Seeking global world domination in the eCommerce marketplace, Amazon acquired the “Amazon of the Middle East”, Souq.com this week. The largest deal of its type in Middle East, this acquisition marks Amazon’s first move into serving the Middle East region.
Experts have forecasted the major growth in the e-commerce sector in the Middle East. Based on case studies from around the world, when there are more players in the market, the competition makes the sector grow. But is the market big enough to absorb new players? Despite its young, tech-savvy population, shoppers in the Middle East still prefer to shop in stores. According to a report from McKinsey, with a total of about 50 million consumers in the Middle East, only one to two percent of retail happens online.
This deal marks the ‘coming-of-age’ for Mideast e-commerce market. The high speed broadband connection and relative affluence has a limited affect on the e-commerce popularity in the region. The entry of Amazon would change that, experts believe. Not just United Arab Emirates, now Amazon will reach out to the other crucial markets of Mideast, including Saudi Arabia and Egypt.
An e-commerce business usually takes three to five years before the operations are stabilized and it gains popularity in region’s household. Through this acquisition, Amazon has skipped all the steps of acquiring customers, effort, investment, supply chain, patience and incremental mindset to adapt strategies. Amazon has not only acquired Souq.com but its customers, vendors, talent, and trust.
Till now, most of Amazon’s expansion moves had been organic. Historically, they have built their operations from ground up wherever they moved. The more important question presenting now is whether this move was one-timer or if Amazon has grown an appetite to digest more regional e-commerce giants. Termed as a bolt-on acquisition, Amazon plans to bring on the management and its teams with the business.
Noon, an upcoming e-commerce retailer based in Saudi Arabia, is expected to face tougher competition that it might have been expecting. When it started, they didn’t forecast that they would be competing against world leader in e-tailing.
The takeover is expected to complete by 2017. After that, consumers will be able to buy the products available at Amazon.com through Souq.com. This also means gold for Middle East suppliers as they will have wider access through Amazon’s worldwide network. When the operations will commence by Amazon.com, the company will also target the market for sale of its own products. Kindle Oasis, Amazon Echo Dot and Amazon Tap are widely popular in western marketplaces. It would be interesting to see how Mideast markets react to these products.
Perhaps, most of all, it would be exciting to see how and when Amazon will leverage Souq.com to launch Amazon Prime and compete with Netflix in the Middle East.
It’s a growing story and we would be excited to see how it develops.