At the end of 2018, we predicted that Amazon will rebrand Souq.com. This seems to be happening now.

Ruler of Dubai visiting Souq earlier this year – the Souq brand was nowhere to be seen

Many of the Souq sellers have been switching to Amazon’s backend, and a recent “Souq is now Amazon” landing page has been circulating on the Internet, notably on thet Twitter page of former JadoPado CEO Omar Kassim.

The Souq brand has been around for almost 13 years, and there have been several rounds of investments along the way.

The history of Souq’s development in the region is closely intertwined with the history of tech & internet in the Middle East. As the brand disappears, let’s review its past glories and setbacks.

Yahoo! and birth of Souq

The internet wave in the Arab world originated in Jordan, a small country with very limited resources.

In 1999, Samih Toukan and Hussam Khoury co-founded Maktoob, the world’s first free Arabic web mail service, based in Jordan.

At the time, the Middle East internet landscape was largely uncontested, and many Arabic language users could not even send and receive emails. Capitalizing on this opportunity, Maktoob soon rose and accumulated more than 10 million users.

Samih Toukan, one of the founders of Maktoob

Branching out of its core email service, Maktoob soon began replicating similar US-based platforms and diversified its business model to include news, payments, games, and so on.

During Maktoob’s second year, the team was joined by American Syrian Ronaldo Mouchawar. In 2005, Maktoob launched Souq.com, which was an auction site similar to an early version of eBay, and Ronaldo began to lead the business.

Back then, nobody would not expect this to last more than ten years. 13 years later, he is still the CEO of Souq.

Ronaldo Mouchawar

The online business in the Middle East  took a long while to take off. Yahoo! acquired Maktoob after a decade in 2009 for $164 million – the first internet giant to put some serious money in Middle East operations.

However, the acquisition did not include the auction, payment, search and gaming businesses of Maktoob. Yahoo! needed to be thanked for this generosity (or oversight), else the Souq brand would’ve disappeared 10 years ago.

Souq was part of Maktoob, which became part of Yahoo!

After the successful exit, the founders of Maktoob integrated the businesses that weren’t acquired by Yahoo to form a new company named Jabbar Internet Group. The search and games businesses gradually died out, but the ecommerce business Souq and payment system CashU continued to grow.

What happened to Maktoob?

Yahoo, which had 400 employees and 65 million users in the Middle East, closed down all its offices in the MENA region by the end of 2015, with Dubai being the last office to shut operations.

However, not all was gloom and doom. Yahoo’s acquisition of Maktoob in 2009 was a starting point for Middle East’s VC circle. The exit resulted in a group of experienced entrepreneurs founding the Jabbar Internet Group that actively invested in the Middle East startup ecosystem. Yahoo’s money also gave birth to Souq.com, which eventually reached $1 billion valuation.

In 2010, there were only 14 VCs in the MENA region with a total investment amount of US$26 million that year. By 2016, it has grown rapidly to more than 200 VCs, with a total investment of US$833 million.

Souq became unicorn

Maktoob’s acquisition led to a very low morale at Souq with everyone anxious and uncertain of the future.

Ronaldo later recalled that when Souq’s executive team was on a vacation at the Dead Sea, everyone was confused, but Samih Toukan’s words comforted all –  “we are on the right track and we will create another history.”

Ronaldo and Samih Toukan

In 2012, emerging markets worldwide experienced a new wave in ecommerce. Jabbar Internet Group invested $35 million into Souq and less than a month later, Naspers and Tiger Fund invested $40 million. This was followed by frequent rounds of funding. By the beginning of 2016, Souq had raised $US425 million and its valuation reached $US1 billion, making it the first unicorn in the MENA region.

Before being acquired by Amazon, Souq was the most powerful ecommerce company in the region. Years of growth and development helped it build a (more or less) complete logistics and payment system.

Souq has its own in-house logistics company Q Express. The last mile for most of the items on Souq are handled by this company.

Souq also acquired Wing.ae, an ecommerce logistics player, in 2017. Through Wing.ae, Souq integrates other logistics companies in the Middle East to improve the the delivery efficiency.

On the payments side, Souq has PayFort, the most well-known payment gateway in the Middle East. PayFort was formerly part of CashU mentioned above. In 2015, CashU was acquired by Genero Capital, leaving PayFort as part of Souq. In early 2017, PayFort was acquired by Amazon.

In addition to logistics and payments, Souq continues to be active in other aspects of the ecommerce ecosystem. For example, Souq invested in InstaShop, an O2O department store shopping app. Souq also has a subsidiary named Helpbit, that provides repair and help services.

Souq’s business model is similar to that of Amazon’s. Third-party sellers can open stores directly, thus attracting a lot of Chinese sellers.

“Amazon Middle East” instead of “Amazon of the Middle East”

Negotiation talks between Amazon and Souq were not straightforward and they went on for several months before the acquisition eventually took place.

The original price quoted was close to $1 billion – around the valuation of the previous round. But by 2017, Middle East’s ecommerce landscape had undergone fundamental changes.

First, Mohamed Alabbar, chairman of Dubai’s Emaar Properties, and Saudi Arabia’s sovereign wealth fund PIF announced that they would be investing $1 billion to build Noon, an ecommerce platform.

The Chinese cross-border ecommerce platform JollyChic, which was still quite low-key, made Souq see a huge gap especially in the field of operations and supply chain.

You could feel the urgency of Souq wanting to sell. After several rounds of negotiations, in March 2017, Amazon finally acquired Souq for $580 million – a steep discount from its previous valuation.

Since then, Souq has been gradually absorbed into the Amazon galaxy.

The end of an era

Amazon’s acquisition of Souq ushered Middle East’s ecommerce, and the general startup landscape into a new stage of development.

Before Souq was acquired, Yahoo was the only internet giant that paid attention to this region. Well, if you do not factor in the limited presence of AliExpress, part of Alibaba Group.

Moreover, numbers also show that the startup landscape in the MENA region is still in its early stages. Souq was able to exit because of the foundation Maktoob had already laid. However, the final valuation came at a heavy discounted, and not all the shareholders were happy.

A big question that looms over the minds of investors and entrepreneurs is–  is there enough room in the market to cultivate healthy unicorns?

On one hand, GCC countries such as Saudi Arabia and UAE have a high average basket size, but the population is small with various groups competing for the same consumer base; on the other hand, Egypt, Turkey and other populous countries have extremely high risks and uncertainties.

Exciting times still lie ahead.

 

This article was originally written in Chinese by Yating Zhao and adapted to English by Antarika Sen

Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at hello@mworks.asia.

 

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