2016: An Exciting Year for Ecommerce Startups in the Middle East

One of the fastest-growing startup markets in the Middle East is ecommerce, and a series of recent transactions will likely inspire even more entrepreneurs to consider this industry. Until only a handful of years ago, very few options for ecommerce existed in the Middle East; with the market wide open, the competition to emerge as the service of choice has been strong. Over the years, a number of major competitors have developed, each with its own niche or particular focus. Even though a handful of companies have already become household names in certain countries, new competitors continue to emerge.

Now is an extremely exciting time for Middle Eastern ecommerce entrepreneurs because investors are paying more attention to this industry. At the beginning of 2016, for example, Mumzworld.com raised multiple millions of dollars from Wamda Capital, Endeavor Catalyst, and twofour54. Mumzworld.com is an ecommerce website that caters to the needs of mothers and their young children. Shortly after that landmark announcement, Wadi.com issued a press release highlighting its $67 million in Series A funding. This unprecedented Series A round of funding represents an undisclosed valuation. The round was led by Al Tayyar Travel Group, which is based in Saudi Arabia. Wadi.com offers a vast online marketplace, similar to Amazon.

A Look at the Ecommerce Landscape in the Middle East

businessmen-152572_1280Ecommerce has grown rapidly in virtually all global markets, and the Middle East is no exception. This year, online researchers have estimated that retail sales through ecommerce websites will reach $3.6 trillion worldwide. In the Middle East, it has proven difficult for researchers to agree on a figure for the value of online retail, with estimates ranging from $7 billion to $15 billion. As Internet access expands and mobile phones grow in popularity, this valuation will only continue to increase.

According to the World Bank, mobile phone penetration in the region is as high as 96 percent, although the rates in different countries can vary considerably. Smartphone use is also increasing. In the United Arab Emirates, for example, it is estimated that 78 percent of individuals have smartphones and 88 percent of people have regular Internet access. While the majority of online transactions in the Middle East are made through traditional Internet connections, increasing demand for mobile applications indicates that more users will begin using their phones to make purchases.

The incredible potential for ecommerce in the Middle East has created an environment of fierce competition, and no one company has yet cornered the market. Wadi.com, for example, has already emerged as an industry leader despite the fact that it was created less than a year ago. The company offers more than 150,000 products, including many international items that would otherwise be difficult to obtain. Wadi.com currently operates in the United Arab Emirates and Saudi Arabia, but with its Series A funding it plans to expand into Qatar, Oman, Bahrain, and Kuwait. The company has also begun exploring options for expansion into Jordan. Today’s market is volatile, and the quick expansion of the company shows how new leaders can emerge seemingly overnight.

Despite the potential of ecommerce in the Middle East, there are still a number of hurdles that startups face. One of the biggest issues is payment. According to PayPal, four out of five online purchases in the region are paid for with cash on delivery. Credit and debit purchases account for only 15 percent of purchases, and PayPal is used for the other five percent of transactions. Logistics are another challenge. Amazon uses large warehouses to store products, but this approach is more difficult in the Middle East because of regulatory concerns, especially across international borders. Wadi.com currently processes orders directly from suppliers, which allows for faster service but also has more potential for logistical errors.

Other Middle Eastern Ecommerce Sites to Watch

officeAt present, it seems that the main competition for Wadi.com is Souq.com, which operates in Egypt and the Gulf Cooperation Council (GCC) states: Qatar, Bahrain, Oman, the United Arab Emirates, Kuwait, and Saudi Arabia. Each month, the website has more than 23 million visitors, which has driven its valuation up to $1 billion. In total, the company has secured $150 million in investments, half of which were raised last year alone.

Souq.com and Wadi.com, however, are not the only ecommerce startups in the Middle East with significant market share. Some other companies worthy of mention include Aido.com, Awok.com, and MarkaVIP, the latter of which has increased sales through an invitation-only strategy similar to that of Gilt Group. Cobone is another popular site that attracts customers with its daily special deals, and Namshi.com, a service similar to Zappos, has laid claim to the footwear market. In Iran, Digikala has emerged as the ecommerce platform of choice. The company boasts a 200 percent annual growth and is planning its expansion into Afghanistan, Iraq, and Turkmenistan. In Saudi Arabia, Dokkan Afkar has carved out considerable market share.