Given the proliferation of smartphones and the expansion of internet connectivity across the Middle East in recent years, the region’s consumers are increasingly buying a growing range of products and services from online stores.
This relentless shift from offline to online — and now to mobile — follows the same pattern already seen in the more mature IT markets of North America and Western Europe, and it is driving an explosion in the growth of online spending worldwide.
The global B2C (business to consumer) e-commerce spending topped $3.8 trillion last year, and the e-commerce industry is responding to this surge in demand by launching new products and services, optimising supply chains, and engaging customers in more innovative ways than ever before.
These efforts, combined with the introduction of new business models, are helping to drive even more shoppers online, while the confidence of online shoppers is also being boosted by the spread of “sharing economy” services such as those popularised by the likes of Uber and Airbnb.
The rapid rise in internet penetration around the world is the prime driver of the e-commerce industry’s phenomenal rise, with advances in mobile internet technologies, smartphones, and broadband all serving to boost the uptake of internet-based services.
With the current rate at which global internet penetration is growing, the number of internet users worldwide is expected to reach 3.8 billion by 2020, translating into a penetration rate of 49 per cent. And as the ubiquitous smartphone continues to proliferate, the total number of Internet-enabled mobile devices worldwide is expected to grow from 4.4 billion in 2016 to 6.7 billion in 2020.
But these are not the only drivers of demand for e-commerce services. Indeed, with e-commerce companies now able to offer personalised goods and services much more effectively, they are finding themselves much better positioned to build greater loyalty and increase the usage of their online services.
An example of this service personalisation at work is the rapid growth of subscription-based television content being driven by the on-demand, curated content model offered by the likes of Amazon Prime Video, Netflix, and HBO Go.
We are also seeing considerable growth in investment in tech companies around the world, with e-commerce firms proving to be particularly popular vehicles for this investment. This has been accompanied by significant growth in the number of incubators, accelerators, and funding bodies operating in many countries, which has helped spur demand for e-commerce services even further.
In other developments, fintech companies (i.e., companies that bring technological innovation to the delivery of financial services) are disrupting the payments market. Innovations in consumer mobile devices and merchant points of sale are effectively putting an end to traditional wallets as an increasing number of digital and mobile wallets are emerging onto the scene.
In addition, alternative technologies are poised to disrupt the payments ecosystem, as contactless payments through wearables are becoming increasingly popular. Ease of payment is a key consideration for online shoppers; as such, the developments in this field are a definite boost to the market.
Examples include the launch of MasterCard Identity Check, popularly dubbed as ‘Selfie Pay’, which enables payment authentication using a self-portrait (selfie) and biometric identification. Apple Pay can also now be used to make quick and secure online payments using fingerprint scans, while WhatsApp is working on bringing instant bank-to-bank transfers to its platform.
Improvements in logistics and distribution are also making e-commerce a much more attractive proposition for consumers, with efficiency and reliability increasing considerably. The ongoing transformation of transport sectors across multiple markets has contributed significantly to these improvements.
The line between logistics and technology has started to blur as technologies such as artificial intelligence (for inventory management), warehouse robotics, drone-based delivery, and autonomous road transportation are generating a lot of interest.
The e-commerce industry relies on an efficient supply chain comprising modern warehouse facilities and distribution hubs, as well as timely shipping and delivery systems. To this end, the global shipping and delivery industry has undergone significant changes in recent years, offering e-commerce players access to flexible and attractive global shipping options and fulfilment services.
All these developments are helping to drive the use of e-commerce in the Middle East, with a growing band of consumers now using international and regional platforms — including social media, “sharing economy” applications, and listing websites — to buy and sell products and services.
With its cosmopolitan society, business-friendly environment, and strong infrastructure, the UAE is by far the most mature e-commerce market in the region, and its near-perfect conditions for e-commerce growth mean there is much more to come.
The columnist is group vice-president and regional managing director for the Middle East, Africa and Turkey at global ICT market intelligence and advisory firm International Data Corporation (IDC). He can be contacted via Twitter @JyotiIDC. Content for this week’s feature leverages global, regional, and local research studies undertaken by IDC.
