similar services no matter where they are – in a small remote village in Saudi or a big city like Dubai.
“Also, how can we ensure our customer experience is that much better than what it is today? What was maybe acceptable to customers a year back, as we improve our services, the expectations are continuously rising. As consumers adopt e-commerce and become repeat customers, clearly their expectation of us to serve them better will continue.”
Also, the presence of Amazon will help to attract international brands not yet easily available online in the GCC.
“It’s a big focus for us,” Mouchawar says. “We’ve seen in the past that some customers buy products internationally because they’re not available in the region and we want to make sure we address this. We feel choice is a big customer value proposition; we want to make sure customers do have the choice. But … also ensure that delivery and the experience are also superior and well managed.”
That will require a finer focus on logistics. Souq.com has strategically invested in wing.ae, an on-demand delivery and courier marketplace in the UAE, and there is potential to adopt similar technology that Amazon is testing, such as drones. Mouchawar says more research and regulatory changes are needed first, but he is confident the region will embrace such innovation.
“Definitely there is a lot of technology that Souq can utilise, we’re now part of the Amazon family. Anything that can improve how we deliver or how customers buy things on Souq, we can look at. This is a priority we will focus on,” he says.
But, he reiterates, there is still no timeframe for any such evolution.
“I don’t think there is a set road; we’ll [always] continue to evolve. Amazon is known to be very innovative and we’re excited to bring that innovation to our region, so I think this will be a continuous process.”
Souq.com’s role in the region, even before the attention of Amazon, has been somewhat of a start-up star. The first to reach the emotion-inducing $1bn valuation, its success has inspired others. Mouchawar is keenly aware of the sentimental impact the Amazon-Souq.com deal has on the entire entrepreneurship landscape in the Arab world.
“For entrepreneurship, this acquisition is really a testament to the region that things are changing. I think you’ll see a lot more start-ups today access funding,” he says.
“We’re very happy to see a lot more local funding also going into entrepreneurship, and I think that’s a key DNA for us in the region. This is the type of job we’ve always advocated, and we felt we help and support the growing population and need of our youth.
“I’m super excited - be it in ride sharing, be it in tech, there are a lot of innovative companies and this will continue. I think we saw it before, when Yahoo acquired Maktoob early on  and that drove a phase of growth, [including the launch of] Souq. We see now more people are encouraged, the initial taboos around entrepreneurs have gone away and we see a lot more young people wanting to build start-ups. Today, with smart phones, also the cost to do that is less.”
Mouchawar says the region’s entrepreneurship journey “is on the right track”, with all the required players becoming more heavily involved.
“We also see a lot more focus from local financial institutions, government, even education institutions. I was [recently visiting] a university where there’s a lot of focus on driving entrepreneurship thinking, because if you see where the growth in the bigger economies comes from, it’s mostly from SMEs and entrepreneurship, because they’re additional, incremental business and employment opportunities for youth.
“Today, there are many funds, there are many local VCs [venture capital financing arrangements] focused on the region, be it in the UAE where we’ve become a hub for many of these entrepreneurs but also in Jordan, in Egypt and now in Saudi Arabia. Now more women are also starting up companies. So we’re super excited of what opportunities lie ahead.”
So, who does he expect to be the next unicorn in the Arab world?
“We already see a lot of companies are scaling well, especially in transportation [and] ride sharing; we have a few players in the region. Anything that focuses on serving customers has the potential to grow, especially, if it requires a lot of on-ground operations, so local know-how, services that are focused on understanding the local customers,” Mouchawar says.
“For a successful internet business you need to have good vision and technology to support you but, also, always making sure that you’re serving and benefiting from your local know-how of the local customers.”
Souq.com has already spread its wings into other GCC tech start-ups that prop up its core offering and Mouchawar willingly leaves open the prospect of more investments.
“We’ll continue to look at innovations that come around that help us to grow our business,” he says. “We’ve invested in many in the past – wing.ae, InstaShop – and we continue to do that as it serves our business, but also as we find ideas that support our growth.”
So as Souq.com – as it remains to be called – evolves, it would be wise to also keep an eye on the start-ups around it. There may lie the next big e-commerce story.