By Omar Mohsen Internet use in the Arab world is booming, but where is the content? News Focus Syria Thinks Small Damascus turns to microfinance to combat poverty An Industry Unraveling Once a symbol of national pride, cotton’s prospects are coming apart at the seams A New Way of Doing Business Non-profit group promotes economic development by giving companies a helping hand The Science of Buying Marketers examine the brain to find out what makes consumers tick Digital Booty With electronic piracy plaguing the music business,legitimate media companies scramble for a business model that pays A Rocky Start Theft, corruption and a little chaos mark the launch of a new property levy meant to haul the country’s tax system into the modern era Highway Robbery Reputation of white taxi program takes a hit as drivers caught rigging meters

By Tom Gara

The search for the Next Big Thing has been a consistent theme of entrepreneurs and established business alike, probably since the beginning of time. One can imagine the caveman-entrepreneur, rubbing his hands together as he sees a stone-age family huddling around the newly discovered wonder of a warm fire. “This is going to be huge,” he thinks to himself, immediately sizing up the potential demand for wood and fire-lighting technology.

The Arab world certainly has a rising class of passionate entrepreneurs, and thanks to the oil boom, no lack of high net-worth individuals and investors. Governments in the region, such as those of Jordan and Egypt, have prioritized the development of an information economy, and the increasing rollout of DSL internet and high-speed mobile services hints at a willing market. With 30 million Arabic speaking internet users, and Arabic being the fastest growing major language on the internet (Its use has increased by 940% between 2000 and 2007) a critical mass of users is emerging.

Regardless, the fact remains that internet usage is lower among Arabic speakers than any other major language, with only 8.5% using the internet. Why is Arabic-language internet still in its infancy?

Our generation may never see another entirely new technology that disrupts everything the way the internet has and does. Equally, it’s unlikely that a new idea will ever spawn as many failed entrepreneurs, dodgy business plans and horrific tales of corporate cluelessness. The stories of people trying to make a quick, questionable dollar from the internet range from the small and hilarious (pets.com managed to convince investors to put in over $80 million to fund an online pet supply store) to the truly epic.

When the internet provider AOL managed to negotiate a merger with media giant Time Warner, it ended up — fuelled by ludicrously optimistic stock valuations — owning 55% of the newly created AOL Time Warner, despite Time Warner being bigger in almost every way than its new owners. This, for a time, valued AOL at an incredible $200 billion. Once the underlying value of what was eventually listed by PC World as the number one worst tech company of all time was realized, the bubble burst, not just for AOL Time Warner, but for the entire industry. AOL is now valued at around $20 billion, and the AOL Time Warner debacle is known as one of the largest destructions of wealth in corporate history.

A lot of hands were burned by the legions of bankrupted dotcom companies, from investment bankers and giant pension funds to the individual shareholders, employees, creditors and customers. More importantly, it led to a major reassessment of the potential for making money on the internet. For some time after the market collapsed, there was a wariness among investors and entrepreneurs surrounding anything technology-related, despite the fundamental potential of the internet remaining the same as it had always been.

In recent years, the business community (particularly in the developed economies of Europe and North America) has regained confidence in internet-based business models. Powered by a combination of increased internet penetration (particularly of high-speed DSL lines, which now account for an average of 15% of all internet users in developed markets), a variety of web-based tools that made internet use much easier and a booming online advertising market that helps web entrepreneurs monetize their online properties, a new generation of profitable internet-based businesses have brought the internet back into the center of the business world.

Despite the proliferation of profitable web-based businesses (Amazon.com earns $10 billion in annual revenues and is one of the 50 largest retailers in the world) the development of internet businesses in the Arab world remains stunted. Industry experts in the region agree, a series of factors are working together to hold back the development of a vibrant Arabic-language internet.

Firstly, there is a lack of compelling Arabic-language content currently available online, and the culture of user-generated content is still in its infancy. This relates closely to the second factor: it remains difficult to monetize Arabic language websites, with Arab-language advertisers largely avoiding internet advertising, and advertising agencies remaining woefully ignorant of the opportunities for online media. Both of these factors connect to a third challenge: the ability to search for Arabic-language content online remains limited, by the complexity of the Arabic language and by the search services currently available.

The good news? Solutions for all three of these challenges are currently being developed and implemented by some of the most innovative local and multinational companies in the Arab world — many of them based right here in Cairo.

Most internet user will say there is nothing more important to a users’ web browsing experience than the availability of a decent search application. The internet is the ultimate in decentralization — not just like a library, but, as the old saying goes, like a library with no catalogue, all the lights switched off, after a hurricane threw all the books into a giant random pile with their covers torn off.

I remember the early days of the internet in Australia, perhaps 1995, when news agents used to sell “internet magazines,” printed directories of good websites, categorized by genre or interest group. Search engines were practically useless, good for nothing more than a push in the right direction.

