What do the tech world’s biggest success stories all have in common? Looking to the likes of Uber, AirBnB and YouTube, a casual observer might be forgiven for thinking the root cause of vertiginous growth is geographic. After all, these companies – not to mention many others like them – were all founded and are still predominantly headquartered in the same American state.
A cursory glance over “The Unicorn Club” – a comprehensive list of all the private companies in the world valued at over US $1 billion from New York Data Analytics firm CB Insights – appears to back this up. In that list of nearly 500 companies, 30 different countries are represented. And yet only one of these is in the Arab World: the UAE, with just two unicorns. Meanwhile a staggering 235 unicorns – nearly half those in existence, are found in the US. So where is the Middle East going wrong?
Admittedly the region has been late to the party, but its progress, while recent, has been undeniably rapid and impressive. The GCC, in particular, has seen thriving tech ecosystems emerge from the sand in just the last few years, driven by ambitious regionwide economic diversification strategies. Countries which were almost entirely reliant on a single commodity now boast dynamic startup ecosystems, complete with burgeoning VC communities, global accelerator networks and some of the most advanced digital infrastructure in the world. Indeed, startup scenes across the region are flourishing, but if the Unicorn Club is anything to go by, it seems that Arab innovation has hit a hurdle.
This brings us back to our opening question: what do the likes of Uber, AirBnB and YouTube all have in common? The answer might or might not surprise you: they don’t produce anything. At least not anything tangible. Uber doesn’t own any taxies, AirBnB doesn’t rent any real estate and YouTube doesn’t produce its own shows. These are all platform-based companies; businesses that open up their infrastructure enabling other companies or individuals to collaborate and do business on. This “platform revolution” allows the businesses themselves, as well as third-party users and their consumers all benefit simultaneously. They are, what is understood to be “the future of commerce”. And it is the Middle East’s lack of these “platform companies” that is holding it back.
According to research by Mckinsey, the integrated network economy could represent a global revenue pool of $60 trillion in less than five years’ time, with a potential increase in total economy share from about two per cent today to around 30 per cent by 2025. Already, seven of the world’s top 10 most valuable companies are platform-based. A 2019 study of 43 platform companies by the Harvard Business Review (HBR) found that those companies generated the same level of annual revenues as their non-platform counterparts with just half the employees. These same platforms also had twice the operating profits and much higher market values than their asset heavy counterparts. In the race to innovate, there is a risk that the inventory-heavy models so common in this region will cause the Middle East to fall behind. Despite impressive investment in region-wide ecosystem strategies, a mindset shift to entrepreneurship is yet to take place – and fragmented regulations are a related cause and effect. Yet the opportunity here is huge if we can channel that ‘true GCC’ vision into real change – an outlook less national and tribal, and more regional, and collaborative which would both unify regulations and galvanise the next generation of innovators.
Though the COVID-19 pandemic has served as a catalyst for digitisation across all sectors, the journey to digitisation still presents a host of challenges for more entrenched, established industries. Nowhere is this more true than in the global banking and financial services sector, where some banks are struggling to keep pace with the fast evolving digital demands of their customers. According to Capgemini’s 2020 World Retail Banking Report, retail banks were twice as likely to increase business profitability and 10 per cent more likely to be able to upgrade their customers’ experience with a platform-based model. Some would argue that complex legacy systems are a barrier to innovation in established institutions, however what research has highlighted is a lack of appreciation regarding this incoming “platform revolution”, and a lack of awareness of the impact it will have within organisations. It further shows there is a need for greater guidance on how to embrace and prepare for this seismic operational shift. In a pro-innovation region all public company boards should be addressing this issue as a matter of top priority.
If the trajectory towards digitisation and innovation before COVID-19 was a steady, if occasionally erratic journey, the pandemic has made it all the clearer that the direction of travel, as well as its speed and accuracy, has to improve significantly for businesses to stay ahead. The business leaders of the region need only look to the efforts of their global counterparts to see that the platform revolution is coming our way. The power of data, the flexibility of the cloud, the reach of 5G – these are all just around the corner. There is real reason to think that the game is changing here in the Gulf, and that we are at an inflection point. Just think what could happen if we properly unleash the drive and the raw energy of our innovators through smart regulatory convergence across the region. We would cement a culture of entrepreneurship that would reshape our economies, redefine our fortunes and establish us as a genuine global force – for decades to come.
Any opinions expressed in this article are the author’s own
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© Opinion 2020