A.T. Kearney sees potential of Middle East internet sector and Middle East entrepreneurship

"This is a ground-breaking deal for Yahoo and Maktoob. Yahoo now has an Arabic presence on the web and Maktoob can now call upon the resources of one of the world's leading web portals and biggest online advertising providers,"

said Dr. Dirk Buchta, Senior Partner and Managing Director of A.T. Kearney in the Middle East.

While Maktoob has enjoyed stratospheric growth, from just over 2m users in 2002 to over 16m today, Yahoo's user growth rate has been slowing in its core developed markets in recent years, losing the top spot in the US to Google in 2008. Recent A.T. Kearney research showed that the Middle East online media sector is growing. Strategically, Maktoob's 16.5m users give Yahoo an immediate large-scale presence in the Middle East market and among Arabic speakers globally.

"Yahoo's acquisition of Maktoob does not come as a surprise to us, as it provides Yahoo with immediate access to the fast growing Arab and Muslim market. Our study shows that across the Arab world there is increasing disposable income for entertainment, an improving regulatory environment and a burgeoning youth population (50% are below 30 years old) that is open to new technology. Together this is driving a 19% annual growth rate in the media sector; while the rest of the media world is stagnant or in decline," said Christophe Firth, senior consultant in A.T. Kearney's Media Practice.

The technology infrastructure is also improving thanks to growing online and broadband penetration rates, high penetration of smart mobile phones and the emergence of world-class smart cities such as Dubai Media City and King Abdullah Economic City in Saudi Arabia.

"Broadband usage in the GCC is growing fast and already above 30% versus 60% in Europe. It provides a very attractive level of penetration for online business including both e-commerce and generating advertising revenues," commented Firth.

Arabic speakers online already number 320m according to World Bank data and are a fast growing community, driven by a fast-growing, young population across the Arabic world. But to date they are underserved - only 1% of internet content is currently available in Arabic. This is a huge opportunity for Yahoo/Maktoob.

It will allow Yahoo to compete more effectively for Arabic eyeballs against arch-rivals MSN and Google, both of whom are already established in the region. As well as the presence and scale, this deal will give Yahoo ready-to-go Arabic content and valuable knowledge on operating in the region.

A.T. Kearney's media study shows that the online advertising market in the Middle East region is also growing fast but suffers from a relatively undeveloped infrastructure, including the lack of an established system to measure online usage in the region. This is arguably the biggest barrier to growth in the online advertising market in the Middle East.

"Yahoo will need to bring its expertise and global advertising network to maximise the monetisation of Maktoob's customer base. As well as developing online advertising, Yahoo will likely focus on the opportunities in paid services," said Firth.

Although Maktoob's prime paid service properties - cashU, Souq.com, Tahadi - are not part of the deal, there are opportunities to leverage the trusted Maktoob and Yahoo brands for safety and security services, casual gaming, e-commerce, mobile downloads and price comparison.

The Middle East market is a medium to long term play for Yahoo from a revenue perspective, but its presence alone will help to stimulate the market and higher advertising rates according to A. T. Kearney.

This deal could well be a catalyst for the region's internet market and lead to a boost for the online media sector across the whole region. Internet entrepreneurs in the region will be inspired by the success enjoyed by Maktoob's founders and other western media players and investors/venture capital funds will start to focus more on the Middle East.

"The presence of the world's biggest display advertising company will certainly help to stimulate increased online spend by advertisers. The presence of the three 'big boys' in the Middle East - Google, Microsoft and now Yahoo - will increase the pressure for governments in the region to improve the operating environment for online media companies, including the regulatory environment and media measurement," concluded Firth.