The development of effective search engines changed everything. The internet went from being small clusters of isolated content that the lucky would stumble across like a forgotten alleyway, to a giant searchable database of anything and everything. Importantly for website owners, search engines meant that as long as your content was online, pretty much anybody who wanted to find it could find it. The issue became the quality of your content — how relevant, how well written, how much of it — rather than where it was located and who was promoting it.

When speaking to website owners and users as research for this article, the lack of a decent Arabic search engine was repeatedly cited as a bottleneck for the development of the Arabic internet. This confuses Sherif Iskander, regional manager of Google Middle East and North Africa, who believes that Google’s offering is now well optimized for search in Arabic. “I think Google is doing a phenomenal job in Arabic search,” he says. “Maybe the confusion is that people assume that because our front page hasn’t changed a lot, that we haven’t done a lot,” he continues, referring to the famous minimalism of the Google front page.

Iskander also theorizes that because the majority of the internet remains in English, most English-speaking Arab users do not pay as much attention to Arabic content and search capabilities. “People will typically use the internet in English,” he says. “When they do an Arabic query, it is maybe once every few weeks, so they might not notice the improvements”

One Egyptian company hoping to capitalize on the opportunities available for an Arabic search engine is Taya IT. An upstart operation founded by three Egyptian entrepreneurs with a long history in business, science and technology, Taya has put extensive work into the semantics and quirks of the Arabic language, creating in the process what they believe is the best Arabic language search and translation software available.

Taya’s search engine focuses on being an Arabic-specific service, and aims to fill what the company sees as a large gap in today’s market. “We can’t try and compete against the Googles and the Yahoos,” says Khaled Wahba, the CEO of Taya. “But we can certainly beat anybody in Arabic search, I am sure of that.” Wahba cites the search engine’s extensive use of natural language processing, a field of artificial intelligence that explores the ability of computers to understand languages, as a key advantage.

“Our service looks at words in context, it can understand what they mean by looking at how they are located in a sentence or group of words,” he says. This is particularly important for the Arabic language, which more than most languages has a large margin of ambiguity and differing meanings in its written words. As written Arabic typically does not include vowels, a 4-6 character word can have many completely different meanings. This is not a challenge for humans who have grown up reading and hearing the language in context, but it can really throw a spanner in the works for a search engine.

Taya’s search engine can be found at www.tayait.com, and will be officially launched on August 6.

Once the Arabic search issue is resolved, a chicken-and-egg dilemma emerges. What is more important: the existence of a decent search engine, or decent content for the search engine to discover?

Technical considerations aside, the single most important factor in the creation of a vibrant, growing internet culture is the availability of compelling content that attracts users in large numbers. Without a plethora of content that suits the needs of both mass and niche markets, internet use remains largely person-to-person communication.

Iskander recalls that as recently as 2005, research showed that almost 70% of all internet use in the Arab world was confined to chat. Although both of these services have proven to be “killer applications” of the internet and remain central to most internet users’ online lives, there is no doubt that these applications are the tip of the iceberg when it comes to the potential of the internet and the information economy.

A large reason for the relative popularity of chat compared to web browsing is simple: For an Arabic speaking internet user not familiar with English, there is — again, relatively speaking — not a lot out there to be looking at. Iskander makes the comparison to a television channel that is beamed into every household, but does not have any shows or movies. Who is going to watch?

To extend the television analogy a little further, without having television shows and movies to watch, who is going to grow up dreaming of becoming a star? Who will remember, word for word, the opening scene to Pulp Fiction, dreaming of one day writing something that cool themselves? Who will be so keen to get on TV that they start small, making their own amateur productions and working in small-scale commercials and theater?

The lack of content leads to a far greater challenge: the lack of user participation in Arabic internet culture. Such a culture is an absolute make-or-break factor in the creation of good content. In this regard, the amount of user-generated content in the Arabic internet remains small, and the user participation culture is still significantly lagging behind.

Internationally, one of the greatest successes of the user-generated internet has been Wikipedia, a phenomenal resource that allows anybody to contribute articles and information to a giant, public encyclopedia. The English language Wikipedia is a phenomenally comprehensive and diverse collection of knowledge, with over 1.8 million entries, all created by volunteer users. A major priority of the Wikimedia foundation, the not-for-profit group charged with driving the development of the Wikipedia project, has been to see local-language versions of Wikipedia develop. The Arabic language Wikipedia, established in 2001 only six months after the English language version, features 33,000 articles.

The Estonian Wikipedia features just under 38,000 user-generated articles — even though Estonia has only 1.1 million speakers worldwide — a fraction of the number of internet users in Egypt. The Cebuanu Wikipedia, written in a regional Phillipino dialect, clocks in at 33,000 articles, and may overtake the Arabic Wikipedia within weeks.

