Amazon confirms acquisition of Souq, marking its move into the Middle East

Amazon today confirmed that it has acquired, an e-commerce marketplace serving the Middle East based out of Dubai, which was already commonly described as “the Amazon of the Middle East.” We had reported last week that the companies had already reached an agreement and that “the ink [was] dry” on a deal that was valued at around $650 million. Amazon today did not disclose the price in a short statement announcing the deal, although we are confident of our sources on the price we reported.

The announcement caps off several months of speculation about the fate of Souq. The company had originally been in talks with Amazon to acquire a 30 percent stake that would have valued that company at $1 billion, before entering into negotiations for an outright sale. Others reportedly interested in the company included eBay and Emirati retail group Majid Al Futtaim.

In the last couple of days, Bloomberg also reported that Mohamed Alabbar — whose firm owns The Dubai Mall and the Burj Khalifa; a stake in logistics company Aramex; and is trying to get its own rival site off the ground — was also interested in the company. However, it sounds like this was little more than smoke and mirrors, and perhaps a late realisation that it’s actually super hard to get a marketplace off the ground. Our sources had told us the deal had already been done between Amazon and Souq.

Amazon’s acquisition of Souq marks the company’s first move into serving the Middle East region, which covers a total of some 50 million consumers across several countries, as well as a relatively untapped market: only about two percent of all retail spend today is made online, according to a report from McKinsey.

Souq gives Amazon an immediate leg up rather than building a new service from the ground up: the company includes both a payments and fulfilment infrastructure, along with a marketplace that already has some 4 million products and works with thousands of merchants to help sell their goods online.

Amazon and share the same DNA – we’re both driven by customers, invention, and long-term thinking,” said Russ Grandinetti, Amazon Senior Vice President, International Consumer, in a statement. “ pioneered e-commerce in the Middle East, creating a great shopping experience for their customers. We’re looking forward to both learning from and supporting them with Amazon technology and global resources. And together, we’ll work hard to provide the best possible service for millions of customers in the Middle East.”

Amazon is treating this as a bolt-on acquisition, bringing on management and other teams, along with the existing business.

“We are guided by many of the same principles as Amazon, and this acquisition is a critical next step in growing our e-commerce presence on behalf of customers across the region,” aded CEO and Co-Founder Ronaldo Mouchawar. “By becoming part of the Amazon family, we’ll be able to vastly expand our delivery capabilities and customer selection much faster, as well as continue Amazon’s great track record of empowering sellers.”

The deal represents an interesting, if possibly predictable, landing for Souq, which was originally founded in 2005 but became what we know it as today in 2009 when Yahoo acquired an internet portal founded by Mouchawar called Maktoob, but was not interested in the its existing e-commerce business.

Souq was valued at around $1 billion in its last funding round, so a $650 million price tag is most certainly a step down from this. However, it still represents a return for investors, who collectively put some $425 million into the company. Those investors included Ballie Gifford, IFC Venture Capital Group, Jabbar Internet Group, MENA Venture Investments, Naspers, Standard Chartered Bank and Tiger Global Management.

In the years between 2009 and now, Souq has been the largest of a handful of companies to tap into a growing class of consumers who are turning to the Internet and their mobile devices to buy goods and services. Other existing companies include Wadi, which last year raised $67 million, and Rocket Internet-backed Namshi.

The acquisition of Souq is the latest move from Amazon to expand in the general region. Up to now, many of its moves in neighboring markets have been organic — that is, Amazon building its international operations from the ground up rather than through acquisitions.

Chief among them is India, where the company has invested billions to build out its business in the country. Just as Amazon’s move to buy Souq is made in part while keeping an eye out for competition in the Middle East, it’s also up against would-be clones and rivals in these other markets. In India, the main competition comes in the form of two businesses, Flipkart and Snapdeal — which are reportedly now talking about a merger, partly it seems in response to the billions that Amazon is investing in its business there. Flipkart is also being linked with the acquisition of eBay India, although eBay has declined to comment on rumor and speculation when contacted for a comment.

One question now is whether this move is a one-off or whether Amazon is showing us that it now has the appetite to digest more regional giants, which are patiently waiting in the wings for what comes next.