Regional dot-coms flounder

An online advertising crunch has led to job cuts and restructuring at some of the Middle East’s most famous and most popular Internet companies

  • E-Mail
By  Massoud Derhally Published  June 6, 2001

All good things must come to an end, and the cold winds of reality felt by the US dot-com community in the last year are now buffeting the Middle East. Just like former high flyer Yahoo!, regional dot-com companies have banked heavily on advertising, and now, just like Yahoo!, they’re feeling the pinch.

Surprisingly, the first to be affected is, which has been operating since 1995. Despite healthy funding from Ibtikar Venture Partners and Saudi Arabia’s Prince Al Waleed Bin Talal, the company has not been able ignore a low growth rate and declining market conditions. Its business model is based on content aggregation and its revenue stream has been, and remains, predominately driven by advertising.

According to sources who requested anonymity, the company has laid-off 20 of its 75 staff, which equates to over 25% of its workforce. Prior to the lay off, 10 employees had resigned and future restructuring is also anticipated.’s vice-president of sales and marketing, Richard Evans, confirmed that job losses had been necessary, but declined to put a figure on the number of redundancies.

“Like a lot of other hi-tech companies, we have had to reduce our growth expectations and bring down our costs to fit with those expectations,” Evans told Arabian Evans explained that while it is always regrettable when people lose their jobs, the company felt that it had a responsibility to customers, employees and shareholders to restructure the company. makes no secret of the fact that it has never moved its business into profitability, but asserts that there is no loss of confidence from investors in the company. “We still have the right management team, strong shareholders and confidence in the direction we want to go in,” said Evans.

Weakness in the online advertising sector is being blamed for’s reduced growth forecast. Evans suggests this weakness is a result of local advertisers reading too many scare stories about online advertising from abroad. The Middle East, he says, has not really got off the ground in terms of exploiting the 3-4 million Internet users that could be reached with targeted online advertising campaigns. “They [advertisers] are not putting energy into this market,” said Evans.

Jordan-based Al is also emerging from a three-month restructuring that has seen the company cull half its workforce. The Arabic/English news portal, which last year secured venture capital funding of $8.15 million, has had to diversify its revenue stream as it had yet to make a profit. This is in addition to the fact that too much was being spent on content and the market was not buying or syndicating. “Ironically, once we did the restructuring we began to get requests for syndication and we have entered into several agreements,” said Hani Jabsheh, director for Al Bawaba.

According to Jabsheh, the future plan is for only 15% of the company’s revenue to come from advertising. The rest will be generated from selling technology solutions like content management systems and from syndicating content. The company is currently negotiating a deal with a bank for supply of its content management solutions. “We are not just a portal, we offer a complete suite of products,” said Jabsheh.

The company, which is already backed by New York-based venture capitalist THCG, as well as by TFG and Middle East Internet Holdings, says it is trying to raise additional capital. This funding will be pumped into expanding Al Bawaba’s sales and marketing efforts in the GCC and Egypt, according to Jabsheh., a Middle East B2C horizontal portal, has also been forced to ‘restructure’ its business model. The company, which moved its business development and advertising sales division to Dubai Internet City in March 2001, has reorganised its operations in an effort to reduce costs, diversify its revenue stream and better serve its customer base in the Gulf region. Exact details on any job losses have not been revealed.

Imad Benharouga, CEO of, attributed these developments, to “market conditions,” in the technology sector in the US and added that, “the company’s office in Silicon Valley was hit the hardest.” Benharouga held that the steps taken were, “necessary in order to review the positioning of the company, restructure the revenue stream and make the company grow at a faster speed.”

The company has not been profitable since its inception in September 1999 and has only raised $4.5 million in venture capital. While the original plan had been to break even by 2002, the deadline has been brought forward. “The company now has a deadline of December 2001 and the target may be met before then,” said Benharouga.

The company is collaborating with new partners to enhance its content and diversify its revenue stream. Its new money channel provides business and financial information from London-based Zawya covers developments in equity markets and financial services in the Middle East and North Africa.

Saad Faruqui, Planetarabia’s head of business development, believes the partnership with Zawya, “is the best fit compared with other players in the industry and will enable Planetarabia to offer comprehensive content to its customers.” At the same time, Planetarabia will serve as a gateway by providing Zawya with access to its large customer base.

Planetarabia used to derive 70% of its revenue from advertising and banner ads. Today advertising revenue counts for about 50% of the total revenue of the company, while the rest comes from e-services, including Web development.

Benharouga has recognised the oncoming challenges and has teamed up with, a large business-to-business marketplace based in Hong Kong. Planetarabia aims to make use of Alibaba’s core services, which revolve around 27 different vertical industries to leverage its brand, cross-over into the business segment and expand its service offerings.

Planetarabia plans to broaden its advertising services by offering custom designed solutions and implement what it calls a ‘more interactive approach’ around each client’s needs. “Times change but fundamentals don’t,” says Benharouga, adding that the essentials for Planetarabia now are, “profit and revenue, customer loyalty, sales, cash flow and self reliance.”

The picture for dot-coms is not all doom and gloom though., a 3 year old Jordanian company, has a diversified revenue stream and says it is well on its way to breaking even by the first or second quarter of 2002.

Although the company was not well financed when established in October 1998, it managed to secure $2.5 million from the Egyptian based financial services firm, EFG Hermes. While Samih Toukan, CEO of Maktoob, declined to mention the burn rate, he explained the company has several revenue modules in place and intends on enhancing them in the future. The company derives 50% of its revenue from advertising and the remaining portion comes from a variety of streams.

According to Toukan, the company’s custom-built business solutions are an integral part of its revenue. Maktoob has been able to license its e-mail and instant messaging services to other companies in different industries. “We help other corporations and entities build their communities and have done this with, Arab Finance, Dawalej and will shortly be announcing a deal with a telecommunications company,” said Toukan.

E-commerce has not been a major source of revenue, according to Toukan. However, the company recently teamed up with Aramex to carry out cash on delivery shipments. Toukan believes that, “e-commerce will incrementally grow starting with the shopping mall, which the company has tried to integrate with its customers’ overall experience.” Mazad, a free auction service, is also expected to add value to Maktoob’s e-commerce offering in the future.

In the medium term, Maktoob is considering a credit card market place as part of its offering and is currently in negotiations with several financial entities. An alliance with a major Internet service provider (ISP) in Saudi Arabia will be announced in the near future and is expected to generate another source of revenue. Toukan also indicated that the company is entertaining the prospect of engaging the offline world, but declined to elaborate.

The need to diversify the revenue base has also been understood by, a directory site focused on a business audience. The company even reports that it already registers a modest profit.
The company has several revenue streams and advertising makes up only 15% of turnover (see this month’s Web Index on page 69 for more details.) “We have always been looking for different revenue streams and today the company generates revenue from advertising, sponsorships, content licensing, wireless content, direct marketing, online competitions, data capture exercises and, lately, recruitment technology,” says Lars Nielsen, sales director. If there’s a lesson for the region’s dot-coms, it seems to be: don’t put all your eggs in one basket.

Add a Comment

Your display name This field is mandatory

Your e-mail address This field is mandatory (Your e-mail address won't be published)

Security code