By Amir Farha
Remember 2015. Talabat gets acquired by Rocket Internet. At the time, this was the largest exit in the region at $170m. Run by one of the region’s brightest entrepreneurs, Mohammed Jaffar, Talabat was growing at > 100% year on year, and today it’s estimated that Talabat does > $500m in GMV annually. They are the largest tech company in the region today by enterprise value, and continuing to grow at extraordinary rates each year. The Germans got lucky.
Then 2016 comes along. Yahoo! decides to shut down its regional office. Around $25m to $30m in revenues, 50m to 60m visitors monthly. Gone. Nobody wanted to touch it, when in reality one of our regional media companies should have bought it for cheap and funded it to break even. Imagine what you could do with an audience of 60m monthly visitors. Imagine the talent pool across the region, and the products and services that could have been launched through the portal. A lost opportunity. And now this.
Our ecosystem has hit a major milestone this week, with the largest ever acquisition of a regional tech company. Amazon buying Souq was a long, hard and tumultuous journey for the Souq team. The fact that a massive, publicly traded US business was acquiring a company in a region filled with plenty of legal hurdles, licensing issues, lack of transparency and ultimately uncertainty, is a testament to what the team managed to do at Souq. Add to that, the noise that was being created amongst other regional players in trying to interject in the transaction. In the end, the winner was Amazon, and the loser is the large regional players who didn’t act fast enough or value the business appropriately in the first place.
Technology is a level playing field. This is important to consider, especially when regional players try to undervalue businesses based on the “value” that they bring, when in reality, they don’t bring much value in the Internet world because they don’t know how these businesses work. Hence, it only makes sense that when making an offer, they should be paying a much higher premium than Amazon because they are acquiring much more than revenues, customers or logistics, but rather know-how, talent and data, which is often the underlying value of most of these assets.
Every single large retail player in the region lost out to their US counterpart because they overvalue themselves and their relationships, and undervalue an asset that is, and will continue to disrupt their businesses overtime and will be worth much more than all of their businesses combined in the future. This attitude needs to change if the region is going to start owning the largest assets in its home markets, and avoid becoming irrelevant over time.
I am writing this with the hope that our leaders hear this message and change their approach. You cannot build these businesses without people, knowledge and insights. It’s not a money game, but a talent game. Invest to learn, and eventually acquire businesses to build real, long-term value that should be priced accordingly. And more importantly, don’t overvalue your potential contribution.