The Arab world needs user-generated “superstars” to inspire a generation of internet users who will not just look at the Arabic internet, but create it themselves, one bedroom-written fan review of the new Amr Diab album at a time. There are encouraging signs that this key development is beginning to take shape.

Egyptian web portal FilBalad.com has made a successful business model out of incorporating Arabic-language user participation into its successful family of websites. Both the flagship FilBalad site and its sister-sites FilGoal (sports) and FilFan (entertainment) have attracted a huge audience of viewers from across the Arabic speaking world. These fans not only flock to the site in droves, but also write much of its content. FilGoal, which rates as number 838 on web analysis service Alexa’s global 1000 websites, has a dedicated army of “Filgoalers” as they are known, thousands of users who write up reports of recently played games, opinion pieces on Egyptian and international sports, and generally keep the community moving at full pace. Some of the most popular Filgoalers can attract over 5,000 readers to an individual sports story.

“There’s hundreds of thousands of people out there who are willing to, who want to, have the space to write about what they love,” says Con O’Donnell, managing director of Sarmady Communications, the company behind the FilBalad family of sites. “And here’s where the business side comes in: I recruit from these people. We get to see who writes well, who writes popular pieces, and this can lead to paid writing jobs.” Sarmady also produces The Croc, a popular monthly printed pocket guide to Cairo nightlife and culture and O’Donnell is looking to incorporate the user-made content model into the soon-to-be-released online version of the guide.

In Egypt, the most known examples of successful user-generated sites have been blogs, the best of which have been front and center in some of the biggest news stories in the country and region over the past year. Amateur (and in some cases, professional) journalists using free software and web services like the popular Blogspot application have repeatedly scooped the country’s biggest newspapers and television shows. They’ve reported on sensitive topics such as police brutality, sexual harassment and the ongoing crackdown on opposition movements. These blogs are an excellent example of niche content — although their overall readership is low when compared to the more popular sites, it is a focused readership of educated, politically active, typically affluent people — the ‘influencers’ of society, as marketers would say.

On the other side of the coin are the professional content generators — people and businesses who seek to create high quality websites full of attractive information, for more commercial purposes. From a profitable evening hobby to full-blown professional ventures, websites that generate an income stream based on their content are beginning to proliferate in the Arab world.

LinkdotNet operates a family of highly successful websites, each targeting a focused demographic of readers. Yallabina, an entertainment guide, and Masrawy, a general-interest web portal, target younger, more socially active readers, while Arab Finance and Career MidEast both have their eyes set on urban professionals across the Middle East. When Microsoft decided to develop an Arabic version of its popular MSN portal (the second most popular site on the internet), it was LinkdotNet that was chosen as the Arab-world partner, and the company has turned MSN Arabia into a good example of a commercially viable Arabic web portal. LinkdotNet has an active sales team in Egypt working on selling advertising for all these online ventures.

Being able to make money from, or monetize, online properties, adds an important financial incentive to content creation. Once viewership of a website moves from 5,000 readers per month to 50,000, the costs of maintaining the site increase significantly, as does pressure to consistently deliver high quality content for a growing audience. Advertising offers the quickest route to this monetization — conditional, of course, on the existence of a healthy online advertising market.

During the first dotcom boom, a common, disastrous strategy of many failed internet businesses was to acquire a large amount of venture capital, spend this money on advertising campaigns and land-grab strategies to attract an audience, and then hope that the audience attracts advertisers. This strategy had so many weaknesses that it is difficult to decide where to start, but in short, it didn’t work. A marketplace of advertisers ready to spend large amounts of money on advertising was yet to exist, websites were yet to attract the kind of audiences (in both quantity and quality) that would justify large-scale ad spending, and the concept of web ads was largely driven around the hideously annoying pop-up ad.

Today’s successful internet business models are based on a more sound, cautious strategy: start small, work hard on building a consistent audience in a profitable niche and then, once the audience numbers justify it, start talking advertising. This was the model employed by Facebook.com, a superstar of today’s online world — particularly in Egypt — which did not sell advertising at all until its audience was in the many millions, and the advertising rates it could request were correspondingly stratospheric. The website expects to pull in over $170 million in advertising revenue in 2007.

The booming online advertising market now accounts for around 5% of total advertising spending in both the US and UK, and is growing in high double digits each year. A website attracting a respectable amount of traffic — at least 500,000 page views per month — can now expect to attract enough advertising dollars to pay its author a full time salary — and we are talking a full time New York salary here, rather than a Cairo one. The world’s most popular weblog, BoingBoing, now draws over $1 million in advertising each year, while celebrity gossip-monger site Perez Hilton is raking in over $110,000 per month.

