On Tuesday, Amazon acquired Souq.com, the biggest ecommerce player in the Middle East.
Founded in 2005 by CEO Ronaldo Mouchawar, Dubai, United Arab Emirates-based Souq was already referred to as "the Amazon of the Middle East." The financial details of the deal were not disclosed, but a TechCrunch source estimated a selling price of $650 million.
Souq is credited for not only proving the viability of ecommerce in the region, but also in developing best practices in conversion rate optimization. The company sells a range of goods from diapers to shoes to smartwatches to neighboring Middle Eastern countries including Bahrain, Oman, Kuwait and Egypt.
The deal is the largest of its type in the Middle East. And while the buying price fell short of Souq's previous $1 billion valuation, the sales makes sense on many levels.
What Amazon Gets From Its Souq Buy
So why did Amazon acquired Souq instead of entering the region on its own? The easy answer is this: acquiring customers takes time, effort, investment, patience and an incremental mindset to adapt strategies.
And if the aftermath of Microsoft's acquisition of LinkedIn teaches us anything, it's that a go-to market strategy partner is the most valuable and undervalued asset in the world. And so on face value, there's acquisition for the sake of gaining customers, vendors, talent and trust.
Other reasons probably informed this buy. Risk mitigation would be another one. Amazon now has direct access to Souq.com's 75,000 merchants, who sell two million products across 30 categories. So that takes care of the demand and supply side of every ecommerce operation.
The acquisition also gives Amazon access to a successful and refined fulfillment operation, an area Amazon prides itself in, as logistics is the key unique selling proposition of the company. So that takes care of any concerns on whether orders can be met on time, saving Amazon the hassle of having to go through trial and error had it entered on its own.
And finally, Amazon will access Souq.com's Payfort, an online payment gateway that is popular in the region.
Amazon clearly acquired the business that qualified as its closest counterpart in the region, executing on convenience, low prices, offering a large selection and leveraging a digital strategy that enables infinite inventory, facilitates positive customer service and optimizes business margins.
Thinking Ahead: How Will Amazon Use Its New Sales Channel?
After the dust settles and a reformed Souq.com commences operations — still under its own name — it will be interesting to watch how Amazon uses its new company as a sales channel to market its own products such as Kindle Oasis, Amazon Echo Dot and Amazon Tap.
The former will likely disrupt publishing in the region, while the latter will possibly result in local advertisers and agencies finally making moves to invest in voice-based search, linking their clients and businesses ahead of time so the future users of Amazon's voice offerings are able to book a Careem, order Zaroob, schedule news alerts from Khaleej Times, and check their credit balance from Emirates NBD.
It will also be exciting to see how and when Amazon will leverage Souq to launch Prime and compete with Netflix in the Middle East.
Amazon’s stock is currently trading at US $874 with a market capitalization of US $426.13 billion. Around the time the rumors of Amazon's interest in Souq started six months ago, its stock touched its first record high of US$ 837.31 and has improved phenomenally ever since.
We are excited, to say the least, to watch this story develop. The deal is expected to finalize later this year.