Amazon’s Acquisition of Souq.com: a Digital Strategy Perspective

Souq.com Digital Strategy

Souq.com has been dubbed the “Amazon of the Middle East”: it is the largest eccommerce platform in the Arab world, averaging more than 39 million monthly visits. The site began as an auction site in 2005, under the internet portal, maktoob.com (later acquired by Yahoo!), and became a shopping site in 2011. It has since raised $425 million, the latest round in February 2016.
With the recent announcement of Amazon’s purchase of souq.com, Similarweb’s analysts took a look at trends related to the company’s digital strategy in its core markets, in an attempt to shed light on some of the reasons behind this purchase.

Traffic & Engagement

Over the past year, souq.com received an average of 39M global monthly visits, 68% of which were on desktop. This figure represents an increase of 21% since February 2015. Egypt provided the greatest amount of traffic to souq.com at 47% over the past year, followed by the United Arab Emirates and Saudi Arabia, with 22% each.

While Egypt has certainly led the way in terms of total visits, Similarweb’s engagement metrics allow us to gain a deeper understanding of traffic quality. Using measurements such as bounce rate, we can find which of souq.com’s geographical markets will be the most valuable for Amazon following this purchase.

As seen here, though massive in quantity, Egyptian audiences are the least engaged, with an average bounce rate of 64.8%. Visitors from the United Arab Emirates are the most engaged, with only a 37.3% bounce rate over the past year.
Moreover, looking at website traffic over time, we find that while Egypt’s traffic share has decreased by 51% over the past year, the United Arab Emirates has come up 17 percentage points in its share of souq.com traffic, surpassing Egypt for the first time on January 2017. Other countries’ shares have also increased, by nine percentage points overall, indicating that souq.com’s visitors are becoming more diverse, and include countries that have more spending power.

Market Share

Souq.com is a leader in market share and is the most popular shopping site in two of its top three countries, outranked only by Amazon.com in Saudi Arabia. Below we outline its share among the top 10 Shopping sites in each country, over the past two years:

Souq.com has increased its share of the Shopping category in Egypt and the United Arab Emirates by four and nine percentage points over the past two years. However, these markets have also seen an increase in amazon.com traffic, up by seven and six percentage points, respectively. Conversely, aliexpress.com, a major player in 2015, dropped by a respective 22 and 23 percentage points in Egypt and the United Arab Emirates over the past two years.
Additionally, we find that these markets have been, and continue to be, rather concentrated. This situation, where the top 5 players receive 90% of the traffic to the top 10 Shopping sites in Egypt, leaves much room for the new partnership to strengthen its place.
The Saudi Arabian market, however, behaves differently. In this market, souq.com’s share dropped by seven percentage points over the past two years, while amazon.com’s share increased by 12 percentage points – overtaking souq.com’s position in that country. Saudi Arabia also sees its smaller players taking a more significant role in the market. These include wadi.com and jarir.com – each improving their place by six percentage points, creating a more competitive market for the new partnership. 

Traffic Sources

Traffic sources can provide us a glimpse at each company’s digital marketing strategies. Here, we show the differences between souq.com’s digital strategy, and that of amazon.com, over the past year. It appears that amazon.com is doing better at obtaining traffic through higher quality sources: it is doing better than souq.com in direct traffic, referrals, and organic search, while souq.com is investing more in display ads and in PPC traffic.
While amazon.com’s local traffic sources are more-or-less in line with Amazon’s global digital strategy, souq.com’s favoring of certain traffic sources – namely display ads, indicates that Amazon may have to adjust its digital strategy to fit into the local markets served by souq.com.

Shopping Holidays

In 2014, souq.com brought the American shopping holiday, Black Friday to the Arab world, coining the name “White Friday”, in respect of Friday’s holy status in Muslim culture.

The above chart shows the increasing popularity of “White Friday” across the Shopping category in Egypt over the past two years.
Comparing White Friday visits to the annual average, we find that souq.com was able to increase its traffic during the 2015 shopping holiday by 31% over the annual average and further increased that by another 29% in 2016.
Other Shopping sites, including amazon.com, were unable to improve on their White Friday performance between 2015 and 2016, and most actually saw fewer visitors in the second year. The only other brand to improve over the two years was jumia.com.eg, which increased its White Friday share by 28.6%, making up for lower-than-average visits in 2015.

Mobile App Performance

Audiences worldwide are becoming more and more exposed to the mobile internet. The United Arab Emirates has 7.27M active mobile internet users and has seen a 21% increase in mobile subscriptions to 76% of the population in 2015 alone. For this reason, measuring an app’s performance is another strong indicator of brand performance.
While this measure becomes ever more important, this is one area where souq.com isn’t performing as well as Amazon. While souq.com’s install rate has averaged 13.04% over the past two years, it has been slowly decreasing by 4% over two years, while the Amazon apps, Amazon and Amazon Shopping, have increased by 96% and 160%.  These are still a relatively low 1.26% and 1.97% of total Android devices, but they are increasing over time.
Note: Amazon currently operates two apps: Amazon (not available on Google Play) and Amazon Shopping.
Additionally, while install rates haven’t changed much, souq.com’s users are less active on the app, with active users decreasing by nearly 50%, as Amazon app’s users increase their usage by 3%, surpassing Souq’s active user percentage over the last two months.

Summary

Souq.com has spent the past six years developing the Digital Shopping industry in the Middle East and has become the most popular shopping destination in each of these countries over the past two years. However, as the e-commerce world continues to grow, it has found itself competing with both smaller local firms, as well as major global companies – like Amazon and Aliexpress.
Though it has succeeded in thwarting its competitors from the Far East – Souq has seen a significant increase in Amazon’s presence across its most popular markets and has even lost its majority place in Saudi Arabia.
For this reason, it is clear why Souq.com would be inclined to accept the deal from Amazon. However, Amazon’s reasons for purchasing demand a deeper understanding of the Middle Eastern Digital Shopping world. It is likely that Amazon will enjoy the fruits of Souq.com’s labor of entering the UAE market while continuing to utilize Amazon’s global digital marketing techniques. They might also choose to go in the footsteps of Souq and build on the display advertising which has brought the brand its success until now. Amazon will also likely utilize Souq’s branded “White Friday” promotions, to bring local consumers in on the busiest shopping day of the year.
We have yet to see how the two companies will merge their e-commerce businesses, but it will be interesting to find out how each company’s unique digital strategy will be expressed once the merge is completed.