A marriage of convenience

Yahoo's takover of Maktoob could give Arab web enterprises a much needed shot in the arm.

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By  Soren Billing Published  September 5, 2009

After years of talks and speculation, Yahoo and regional internet portal Maktoob have finally decided to tie the knot. Soren Billing looks at the deal that could give Arab web enterprises a much needed shot in the arm.

The reasons for US internet giant Yahoo acquiring regional player Maktoob could have been lifted from most any prospectus telling investors to buy into the region: a rapidly growing market, a young population, and plenty of cash around to invest in infrastructure.

Yet it took more than nine years for an international company to snap up the only Arab internet firm with any market share to speak of.

There are many reasons for that. Local investors were busy investing in real estate and the ever-rising stock markets. On the ground, entrepreneurs were hampered by low internet penetration rates and state-backed internet service providers that were often as slow as they were expensive. And global investors had plenty to do in emerging markets like China.

“Maktoob badly needed this acquisition because over the last two to three years, with new venture capitalists, they went down a route of acquiring small websites and increasing their audience,” says Jawad Abbassi, founder and general manager of research consultancy Arab Advisors Group.

“But that was the right strategy for them to be acquired by Yahoo.”

The Sunnyvale, California-based company did not reveal how much it paid for its Jordanian competitor, but TechCrunch, a blog that covers technology start-ups, puts the figure at $85m.

The sale did not include auctioning site Souq.com, payment service provider cashU.com, search engine Araby.com, and gaming site Tahadi.com. When the deal closes in the fourth quarter of this year, those sites will operate under a new entity called the Jabbar Internet Group.

Maktoob was founded in Jordan nine years ago by Samih Toukan and Hussam Khoury as the world’s first Arabic language webmail service.

In 2005 private equity group Abraaj Capital bought a 40 percent stake in the company for $5.2m, which it sold to US hedge fund Tiger Global Management in 2007. Abraaj did not disclose the value of the deal, but said the sale generated an internal rate of return of 75 percent.

Toukan will head up the newly formed Jabbar Internet, which will maintain close commercial ties with the Maktoob units that are now part of Yahoo.

Yahoo’s sprawling internet empire already includes 44 million users in the Middle East. The acquisition should easily boost that number by 15 to 20 percent after accounting for some overlap between the two companies, according to Arab Advisors Group.

The fact that Yahoo has no Arabic language content means the number of people using both sites should be slightly lower than it would have been otherwise.

“We’ve been looking at the region but we didn’t have a footprint and so we looked at various ways of entering the market,” says Keith Nilsson, senior vice president of international emerging markets at Yahoo.

Arab internet users do not differ in any significant way in their needs and preferences compared with other nationalities, but as in many emerging economies, the market has been hampered by insufficient infrastructure and a lack of developed media outlets, he says.

At the moment, only one percent of all internet content is estimated to be in Arabic, despite 320 million people speaking the language.

There were 34.3 million internet users in the Arab world by the end of 2008, out of whom 20 to 22 million were broadband users, according to research by Arab Advisors Group. Internet penetration ranged from around 6.3 percent in Egypt, the most populous Arab country, to a whopping 45.4 percent in the UAE.

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