Saudi Arabia’s e-commerce sector is set to explode, and the IT sector in the country will see increased demand as a result
The battle for Saudi Arabia’s e-commerce market is hotting up, after US tech giant Amazon purchased Gulf retailer Souq.com last year, in a bid to spread its reach into the kingdom.
Meanwhile, Saudi Arabia’s first homegrown mega e-tailer, Noon, launched with startup capital of $1bn in late 2017.
With the largest economy in the GCC and the youngest internet-connected population in the world, the kingdom represents a golden opportunity for the world’s online retailers. E-commerce sales in Saudi Arabia are expected to surge to $13.9bn by 2021, from about $8.7bn in 2017, according to market research firm BMI.
This national growth surge presents enormous opportunities for IT players right across the kingdom’s tech sector: from data analytics and server hosting companies to those supplying cyber security and last-mile tech.
“Among the social, business and technology tiers of the e-commerce market, the opportunity for the tech tier is possibly the largest,” according to Saurabh Verma, associate director of digital transformation practice at management consultant firm Frost & Sullivan.
“This is a huge opportunity for hosting and cloud companies, especially as many Saudi companies also rely on the cloud to manage IT security,” said Verma.
“From a logistics perspective, the opportunity is quite significant too, because Saudi Arabia has a large geographic area and many of the remote areas are not well covered by the delivery companies yet.”
A lot to play for
According to Sam Blatteis, CEO of The MENA Catalysts, a regional government affairs firm that has worked extensively in Saudi Arabia, there is “a lot to play for” in the kingdom.
“The government is rolling out a $260bn budget – the largest in the country’s history,” said Blatteis. “The ground has shifted in Saudi Arabia. The youth has grown from a minority [demographic] to 70% of the country. The kingdom has gone from single-digit internet penetration in the year 2000 to a user base of over 23 million, which is more than Texas.”
Blatteis added that the battle between online and offline industries in Saudi Arabia is set to accelerate. He said the number of tech incubators and accelerators in the country has already quadrupled in the last eight years, from 15 to 60.
As Saudi Arabia looks to future-proof its economy and technology becomes central to its society, the cloud will sit at the core of that transformation. According to MENA Catalysts research, the kingdom has already invested over $4bn in cloud computing while the country’s cloud computing economy has grown 50% on average per year between 2013 and 2017.
“Many datacentres and cloud service providers are eyeing the Saudi market. They are beginning to vote with their feet, establishing physical datacentres in the country, which makes sense,” said Blatteis.
“The lack of availability of local cloud datacenters has been one of the major factors inhibiting the large-scale use of public cloud platforms in-country until the last 12 months when things have begun to shift,” he said.
Potential for IT security firms
Amid the upcoming national e-commerce boom, Blatteis also predicted huge potential for IT security firms.
“According to reports from Saudi Arabia’s National Cybersecurity Center, the kingdom sustains 160,000 cyber attacks per day. Saudi Arabia lost 21bn SAR ($5.6bn) to cyber crime in 2016, and the numbers have gone up,” he said.
As the kingdom’s e-commerce market grows, the country will also be required to grow its logistics market in tandem to meet demand, according to Kushal Nahata, CEO and co-founder of logistics software firm FarEye.
“We started our journey in the Middle East market by onboarding our very first client in the region in 2014,” he said. “Since then, there has been tremendous growth in the e-commerce industry through digitisation and evolving customer expectations.”
To support the exponential growth in the e-commerce industry, there is a need for a strong logistics backbone. “Delivery is the first touchpoint for a customer in an e-commerce landscape, and in many cases a deciding factor for repeat purchases. Additionally, millennials today are accustomed to speed, convenience and personalisation of services.
“Fulfilling consumer demands calls for technology platforms that can easily support innovative new delivery models that are scalable, cost-effective, more engaging and derive higher value from every interaction,” said Nahata.
“There is an immense opportunity for big data companies that can place actionable information right in front of planners, senior executives and stakeholders across enterprises for them to be able to drive profitable growth and exceptional customer service,” he said.
Online buying habits
Mohammad Meraj Hoda, vice-president of business development at Amazon-owned video doorbell company Ring, predicted an uptick in sales as Saudi Arabian customers become increasingly sophisticated in their online buying habits.
“Mature consumers, proper broadband and data connectivity, as well as product availability with consistent pricing, are going to help drive growth,” said Hoda.
Overall, Saudi Arabia’s tech market is on the rise. “With the rise in e-commerce and the announcement of Saudi Arabia’s Vision 2030, investment in IT – particularly the big data market – is increasing,” said Nahata.
“This presents huge opportunities and a win-win situation for both e-commerce companies that want to stand out from the crowd and tech companies looking to gain market share.”