Amazon has agreed to buy Dubai-based internet retailer Souq.com. The online market is one of the largest e-commerce sites in the Middle East and sells everything from consumer electronics to fashion and home goods.
For Amazon, the acquisition would give the company a foothold in a region where e-commerce is rapidly expanding. In addition, Kuwait, Saudi Arabia and the United Arab Emirates are among the top markets for mobile phone penetration.
"Souq.com is by far the most well-known and commonly used online marketplace in the region. Its reputation throughout the region is excellent, particularly from the perspective of logistics and order fulfillment. In this respect, it supplies a core competence that will make a big difference for Amazon moving forward," Craig Witt, executive vice president at MotionPoint, told FierceRetail.
Although a price is still unknown, Souq.com was said to be valued at $1 billion at the time of its latest funding round last year.
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According to Witt, the bold expansion into new markets has meant consistent year-over-year growth for Amazon. Not only has the online retailer succeeded in offering a wide variety of products at affordable prices—with fast shipping—and a completely frictionless checkout process, but now Amazon is opening physical stores in the U.S. and expanding their digital reach into new markets.
"Amazon’s potential is limitless, and geographic borders won’t slow that momentum," Witt added. "They’ve got worldwide brand recognition and have acquired a respected and trusted brand that they’ll use as a springboard into Middle Eastern markets. Perhaps most importantly, Amazon will acquire a solid logistical infrastructure in the region."
Plus, the move opens up the United Arab Emirates, "an extremely wealthy and growing market," to Amazon, according to Sam Cinquegrani, CEO and founder of ObjectWave Corp. "This will grow revenue for Souq, for Amazon—everybody wins. Amazon’s signature value proposition is that they offer incredible convenience to their customers in addition to the value of free shipping, Prime delivery, the Dash button and so on. This is why customers have embraced them, and if they bring even a portion of that convenience to online shoppers in Dubai and Abu Dhabi, they’ll generate a high level of loyalty," he added.
However, there could be some challenges with the acquisition. Amazon will have to adjust to a new set of user expectations with varying languages, customs, browsing behaviors and currencies. Witt noted that Amazon will also want to roll out new digital marketing and search strategies that align with the region's preferences and growing behaviors.
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"Adapting to new markets, rather than barreling forward with cultural blinders on, is how brands build trust," Witt said. "Because Amazon is such an established brand, it may be challenged to adapt its business practices and deliver unique user experiences to these new, local regions. But since Amazon is an e-commerce powerhouse, they almost certainly have a strong team in place poised for this very challenge."
Cinquegrani says that Amazon will have to face several challenges that come with establishing in a foreign country, including restrictions on business processes and regulations. But he agrees that if anyone has the resources to handle these things, it's Amazon.
This move to buy Souq.com would be one of several expansions that Amazon has made in the last few months.
"They want to create a more localized flair to the marketplace environment and gobble up the competition," Marshal Cohen, chief industry analyst, retail, NPD Group said. He also said that this move is a great way to acquire instant customers rather than trying to earn them one at a time.
"Amazon wants to be the No. 1 customer-centric online retailer globally," Cinquegrani said. "These acquisitions give them an introduction into geographic areas where they have no presence currently. If these acquisitions prove to be successful, they will give Amazon a rapid entry into other new markets they don't know and have, as yet, no business interest in."