I think there is an untold story about the recent acquisition announcements of souq.com by Amazon and JadoPado by unknown local investors (speculation is Noon). Souq.com acquisition deal was so favorable to Amazon, Amazon stock gained close to $30Billion in market capitalization in less than one week after the announcement. Amazon acquired Souq for less than $650Million. A similar acquisition of a leading marketplace in the US would have gone for Billions of Dollars more. Souq.com was able to build a household brand across multiple countries, controlling 75% of the middle east consumers' e-commerce, and more than 50Million visitors per month. Souq built a franchise with a payment gateway company, a shipping handling company, and many other assets. Taking into consideration the hard work Souq team had to put to build a leading e-commerce ecosystem in the middle east, Souq was valued at $1Billion a year ago with $270M of fresh investment. Something seriously should have gone wrong for Souq to sell at such a “cheap” price.

The Pitfalls of Scaling Too Fast

• Souq may have not been able to meet the new investors' targets that caused the injection of investment agreement clauses that forced Souq to sell.
• In spite of the fresh investment, Souq could have been in a serious shortage of cash because of the spending frenzy they went through in the last 24 months. The last is the massive marketing campaigns, major development, stockpiling of inventory, and devaluation of currencies in operating countries.
• From the early days when Souq was launched, they suffered from the “Copy” syndrome. A lot of startups in the middle east suffer from the same. The “Copy” syndrome is trying to copy the success of other startups in other markets. Souq tried initially to copy ebay auction model. They kept at it for a few years and it didn’t work. Then they tried to copy the amazon e-commerce model. While they had initial success, the reality of the local market caught up with them.
  1. What can work perfectly in the US Market, may not be a fit for a local market.
  2. Controlling the entire e-commerce value chain is not a profitable model. Even Amazon is yet to make a serious profit in its retailer business. But Amazon is supported by an entire massive open economy that is welling to value such a company at $480 Billion while mostly losing money.
  3. Scaling too fast in multiple countries and building different businesses with an involving business model that led to overspending and loss of focus.
  4. The local market still has it’s own dynamics. Local physical sellers are still able to “beat” the eCommerce model with similar or lower prices for the categories that represent 60% of souq sales. In Abu Dhabi, it is still cheaper to buy an iPhone from defense road shops than buying it from Souq.

  

  JadoPado acquisition was just announced. We loved the JadoPado platform, we kept following the amazing development and great designs created by a truly innovative team. We were excited about looking at hotcake. However, when we looked at the prices and the features they are stuffing to differentiate the various subscription plans. Local sellers don’t care about disk space, bandwidth, or the total number of listings. They want leads and they want to sell with the lowest overhead margin possible! The sad part of the story the marketplace was open one day and it just closed today without any prior warning to sellers. A lot of them may have depended solely on the platform to sell. Or it may just be that JadoPado is running for the cover because of Amazon's arrival to the Middle East retailer commerce market. They may have learned the lessons from what happened when Amazon entered the Indian Marketplace with the "Take No Prisoners" attitude in dealing with competitors.