The land of the black gold as it was called by the west decades ago, will be soon called as the land of Tech Gold.
Global players in the Internet industry have been eyeing the Middle Eastern markets with great interest.
It all started out in the year 2009. The Internet search engine giant Yahoo! bought Maktoob.com. the company behind the largest Arab online community, in a bid to strengthen its presence in the region.
A South Africa headquartered Internet firm, Naspers, has announced acquiring stake in Middle East online classifieds website Dubizzle.com.
Dice Holdings , a provider of specialized career websites acquired Dubai-based WorldwideWorker, a global recruitment site for the energy industry, for up to $9 million.
In a long line of global names comes a new player, LivingSocial.
LivingSocial is a deal-of-the-day company headquartered in Washington, D.C.
It is the fastest growing company in the e-commerce space and specializes in localized daily deals across 240+ markets in over 12 countries.
The company released its first daily deal on July 27, 2009, for the restaurant Zengo in DC?s Chinatown, and since that point has grown to over 26 million email subscribers.
LivingSocial currently has 39 million subscribers and 2,000 employees in its 21 countries. The company expects to make $1 billion revenue this year.
LivingSocial, the second-largest deals provider after Groupon, expanded its reach in Asia when it announced its triple acquisition.
DealKeren in Indonesia, its parent company Ensogo, which operates in Thailand and the Philippines, and GoNabit, which offers deals in Dubai, Abu Dhabi, Lebanon, Jordan and Kuwait.
?We are excited to enter the dynamic Asian market and our presence in the Middle East and the Netherlands further strengthens our strategic global efforts to bring LivingSocial values to members across the globe,? LivingSocial chief executive and co-founder Tim O?Shaughnessy said.
As LivingSocial has done in the past, the terms of the deals were not disclosed.
From the announcement, which also includes the group’s launch in the Netherlands:
“These three acquisitions and the Netherlands launch bring the total number of countries in which LivingSocial operates to 21. The company’s reach now spans six of the seven continents. Ensogo, with members in the Philippines, Thailand andIndonesia, marks the first LivingSocial acquisition in Asia.
Officially launched in June 2010, Ensogo is known as the No. 1 social shopping website in Thailand, Philippines, and Indonesia and currently serves more than 800,000 members. It continues to gain massive popularity and trust among Asian consumers as the market share leader, and Ensogo members have saved more than $25 million USD in the past year.? Ensogo is backed by Rebate Networks, a leading international VC specializing in the social commerce space.”
GoNabit is a venture launched by two friends, a Canadian Dan Stuart and an Iranian Sohrab Jahanbani, in June 2010.
Since its launch is has gathered about 200,000 subscribers, according to Gulf News.
In an article by The New York Times, Stuart said over 100,000 vouchers have been sold in its first year of operations, with 97% of its 800 deals tipping.
ArabianGazette.com had earlier reported “GoNabit was the first social media based coupon site to be established in the Gulf and the first Arabic group buying site globally.
GoNabit estimates that its subscribers throughout the UAE and in three other Middle East countries have saved more than $5 million via bulk buying online deals.
These recent acquisitions are part of LivingSocial?s aggressive global expansion following the $400 million round of funding it raised in April.
Prior to this triple acquisition, the group acquired French daily deal site Dealissime.com for an undisclosed sum last month.
According to the Wall Street Journal, the funds were raised by Lightspeed Venture Partners and Amazon.com, existing LivingSocial investors.
LivingSocial believes in the strategy that to succeed in a particular market local presence is vital.
With a business model that is so easy to duplicate, LivingSocial has stood out from the pack of clones through strong brand differentiation and rapid expansion into new markets.
LivingSocial?s senior vice president of corporate and business development Jake Maas told Reuters that the company?s ?strategy is to partner with and work with local teams who share the long-term vision of LivingSocial.?
The driving force for LivingSocial is apparent, beating Groupon.
In april 2011, when LivingSocial bought SocialMedia with company stock, TechCrunch reported that according to details outlined in the deal, LivingSocial’s valuation stood close to USD 3bn, with revenue of USD 50m per month.
The monthly revenue figure confirms the company’s claim that it is on track to generate more than USD 1bn in revenue this year.
While the figures indicate LivingSocial is performing healthily, it still has some way to go before it catches up to the number one daily deals site Groupon, which is likely to be valued at between USD 15bn and USD 20bn in its initial public offering later this year.
But LivingSocial is expanding rapidly, boasting a subscriber base of more than 26m and a presence in a dozen countries.
The best overtake strategy that LivingSocial has devised is to buy the rival of Groupons, this way there is less competiion and it would be on its way to beating its biggest competitor.
Jon Russel of ZDNet Asia, LivingSocial’s rival Groupon had partnered with Tecent’s investment in Ensogo rival Sanook Coupon.
Also, Ensogo has presence in the Philippines, where Groupon already enjoys a presence, thus making Ensogo an unlikely target for Groupon.
Perhaps then there is little surprise to see LivingSocial step in and take its first steps into Asia in the Philippines and Thailand – via Ensogo – and Indnesia – through DealKeren.
Slow and steady
These deals extends the reach of LivingSocial to 21 countries ? which is short of Groupon?s 43-nation network ? but TechCrunch?s Sarah Lacy warns LivingSocial to be wary of being blindsided in its race to catch-up with Groupon.
?How can LivingSocial beat a better-funded competitor with more name recognition who has a 22-country head start on them? Ironically by moving more slowly, throwing around less cash and being smarter with local hires, not pricey consultants and MBAs,? she wrote.
