Can a butterfly’s fluttering wings in Mexico cause a hurricane in China? According to the butterfly effect (as per Chaos Theory) small incidents can have extremely profound outcomes and so the answer is clearly, yes. Amazon’s acquisition of Souq is one such ‘butterfly effect,’ and the consequences will be immense:
- Venture investing will increase: Souq has minted several millionaires and filled the coffers of many of its early investors. A significant portion of this capital will find its way to startups. More importantly, this capital will have a higher risk tolerance as it has come from entrepreneurs and investors who understand the startup lifecycle and its challenges.
- Stronger, well fund startups will emerge: Like the Maktoob mafia before it, the Souq mafia will spawn multiple startups. Given the scale of Souq, there will be more and better funded startups across several countries and sectors.
- Talent pool quality will improve: Souq’s long, challenging journey has undoubtedly tested its talented employees and taught them many important lessons. Now they have the privilege of working for one of the best technology companies known for its superior execution and hard charging culture. This can only make them better. Souq’s employees will permeate through the market for years providing strong talent to many companies.
- Retail players will evolve or die: If anyone doubts the impact of Amazon’s acquisition on the future of retail, remember Emaar’s last minute offer to acquire Souq for $850 million, a significant premium over the acquisition price. This price will look cheap in years to come as traditional retail feels the pressure of e-commerce. Brick-and-mortar retailers won’t disappear; but they should be adopting an omni-channel approach sooner rather than later.
- E-commerce logistics will become more efficient: If you want to witness the brilliance of Amazon, watch the 60 Minutes segment called Inside Amazon. In a region wrought with inefficiency in e-commerce logistics, Amazon’s execution capabilities will improve Souq’s performance and elevate others as they aim to compete. Having such a formable competitor will drive e-commerce and brick-and-mortar retailers to improve or else.
- Employment will rise: Amazon acquired Souq given the massive potential it saw in an underdeveloped e-commerce market with attractive fundamentals. This is only the beginning: Amazon will invest aggressively with a keen focus on volumes as it does in other markets, and hence will require expansion in its local workforce.
- SMEs will benefit: Amazon will provide a new global channel through its marketplaces for the export of regional goods. This will benefit many SMEs who don’t have an effective way to market and distribute their goods for export. In addition, as Amazon expands, it will require the assistance of many local companies for various services.
None of this will happen without other factors falling into place. However, one cannot deny the broad impacts of this acquisition. We will witness some changes faster than others but it is up to all of us to continue to drive change. If this is the impact of only one butterfly, imagine the impact of a swarm.