NEW YORK (AdAge.com) -- Now that Yahoo has decided its way forward in search courtesy of a deal with Microsoft, it can get down to the business of being the globe's biggest internet portal. Its latest foray: the Arabic-speaking world, with the acquisition of Jordan-based Maktoob. Yahoo bought the Middle East's leading portal for a reported $75 million.
This is the first major internet acquisition by a U.S. company in the Middle East, and the first acquisition of its type by Yahoo, which tends to build its own properties in new markets or enter them via joint ventures.
With the acquisition of Maktoob, founded in 2000, Yahoo gets 16.5 million unique users and the ability to quickly churn Arabic-language versions of all its products, including Yahoo Messenger and Mail. Yahoo already had 44 million unique users in the Middle East, and though it's unclear how many are duplicated with Maktoob, the company has an ear for the complexities of the Middle East market, an established brand and a sales force on the ground.
We talked to Yahoo Senior VP-Emerging Markets Keith Nilsson about the rationale for the acquisition, the state of advertising in the Middle East and the potential pitfalls of being an American company in the Middle East.
Ad Age: Yahoo has plenty of users English-language users in the Middle East. Why did you need to acquire Maktoob?
Mr. Nilsson: We do think there is a big demand for our products in Arabic, which is why we've chosen this route instead of translating our products into Arabic. Maktoob will allow us to quickly build our presence there with high-quality products. Our strategy in emerging markets is to take global products and global platforms and come up with local experiences that address the unique needs in each market.
Ad Age: Why is the Middle East important to Yahoo, strategically?
Mr. Nilsson: Yahoo did not have any presence in the Middle East prior to this acquisition. This is one of the last big contiguous language regions we haven't tapped. We have operations in Latin America, Southeast Asia and India; with this acquisition we will be fully operational in the Arab world. There are 320 million people in this region, and its one of the faster-growing emerging markets. The ad market alone is growing at 25% to 45% a year; internet penetration is only 10% to 12%. If you look where the user growth is its coming, it's from the emerging markets, where half of all new users are coming online in the next several years.
Ad Age: Aside from common language, media preferences differ greatly country to country. Where are Maktoob's strengths?
Mr. Nilsson: Their primary focus has been Egypt, Saudi Arabia, the United Arab Emirates, Kuwait and Jordan. It could expand into North Africa; that's the next new opportunity that they haven't focused on.
Ad Age: Some of these markets are ruled by the most autocratic regimes in the world. Do you foresee any problems being perceived as an American company in the region?
Mr. Nilsson: We have been in emerging markets for several years, so we have some experience with cultural sensitivities to content. So far, Maktoob has done a good job of managing the content and that's the approach we plan to take.
Ad Age: What are some of the pitfalls? Are there any specific types of content that Yahoo must censor?
Mr. Nilsson: Content about the royal families in the various countries, or Islam, or anything that threatens a life or [can cause] bodily harm. In all the countries we operate in, we have to comply with local laws.
Ad Age: What kinds of advertisers use the web to reach consumers in the Middle East?
Mr. Nilsson: Typical advertisers in the region include the travel, tourism, CPG, consumer goods and telecom categories. Maktoob has a strong sales force, strong management team and a good local brand. They have a large audience on their content channels. There is significant upside as more users start to come online and offline ad dollars start to follow them.
Ad Age: Who are your competitors in the region?
Mr. Nilsson: The global tech players, Microsoft and Google, but they're taking a different approach. There is no other big, local portal like Maktoob.
Ad Age: In some emerging markets, the online ad market lags adoption. Are there any markets in the Middle East where online ad market has become established?
Mr. Nilsson: We think this [deal] will help grow the market in the Arab world. The United Arab Emirates has a higher online-ad penetration than Saudi Arabia or Egypt. These are truly emerging online ad markets and partly why we are investing now to take advantage of growth in these markets.