Can someone make up their mind about ecommerce?
Why PR scribes, journalists and consultants huddle over laptops, writing analysing and “researching” into the wee hours of the morning, I have no idea. It doesn’t behoove anyone to actually read any of the content that’s around at the moment because one is not only no more informed after having read the content, one is downright confused. As for me, I’m beginning to get enraged.
Allow me to elaborate. An article in Arabian Business 4 days ago titled “Ecommerce in the Middle East - a virtual gold rush” was so bullish on ecommerce it couldn’t wait to quote the $11bn figure from Arab Advisors as the amount of ecommerce that takes place per year in the Middle East. Of course the journalist doesn’t tell us how many countries are in the Arab Advisors definition of the Middle East. It can be 18 countries or as many as 38.
Arab Advisors also state that by the end of 2011, “there were more than 77.7 million internet users in the Arab World with an internet user penetration of around 22 percent” (the ITU says penetration is at 29%)
Russia incidentally has about the same number of internet users.
Later in the article, our journalist refers to a Visa ecommerce report which concentrates on the value of ecommerce in the GCC (6 countries) in 2010
- UAE $2bn
- Saudi Arabia $520m
- Qatar $375m
- Kuwait $280m
- Bahrain $175m
- Oman $70m
That gives us a total of $3.42bn
If we take this figure away from $11bn (Arab Advisors), that leaves us with $7.58bn for the “rest of the middle east”.
Remember that the Middle East can be 18 - 38 countries. Let’s take away the 6 GCC countries, which leaves us with 12 - 32 countries to play around with.
If we calculate an average ($7.58bn / 12 or $7.58bn / 32) we get figures of
$631 mn / country or $236 mn / country.
$236 mn is the same amount as Zimbabwe has made in tobacco sales since February this year.
158,000 users in Oman were responsible for this $236 million, which averages out at $1493 / user. Conveniently this is around the same amount (adjusting for currency fluctuations) as the current European is spending today on ecommerce - 1000 euros.
As if this wasn’t confusing enough, Booz & Co, usually bullish on ecommerce comes out with an article yesterday telling us that in fact no one is buying online.
Hang on. Didn’t Namshi just get another $20mn investment from JP Morgan? Does one invest $20mn in a market where less than 20% of people make purchases online?
“Four out of five said they rarely do any transactions online,” said Karim Sabbagh, a senior partner with Booz.
The report continues: “72 per cent of respondents based in the GCC rarely or never buy online, while 9 per cent said they made an internet transaction about once a month”
MarkaVip says it has over 2 million members and is on track to report $100 million of revenue in 2012
Assuming the internet users number 77.7 million, and Booz figure of 72% not buying online is correct, that means we have a total online consumer ceiling of 16 million.
If Markavip have 2 million members (admittedly not all of them may be actual current customers, some may have just signed up and not bought) – this means they have 12.5% of the total potential online consumer population in the middle east.
How much more growth can be expected then? How much of one market can one player own? Would 16 million potential consumers be attractive enough for them to have received all that investment and look at setting up their own logistics?
JP Morgan investing a further $20million in Namshi with only 16 million potential consumers – assuming no one can have 100% of the market – should give us some idea of a cost per acquisition of customer. Assume they have 1.5million members and are looking to reach 5 million members. That means CPA is about $5.71 (not an unreasonable amount… is it?!)
Frankly its all terribly confusing and doesn’t help the rest of us when trying to assess the state of the market, make business plans or talk to investors.
Things that should be clarified before anyone writes about ecommerce ever again:
- Define the countries included in any definition of “The Middle East”
- Define what activities fall under “ecommerce” when reporting. Are you counting physical goods, coupons, hotels, flights, bills, banking etc?
- Give a breakdown by industry vertical for ecommerce. EG for clothing – x amount, for financial services – y amount, for telecoms and digital goods (gaming etc) – z amount
- Do not regurgitate other figures, and do not refer to different sources in one report unless you are doing a comparison. Often the 2 or more sources contradict each other
I suspect Booz are using this piece to try and position themselves as the ecommerce consultants of choice when it comes to GCC governments. There is really no need for them to get involved. The bottleneck is at the banks. Once it costs less than $30,000 plus bank deposit (for payment gateway) to get up and running, you’ll find ecommerce grows exponentially.