Why Alabbar’s JadoPado Acquisition Was Smart

Good luck on your acquisition @JadoPado. You’ll forever be fondly remembered as the company that saved Noon’s reputation. ?

— Joe Akkawi (@JoeAkkawi) May 11, 2017

There may be more truth in Joe Akkawi’s tweet than meets the eye, let’s explore why. Mohamed AlAbbar has been trying to re-invent himself as a digital messiah over several quarters now. He took over his daughter’s online store named Symphony, bought a stake in Yoox (the parent company of Net-A-Porter), built a 16.45% stake in Aramex and then started a $1bn venture building the Middle East’s largest e-commerce platform. Throughout, he has deployed his own money but mostly that of his largely undisclosed backers. His charisma, charm and state-sponsored success at Emaar give him the street cred that makes Middle East based journalists, and now investors, salivate.

Reasons why the JadoPado acquisition was smart

Eliminate Competition.

Take out your competition whilst you can afford to. Although much smaller than Souq, JadoPado received backing from BECO Capital. BECO are currently in the market raising their second fund, with target size of $100mn. If BECO are successful, this would likely mean follow on investments for JadoPado and a higher likelihood other VCs would join in subsequent rounds. Of all BECO’s portfolio companies, JadoPado, we’d postulate, is one of the ones they were less excited about, moreso after Amazon’s acquisition of Souq.

Access to Technology, Operations and Experience.

Noon.com is obviously struggling to open. In November 2016 AlAbbar was claiming a January 2017 launch, surprising many, and implying the project must have been started months if not several quarters ago. We’re now in May, and their landing page is still full of promise but little else. By absorbing what is a lean, experienced operation, Noon can avoid making the many mistakes it otherwise would if they were to go it alone. The role of JadoPado’s experience is evident in Omar Kassim’s (Founder/CEO) appointment to Chief Technology Officer of Noon.

Fix the Culture.

It appears there may be some issues around the culture at Noon. Omar Kassim appears to be focused on this issue according to his Reddit discussion. Perhaps Noon are aware of this and also saw an acquisition as a resolution. Then again, who really knows the internal politics at Noon, other than those working there currently.

However…

The acquisition makes sense for the above reasons, however we don’t think picking a fight with Amazon/Souq is a smart idea in the long run.

AlAbbar might be planning on Noon.com being just one piece of a broader digital platform with plans to bolt-on other verticals or segments over time. But then he shoots his strategic logic in the foot with ideas such as creating an Arabic focused messaging platform to take on WhatsApp. Is that really what people want? Surely Arabic keyboards solve most of those pain points. Do people want additional features? If so, Facebook and WhatsApp can turn those on at the flick of a switch. Facebook and WhatsApp’s daily active users are too large in number for anyone else to easily take market share and build a moat around anything they do. Take a look at SnapChat vs Instagram stories… that’s how you end up (AlAbbar did say he wanted to IPO in 7 or so years though so maybe he’s following in Evan Spiegel’s footsteps).

Perhaps AlAbbar is influenced by the Chinese holy trinity (Tencent, Alibaba and Baidu) and thinks he can build something similar for the Middle East. That’s the wrong model to follow. China has both the scale (1.4bn population vs MENA’s 0.36bn) and a proven ability to block foreign competition, allowing domestic startups to rapidly grow into national, then regional champions. Those same dynamics don’t exist in the MENA region.

If anything, the AlAbbar strategy is far from clear. His Aramex stake makes sense seeing as they deliver Noon’s logistics solutions. That being said, he doesn’t have control, and other shareholders could push back on treating Noon too favorably. What about the Yoox stake, is that his personal investment or does that get rolled up into the Noon behemoth? We honestly can’t see Net-A-Porter accepting a shop-within-a-shop arrangement under the Noon.com brand. They’re too big for that. Perhaps they instead sell apparel wholesale to Noon, sharing their buying power discounts. But that doesn’t make sense either, why help build a rival? What would Yoox’s other shareholders say?

There are several other areas that “smart money”, i.e. VCs, have been focused on most of which are outside of e-commerce. These areas have less competition, local competitive advantages that can be built and more easily protected and clear exit channels through sales to strategic buyers. One wonders whether AlAbbar has gotten caught up in his own hubris, and is correctly getting into tech but mistakenly picking the wrong battle. Time will tell.