Souq.com and the Battle for the Future of E-Commerce in the MENA Region
Case Code: BSTR551
Case Length: 16 Pages
Pub Date: 2018
Teaching Note: Available
Industry: E-commerce; Retail, Retail
Countries: Middle East, MENA
Themes: Managing Growth, Harvesting the Venture
Abstract Case Intro 1 Case Intro 2 Excerpts
Ecommerce in MENA
Experts felt that the Gulf Cooperation Council (GCC) was one of the world’s most mystifying platforms for e-commerce. GCC had the highest levels of GDP per capita, with most of the people having large disposable incomes. Average mobile penetration stood at more than 170% and smartphone penetration was at more than 65%. In addition, more than two-thirds of the population used the internet, with penetration in the UAE and Qatar exceeding 90% (including fixed and mobile). But the e-commerce market was limited. Despite its young, tech savvy population, shoppers in the Middle East still preferred to shop at stores. Online retail sales accounted for less than 1% of total sales in the Middle East, according to market researcher Euromonitor International. With an estimated market size of US$5.3 billion in 2015, e-commerce contributed only about 0.4% to the region’s GDP – a tiny amount compared with more mature markets that had similar levels of GDP per capita and internet penetration...
Souq's Business Model
In 2011, Souq altered its model to an online shopping site akin to Amazon with a marketplace and retail items for sale on its platform. Analysts felt that Souq facilitated the feasibility of ecommerce in the Middle East region. The company sold a range of goods like diapers, shoes, and smartwatches to consumers in countries including Bahrain, Oman, Kuwait, and Egypt. Souq had acquired sukar.com (sukar) in 2012 to benefit from Sukar’s fashion expertise and customer service experience. Analysts felt that this acquisition could boost Souq’s capacity to attract more women shoppers....
Souq's Successful Run
Souq eventually rose to success by introducing different categories of products on its website according to the trends in the MENA region. For these efforts, it won the MENA 'Customer Delight Award for 2013' in Dubai on November 7, 2013. This award was given after broad research about Souq by the MENA Awards Customer Delight Secretariat...
Souq Looking for a Buyer
Souq was striving to excel in the e-commerce space in MENA, and experts felt that it had become a successful shopping destination in the MENA region. However, Souq started exploring different options to fuel its growth in 2016. It also considered the option of going public, but Mouchawar felt that going public was risky as Souq, being a privately-owned company, could otherwise experiment with different strategies, some of which could fail...
Amazon Bids for Souq
Bezos visited Dubai Mall in November 2016 and this was perceived as a hint of Amazon's plans to enter the Middle East’s emerging e-commerce market. Amazon approached Souq for acquisition in November 2016 offering an amount of US$700 million. However, Souq was believed to be seeking US$1 billion, which was much more than Amazon’s offer. Indian company Flipkart Online Services Pvt. Ltd. ...
Emaar Enters the Scene
Emaar had also submitted a US$800 million bid for Souq in March 2017 competing with Amazon. The Emaar bid included a US$500 million up-front payment and a guaranteed 15% internal rate of return for Souq shareholders. Analysts felt that Emaar’s entry into the fray raised the stakes in the battle to buy Souq. Alabbar already had plans to start Noon which was slated as an US$1 billion project that would have an initial focus on fashion and luxury products, but which would be changed into a full-fledged e-commerce portal...
The Road Ahead
Analysts opined that Souq could leverage the global brand value of Amazon in MENA for its further growth if the deal with Amazon succeeded but they were sceptical about the deal's success. The reason for this was the advantageous position of Emaar with its strong presence in MENA and local government's backing. Some analysts opined that Noon plus Souq versus Amazon would be a fair fight...
Exhibit I: Traffic Split and Market Share of Top e-commerce sites in MENA (2013)
Exhibit II: Amazon’s Top 10 Acquisitions
Exhibit III: Middle East E-commerce Market
Exhibit IV: E-Commerce Spending in MENA Region
Exhibit V: E-commerce Sales by Region
Exhibit VI: Souq’s Traffic Share on Desktop from March 2016 to February 2017
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