Global e-commerce has disrupted many traditional businesses and business models. Vitally, e-commerce has also fostered innovation and is spurring growth in a multitude of industries.
In the Middle East, e-commerce has been gaining significant traction in recent years. Increasing numbers of individuals and businesses are using international and regional e-commerce platforms — including social media, “sharing economy” applications, and listing websites — to buy and sell products and services.
Driven by a cosmopolitan and multicultural society, a business-friendly environment, and strong infrastructure, the UAE is by far the most mature e-commerce market in the region. The UAE and Saudi Arabia are the two largest economies in the Middle East, and both enjoy near-perfect conditions for e-commerce growth.
Both markets have deep internet penetration rates (more than 70% each), high availability and penetration of mobile broadband (almost 90%), and more than 100% mobile phone penetration. The two countries also feature large populations of tech-savvy young workers and consumers.
The region has massive, largely untapped, e-commerce potential; in fact, the region is clearly on the cusp of a monumental digital transformation.
E-commerce currently accounts for only a very small share of regional retail sales, but growth in the e-tail sector is set to expand significantly. Indeed, recent events indicate rapid development and mushrooming consumer choice.
For example, Global giant Amazon acquired Dubai-based souq.com, and online retailer wadi.com raised $67 million in Series A funding, both this year, while e-commerce platform Noon.com was announced in 2016 with funding of $1 billion. Offerings of white goods, consumer goods, and other products through e-commerce platforms are becoming increasingly common. Most of the e-commerce activity in the region is still retail oriented, but service delivery via e-commerce platforms is poised to expand massively.
Two scenarios are expected to play out in the next three to five years: The first is the consolidation of e-commerce businesses as global players move into the region and acquire local companies; the second is companies flourishing that specialise in delivering services, which will drive the evolution of the “sharing economy” model of online marketplace and social transactions.
Services currently delivered regionally via the e-commerce model mainly involve transportation (companies like Uber, Careem, Carpool Arabia, Wepul, and UDrive) and hospitality (Airbnb). This market will expand to include other services in the near future.
However, much will depend on the policies and regulations that govern such services — aspects that underpin the development of the entire e-commerce ecosystem.
The region will also see increased sales and delivery of goods and services via social media. Currently, social platforms are widely used for marketing and traffic-routing purposes. In the future, retail, hospitality, and other industries will integrate these platforms into their sales and delivery operations. Bots will increasingly be used in these implementations, with chatbots acting as the initial point of customer contact. In Western markets, retailers such as H&M, Sephora, and Victoria’s Secret and fast-food chains like Taco Bell, Pizza Hut, and Burger King are among those businesses already employing such processes. In the case of food vendors, customers can place orders directly through Facebook Messenger and Twitter by messaging or interacting with the companies’ bots.
The evolution of e-commerce in the region undoubtedly offers massive growth opportunities for retail, logistics, payment services, and other industries. This evolution will contribute to the expansion of national economies. But the ecosystem still needs to be strengthened.
The key pillars of e-commerce are payment structures, logistics, well-defined regulations that protect both consumers and sellers, fair-price policies, and an environment that is favourable to start-ups. Payment systems probably constitute the strongest pillar at present, but even here, room for improvement is plentiful. e-commerce logistics, for example, are well established in the UAE, but this pillar remains a challenge in remote areas of other Middle Eastern countries. Regulations and fair-price policies clearly need to mature in ways that benefit both buyers and sellers.
Lastly, start-ups need more active incubators, accelerators, mentors, and venture capitalists — a nurturing environment that supports growth and provides scope for innovation.
— The columnist is group vice-president and regional managing director for the Middle East, Africa and Turkey at global ICT market intelligence and advisory firm International Data Corporation (IDC) He can be contacted via Twitter @JyotiIDC
