The magic of online marketplaces
BECO Capital expects online marketplaces to lead digital growth in MENA
Digital retail sales to reach US$100 billion in 2025
(Dubai- 24 August 2015) – BECO Capital, a regional venture capital firm focused on technology investments in the Gulf Cooperation Council (GCC) countries, today said that large homegrown online marketplaces will lead the digital growth in the Arab region, with retail sales alone expected to surge from the current US$ 10 billion to US$ 100 billion in 2025.
Online marketplaces bring buyers and sellers to one destination on the internet and/or via a mobile app.
Dany Farha, Chief Executive Officer of BECO Capital, says: “The opportunity to build regional US$ 1 billion online marketplaces has been unlocked, and we already have a handful of ‘unicorns’ in the making in our portfolio.”
He says that a few emerging players have captured local demand for an online marketplace that focuses on a specific vertical service. They were all able to build solid, sustainable and focused business models, each in its sector, hence the decision for BECO Capital to invest in some of these marketplaces.
“All our investments in online marketplaces possess two pillars of success. For an online marketplace to thrive, it has to be able to generate scale. The second pillar of success we looked for is the ability to trigger a dramatic transformation in an entire industry. This is achieved through a value proposition that offers a ‘brand experience’ that is new and unique.”
Such marketplaces could offer services to buyers from individual sellers, such as Careem’s transportation platform or Propertyfinder real estate platform, or they could connect buyers to merchants, such as online retail shopping like Souq.com or JadoPado.com. While doing so, they significantly increase asset utilisation for merchants and decrease search costs for consumers, therefore increasing efficiencies in a transformational manner. “Think of Propertyfinder, Bayzat, Roundmenu, Jadopado, Airbnb and Careem,” says Dany Farha. “They each enable a marketplace of buyers and sellers, under one virtual roof, typically on a smartphone or tablet, to increase exposure. Delivering more choice, quicker and for less cost in a safe environment.”
Globally, online retail sales represents 5% of all retail sales on average, with the UK and the USA leading at about 11%. In the emerging markets this figure ranges from 3% to 5%. Retail sales transacted digitally in the Arab region, including the Gulf Cooperation Council countries, are currently estimated at 1% to 2% respectively of total retail sales. There is tremendous opportunity for growth over the coming decades as digital retail sales trend towards a more balanced 25% share. This translates to digital retail sales growing from the current US$10 billion to around US$100 billion over the coming decade in MENA.
Whatever category they belong to, online marketplaces are booming globally due to their enticing business cases. As they grow in size, they create strong “network effects” that keep the leading marketplace in the driving seat.
In emerging markets, such as the Arab region, online marketplaces are even more compelling.
With scale, they become exponentially more valuable to all stakeholders, including founders, investors, merchants and consumers. The smart phone and the “on-demand” economy is driven in large part by our millennial generation, which expects to get products and services online.”
“The Middle East is at an inflection point where we are witnessing the beginning of a seismic shift, driven by strong dynamics,” says Dany Farha. “We have 85 million Internet users, 60 million smart phone users and over US$ 10 billion in ecommerce spend in 2014. We also have a nearly five times higher purchasing power per capita than India, which attracted 80% of emerging market venture capital globally, producing 15 Unicorns and many more in the making. Ours is the next story after India”, concludes Dany Farha.
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