The Growing Role of eCommerce in the Middle East's Sharing Economy
Global ecommerce has disrupted many traditional businesses and business models, spurring a new era of innovation and growth across a multitude of industries.
In the Middle East, ecommerce has been gaining significant traction in recent years. Increasing numbers of individuals and businesses are using international and regional ecommerce platforms – including social media, 'sharing economy' applications, and listing websites – to buy and sell products and services.
Driven by its cosmopolitan and multicultural society, business-friendly environment, and strong infrastructure, the UAE is by far the most mature ecommerce 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 ecommerce 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 boast large populations of tech-savvy young workers and consumers.
Against this backdrop, it is clear that the Gulf region harbors massive ecommerce potential. And while this potential is currently largely untapped, the region is clearly on the cusp of a monumental digital transformation.
Ecommerce currently accounts for only a very small share of retail sales in the region, but growth in the so-called '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 earlier this year, while online retailer Wadi.com raised $67 million in Series A funding. Meanwhile, ecommerce platform Noon.com was announced in 2016 with funding of $1 billion.
Offerings of white goods, consumer goods, and other products through ecommerce platforms are becoming increasingly common. And while most of the region's ecommerce activity is still retail oriented, service delivery via ecommerce 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 ecommerce businesses as global players move into the region and acquire local companies; the second is the flourishing of companies that specialize in delivering services, which will drive the evolution of the 'sharing economy' model of online marketplace and social transactions.
Services currently delivered in the region via the ecommerce model mainly involve transportation (companies like Uber, Careem, Carpool Arabia, Wepul, and UDrive) and hospitality (Airbnb). And while we expect this market to expand to include other services in the near future, much will depend on the policies and regulations that govern such services, a consideration that underpins the development of the entire ecommerce 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 – together with fast-food chains like Taco Bell, Pizza Hut, and Burger King – are 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 ecommerce 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 ecommerce are payment structures, logistics, well-defined regulations that protect both consumers and sellers, fair-price policies, and an environment that is favorable to start-ups. Payment systems probably constitute the strongest pillar at present, but even here, room for improvement is plentiful.
Indeed, while ecommerce logistics are well established in the UAE, this pillar remains a considerable challenge in the more remote areas of other Middle Eastern countries. Regulations and fair-price policies also 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.