A Start-up Region. The Arab Internet Spring (Observations from the Third Circle)

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Dear friends,

With an average age of about 26, the Middle East region is one of the youngest in the world. It is among the most challenging. The region suffers from slow economic growth, resulting in low GDP and low income rates, coupled with one of the highest levels of unemployment in the world. The global economic challenges, and the political events in the region itself, cast dark shadows over the great economic potential the Middle East region has to offer. I believe the Middle East can become one of the fastest growing markets in the world in the next decade. Such a dramatic change can be triggered by investing in the Arab Internet market. This is not about philanthropy, but rather an excellent investment opportunity. It is an opportunity to address, and integrate some 350 million people, who live in 22 countries.  This is the power of the Arab Internet. This “Arab Internet Spring” can breathe new life into the Middle East economy and bring a new day to its youth bulge. Moreover, it can increase the level of economic stability and potential growth for the region. The Internet can be the engine that will drive the Middle East to a new era of growth.

The region is dramatically reshaping and reinventing itself. For the first time in generations, there are green shoots of new and dynamic business initiatives, in the Arabic language Internet and Mobile sectors. Internet accelerators and incubators are being established throughout the region – more than a dozen launched in the last year. New products are being debuted. The market is becoming more inter – and intra – connected – within the individual countries, between countries in the region, and within the global economy.

The Arabic-speaking Internet market has the potential to fulfill the promise associated with other, more developed marketplaces like the Russian-speaking or Spanish-speaking marketplaces. Over 99 million of the Middle East Arabic-speaking users are already online, and that number has grown by more than 2200% in the past decade. It’s already the 5th most popular language online. And with only some 30% of the world’s Arabic speakers online, there is significant room to grow. Given current trends, many more will be online in the very near future. The Arab Internet market will be the 4th largest Internet market – following English, Chinese and Spanish…

Despite the substantial size and growth potential of this market, the “content gap” is, in fact, a chasm. Only 1.5-2% of Internet content is in Arabic; the supply of high-quality and well-supported mobile applications is equally scarce. Arabic speaking Internet users express, not surprisingly, a strong preference for online and mobile content and applications in their native language, rather than English. But, more than 7 million new websites in Arabic would need to be launched to meet the global content-to-user ratio of 1:10 sites-to-users (for reference, the ratio for English speakers is closer to 1:3). Today, it is estimated that there are only about 300,000+ unique websites in Arabic (representing a ratio of 1:300). As a business tool, the Internet remains an under-utilized resource. Fewer than 4% of the small and medium sized businesses (SMB) in the Middle East have a webpage, as compared to more than 45% of similar enterprises in Europe. Small and new businesses are the job creation engine in the modern economy. And in the Middle East, job growth is a critical component of stability, let alone growth. The labor force is growing by leaps and bounds – expected to reach 185 million by 2020.  To meet demand, the economies of the region need to produce nearly 75 million new work places in the coming decade.  The Internet can play a catalyzing role here.

More than 60% of the population in the Middle East are younger than 30 – and they’re coming online at a remarkable rate. Arabic is already the fastest growing languages on Facebook, Twitter and LinkedIn. And Internet is playing a more central role in the economies of the region. More Egyptians, for example, get their news on-line than from newspapers. Wherever Internet is introduced and supported, it brings connectivity, information, knowledge and efficiencies into the entire economic ecosystem and ultimately that is good for job creation and economic growth.

The Middle East region needs to be part of the globalized Internet economy. We’re in the midst of some of the most important shifts in several generations. The rise of a technologically savvy, inter-connected and entrepreneurial generation has the ability to bring sustained change to the region, and to its economic growth. I believe the Middle East entire economy represents one of the most important growth opportunities in the world today – driven mainly by the awakening of the Arabic language Internet.

The Internet world with its infrastructure, content, services and applications, is led by the English speaking high tech companies such as Amazon, Apple, Cisco, eBay, Facebook, Google, LinkedIn, Twitter, YouTube  and Yahoo, to name a few. These companies were founded in the US, primarily concentrated in Silicon Valley and Silicon Alley, before expanding globally. Europe and Asia, in many ways, are following the US, which continues to set the tone in eCommerce  social networks and other Internet plays. Major countries, representing large local marketplaces, such as China, Brazil, India and Russia, are building their own local Internet plays, leveraging their languages to connect tens or hundreds millions users and businesses. Other smaller and innovative “startup nations” around the world, who lack local critical-mass markets, are growing Internet startups, contributing to, and benefiting from the natural growth of the global Internet marketplace.  The Middle East is poised to jump into the fray.

What’s more, as happens in geographies who are late entrant to the technology game, the region is leapfrogging technologies and infrastructure. Mobile penetration, for example, is sky-rocketing. The Middle East’s mobile subscription count already tops 257 million customers — a penetration rate of 101%, trumping the global rate of 82 percent as well as that in other emerging markets such as China (73%), India (71%) and Africa (60%).  By 2016, levels are expected to increase to 350 million mobile subscribers.  Local networks support the latest standards and technologies, and 45% of Middle East mobile users browse the Internet on their phones. For many residents, their first web enabled technology is their mobile phone.

The challenges for Middle East startups to grow are still significant. Today, the Middle East region lacks accessibility to dedicated professional venture capital financing and investment resources. In addition it suffers from lack of investors’ attention due to perceived risks of investing at such troubled times. Parts of the infrastructure to grow large new media or mobile companies are still missing. Small seed funds have begun in the region, as well as accelerators and micro funds, and there are efforts from many NGOs and non-profits to cultivate entrepreneurship. However, capital is still relatively scarce. Follow-on investment is hard to come by, and the networks of mentors, executives, professional service providers, and angels are few and far between. The ecosystem is not mature enough to reach the critical mass that will transform a slow evolutionary process onto a revolutionary one. These are wholly surmountable challenges, and I believe that the early entrants into this market have an incredible opportunity to shape not only the sector but the economy.

Passionate Internet players – entrepreneurs, investors and business leaders, people who also seek for opportunities to change the economic climate in the Middle East region, grow the number of connected users today, can create a better future for tomorrow. It is time to put politics and differences in world view aside.  Let 2013/4 be the years in which we meaningfully reach out to young men and women in the Middle East and arm them with the tools to build a better future for themselves, and ultimately for the region and us all. Imagine what regional growth topping 5% annually would mean for this region.  The new jobs created, the educational facilities supported, the innovation encouraged by being a meaningful part of the global economy.  I believe that if we turn our attention to these green shoots and support them for the long run – we can affect sustainable change here.  We can bring hope for a real change, and I believe fruits can be born within the next decade – if more people move forward and invest in this Middle Eastern market. Now is the time to start the region up.

Internet World Stats updated 30-June-2012 http://www.internetworldstats.com/stats5.htm

http://www.ameinfo.com/major-efforts-underway-boost-arabic-online-322974

http://www.thenational.ae/business/technology/small-businesses-in-mena-region-lack-web-presence

http://www.ericsson.com/res/docs/2012/tmd_report_feb_web.pdf Traffic and Market Data Report, Ericsson

Informa Telecoms and Media http://blogs.informatandm.com/3533/press-release-middle-east%E2%80%99s-mobile-subscription-count-will-cross-250-million-mark-in-2012/

BEST

Chemi 

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