E-commerce

28 Mar 2017
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Amazon buys Emirate-based Souq.com

Amazon.com is ready to enter the competitive Middle-East market for the first time in its history, after announcing the purchase of the online retailer Souq.com. Amazon and Souq had signed an exclusivity agreement in the past. The terms and the value of the deal have not been disclosed so far.

The Middle-East region has a population of about 140 million consumers, but displays a low rate of online retail spend penetration. Although, the average income in the Middle-East countries is relatively high, only around 2% of retail transactions take place online every day. The deal between Amazon and Souq appears to get the endorsement of  Dubai’s government, which is increasingly focusing on technology.

Amazon’s rival for the acquisition, was the prominent Dubai businessman Mohamed Alabbar, who chairs Dubai’s property giant Emaar. Emaar operates the impressive Dubai’s Mall and is the owner of other malls in the region. The CEO of Amazon.com, Jeff Bezos, had met Alabbar in Dubai, on November 2016, leading to speculation that they would forge a partnership to dominate the online retail sector in the Middle East.

While Amazon officials were negotiating the terms with their Souq counterparts, Alabbar proposed to purchase Souq.com for more than $600 million. Sources report that the Amazon’s offer exceeded $650 million. Although the cost of the purchase is significant, it is notably lower than the threshold for entering the club of tech firms that boast valuations above $1 billion.

Souq.com was founded in 2005 by the Syrian-born entrepreneur Ronaldo Muchawar. It sells across 31 categories including consumer electronics, fashion, household goods etc. A total of 8.4 million products are offered through the internet site that attracts over 45 million unique visits per month. Souq.com was launched in the United Arab Emirates and has branched out into additional regional countries such as Saudi Arabia, Bahrain, Oman, Kuwait and Egypt.

Russ Grandinetti, an Amazon senior vice president, said in a statement that “Souq.com pioneered e-commerce in the Middle East, creating a great shopping experience for their customers. Together we will work hard to provide the best possible service for millions of customers in the Middle East.” Souq’s founder, Ronaldo Muchawar, noted the importance of the deal for the future of the company. Muchawar wrote in his statement that “by becoming a part of the Amazon family, we’ll be able to vastly expand our delivery capabilities and customer selection much faster, as well as continue Amazon’s great track record of empowering sellers.”

Dubai’s Crown Prince, Hamdan bin Mohammed Al Maktoum, commented that Amazon’s entry in the regional online market enforces Dubai’s position as a global hub for the world’s biggest and leading organisations.  Souq’s status as a free-zone firm, means that Amazon will be able to run a 100% foreign-owned operation. The Emirate-based website had raised more than $275 million in 2016, which the company had said it would help fuel future growth.

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