?While Groupon has done incredibly well in many markets, you could argue that ?head start? has been as much of a curse for the company as a blessing,? she added.
Stark differences in the geographic, demographic and advertising targets of Groupon and LivingSocial suggest that the sheer size and raw potential of the unclaimed market has meant that group buying businesses are engaged in a free-for-all land grab of markets and merchants. Guided by the logic that it?s easier to build a new market than to steal one away, these companies seem to benefit more from expansion rather than direct head-to-head competition.
Why GoNabit ?
There are other players in the market like Cobone, NailtheDeal and YallaBanana operating in the Middle East.
As per Alexa online statistics report, the largest group buying site in the Gulf is Cobone.
Today it is the market leader in the Gulf.
So why LivingSocial go for GoNabit, whereas it could have gotten a large piece of the pie if, it had bought Cobone.
Similar Business thinking
The business model of GoNabit is a mix of social media and e-commerce.
As per Dan Stuart, GoNabit wanted to contribute to the growth of e-commerce in the region by supporting e-commerce in the Gulf? and overseas by developing it, supporting it, speaking about it, innovating around it, and promoting it.
According to Stuart, GoNabit has followed the model of global leaders and do not offer cash on delivery, and that is because of their long running relationship with Visa.”
Tim O’Shaughnessy, CEO and co-founder, LivingSocial in a statement said, “As with previous acquisitions, LivingSocial has again chosen to align with local companies that possess similar values and ways of doing business”.
Hence, it makes sense why LivingSocial chose to pick GoNabit from among the lot, which is inline with the LivingSocial strategy of picking the low lying fruit.
Also, the strong tie-up that GoNabit has got with Visa would have been another strong point.
Closed for options
Cobone is backed by the Jabbar Internet Group, who also owns SOUQ.com.
In an recent interview Samih Toukan, CEO of Jabbar Internet Group when asked on what advice he would give for entrepreneurs and start-ups working in the digital industry in the Middle East he said, “There is a lot we learned during our ten year journey. Now is a better time for digital as penetration is higher and more investment is available compared to the time when we started. I advise entrepreneurs to take this as a long term business, build a sustainable revenue model, and build a strong team, brand and company culture. I advise them to focus on building their companies and not on how to exit the company and become rich, which will come as a reward when you have a solid business.”
Therefore, it seems unlikely Cobone was open to any offer, if at all LivingSocial had approached them for a buyout.
Valuation: Gone Crazy ?
The daily deals space is becoming increasingly competitive, with a number of Groupon and LivingSocial copycats springing up in the last year to take advantage of niche markets and location-based deals.
BIA/Kelsey forecasts that US spend on daily deals websites could hit as high as USD6.1bn by 2015, up from just USD873m last year.
On 2nd June 2011 the leader in online deal offerings of both goods and services, Groupon, filed for an IPO to raise up to $750 million, making Groupon take the lead in what would be one of this year?s most high-profile IPOs (WSJ).
Groupon Inc. earned $644.7 million in revenue for the first quarter of the 2011 year, after selling 28.1 million Groupons at the end of March. It is reported that the company has deals with nearly 57,000 local merchants in 43 countries.
After being founded in 2008 and having grown nearly 20,000% from June 2009, Groupon reportedly turned down a $6 billion offer from Google Inc. last year.
Groupon, in its filing to US market regulator Securities and Exchanges Commission as part its initial public offering or IPO, said its revenues grew from $30 million in sales in 2009 to $713 million in 2010 – although lion?s share of that is from costly acquisitions. More importantly, losses were $413million in the year to December 2010.
Sucharita Mulpuru, analyst at market research firm Forrester, in her official blog on June 8, in an article titled ?An Open Letter To Anyone Planning To Buy Into Groupon?s IP?, had some stark warnings about Groupon, which is seeking a $20 billion valuation in its IPO.
?This IPO game isn?t about finding value, it?s about finding a greater fool who actually believes the valuation is true,?Malpuru wrote. ?Trust me, you will be the fool.? Mulpuru has an advice too. ?Give Groupon time to actually earn its valuation.?
Utpal Dholakia, a management professor at Rice Univeristy in Texas, published the results of comparative analysis of consumer and merchant behaviour on five daily deal sites in the US including Groupon, Livnigsocial, OpenTable, Travelzoo, and BuyWithMe.
Based on his analysis of 324 businesses that conducted a daily deal promotion between August 2009 and March 2011, Dholakia concluded: ?Over the next few years, it is likely that daily deal sites will have to settle for lower shares of revenues from businesses compared with their current levels, and it will be harder and more expensive for them to find viable candidates to fill their pipelines of daily deals.?
Next Tech Bubble in the waiting?
Murthy, founder and chief executive of Seedfund, has a very gloomy outlook on the sector.
?This daily-deal bubble will implode in the next 6 months – already you?re seeing signs of companies dying out here and almost nobody making money in the business,? said Murthy. According to him there is little room for differentiation between the deal sites and sometimes they all offer the same deals, eventually making them all look just the same to customers.
Peter Elbaor from comScore Blogs says that part of the excitement surrounding Groupon and LivingSocial is that they are part of the new tech boom, led by companies such Facebook, Linkedin, Twitter, Zynga, and others reportedly on the road to going public.
But some question whether these sites warrant this much investor interest, or if their valuations are fueled by the rosy assumptions and optimism of a bubble yet to burst.
Sources: http://socialtimes.com, http://digitalmedia.strategyeye.com, http://www.zdnetasia.com, http://econsultancy.com, http://www.freedomcurrent.com, www.dnaindia.com, http://blog.comscore.com