These are exciting times for MENA’s online industry. Traditional sectoral investors are starting to worry about the impact of low oil prices, a potential slowdown in construction and real-estate, and eroding margins in telecom and banking. On the other hand, online businesses continue to thrive thanks to high demand and adoption of transactional services, as well as the transformation of the “always on” generation into household decision makers and holders.
MENA Internet providers have experienced 15 years of nonstop growth, bringing faster and cheaper services to users who are steadily migrating from desktop computers to smartphones to access the web. This has created a fertile environment for the creation of disruptive business models, driven by 175 million Internet users who are willing to pay for the increased comfort and convenience the Internet brings to their lives.
A whole host of sectors are already being disrupted. These include the media industry, where consumption of content on smartphones and computers has already exceeded that of traditional media; the food and beverage sector, where users are moving to online food ordering and restaurant reservations; transportation and travel sector, where mobile taxi ordering, online ticketing and hotel reservations are becoming the standard tool for users to fulfil their needs; and the automotive industry, which is becoming increasingly reliant on online services for selling and buying pre-owned cars.
One of the latest trends has seen founders venturing into new industries such as education and local services like cleaning, laundry and plumbing which are destined to move online due to existing inefficient and opaque business models that are perfect for the Internet to transform.
While in retail, pure-play online retailers are continuing to grow rapidly. However, with the commoditization of online retail’s full value-chain, this sector of the online industry is beginning to resemble traditional traders and retailers rather than online businesses.
The reason for this is that cost and delivery time are offline and non-scalable components of the business model, in contrast to the models outlined above which possess an inherent online advantage. Consequently, the e-retail business model has narrow margins and very high capital requirements, which oppose the typical features of online business models. That’s why the winners of e-retail (or fulfillment e-commerce) are expected to be traditional retailers who are fast becoming multichannel retailers, and the providers of enablement services for those players –hence the tremendous growth being witnessed in online payment services, online advertising service providers, and the providers of professional services for those companies such as strategy and technical development.
In terms of market value, Saudi Arabia and the United Arab Emirates remain must-win territories for most online business models. More often than not, if an online business succeeds in Saudi Arabia, then they will also perform well in the rest of the GCC and the Levant.
The dark horse of online regional markets is Egypt. Even though penetration remains low there, the absolute number of users is growing. Morocco is split between MENA and Francophone online services, waiting for a more aggressive expansion strategy by GCC-based online services in order to make it a core market in MENA alongside Saudi, UAE, and Egypt.
Day by day, winners are emerging in MENA’s online business landscape, though size and scalability pose significant challenges, thus lending an advantage to online business platforms that operate diversified but synergistic models and that can leverage economies of scale in terms of shared services, knowledge, and pools of capital. Over the next 12 to18 months, big winners will emerge, and billion dollar businesses will be created in the online industry faster than any other industry in the history of business in the MENA region. This market will not wait for the laggards.