A watershed moment in the Egyptian online advertising market took place just months ago, when Vodafone Egypt agreed to a one year, LE 1 million deal with O’Donnell’s FilGoal website. The agreement, according to O’Donnell “Is a sponsorship deal, but we view it as more of a partnership deal. It is branding as well as creation of new sections like an Ahly fan zone, and premium content for Ahly fans.”

FilGoal’s front page will be re-branded in Vodafone colors and designs to reflect the new partnership, and Vodafone will look to leverage their hugely valuable sponsorship of Egyptian superclub Al-Ahly in the online world. With million-pound deals now a possibility for Arabic websites that can draw an audience as large and lucrative as FilGoal’s, the likelihood of increased interest in developing compelling online properties is sure to increase.

It isn’t just Vodafone getting in on the action. When looking at some of the Arabic internet’s most popular sites (see box), it is obvious that a few of the region’s biggest companies have sat up and taken notice of the opportunity in front of them. Businesses like Qatar Airways, Mobinil, Chevrolet and a plethora of universities can be seen advertising their wares online on Arab websites. But the online advertising market on the whole is still vastly undeveloped in the Arab world.

Internationally, Google played a central role in the growth and acceptance of online advertising as a viable medium. The company’s two key advertising products, AdWords (which places relevant text ads alongside search results on the Google website) and AdSense (which lets website owners place Google-sourced advertising on their own sites) are the giants of online advertising, propelling Google to its phenomenal revenue growth in the last five years. Google raked in over $7 billion in advertising revenue in 2006, a figure which will grow in the double digits in 2007.

Google’s Arabic-language advertising products are half the way toward being fully launched. Arabic AdWords have been available for approximately 18 months, although it has not yet boomed in the Arab world as it did in the West. “We’ve not actively promoted AdWords,” says Iskander, “but the uptake has been pretty respectable, we are seeing people use them.”

In the case of AdSense, the product that plays a central role in helping monetize online content, the Arabic version of the service is still to launch. Sarmady hoped to use AdSense as a source of advertising on its various web properties, and after communication with Google, expected to see the service launch in September 2006. After this date came and went with no news on a new timeline from Google, the company decided to take matters into their own hands. “We built a system of our own,” says O’Donnell with a smile, “because we couldn’t wait anymore.”

Iskander denies that there have been any delays in the development of the service — which is being done mainly by Arabic-speaking engineers in Google’s Mountainview, California headquarters — and believes that the AdSense system will be released according to internal timelines. When asked if the launch has been delayed, he is unequivocal in his answer: “No. Usually what happens with these products is that they fit within different cycles. You do not want to incorporate new updates to an older product, so you launch the new product incorporating all the new features. We have not had any type of delay or backlog.” But is there a timeline? “Yes,” he says with a grin and a hearty laugh, “I have a timeline, but I cannot disclose it.”

“What is interesting about our deal with Vodafone,” says O’Donnell, “is that they are handled by two big advertising agencies. And neither of them inquired about our websites. They don’t really understand the internet — they understand print, outdoor, TV etc., but they don’t really understand the internet.”

Advertising agencies act as a vital gatekeeper of where and how advertising dollars are spent. Many almost missed the boat in the case of online advertising; startup firms and renegade entrepreneurs set up specialist web advertising companies in the face of inaction or indifference from the major global players. As the internet became a mainstream advertising medium, the world’s large advertising agencies slowly caught on, becoming savvy to the methods and techniques of successful online work. Unfortunately for aspiring content providers, this is yet to be the case in Egypt and the region.

Until advertising agencies in the region get their act together, individual websites or web development companies such as Sarmady and LinkdotNet will continue to hawk their web properties directly to the end customers, bypassing the agencies in much the way that Sarmady did with their Vodafone deal. This leaves the door wide open for a number of possible moves that could shake up online advertising in the region.

Firstly, the opportunity exists for upstart boutique advertising agencies that specialize in online advertising. A well-funded agency with a regional sales force and top-notch creative people could capture the market while it is small, and reap the rewards a few years down the line. In the US, upstarts like Blogads and Federated Media have succeeded in cornering much of the high end of the market, striking exclusive deals with the world’s most popular websites, which in turn are guaranteed a steady income stream.

Dubai’s Net Advantage is already off to a good start, representing top-notch Arabic websites such as Al-Jazeera, Showtime Arabia, Koora.com and Salmiya.net (both Koora.com and Salmiya.net are in the top 5 Arab language websites in the world, see box). The company, owned by Saudi-based technology conglomerate National Technology Group (NTG), has succeeded at both important ends of the equation: forming relationships with top websites, and convincing advertisers to try out the online medium.

Secondly, websites could band together to share the burden of finding advertisers, whose messages would then be syndicated across the multiple sites. This is the model currently being explored by O’Donnell. He is working to create an alliance of small-to-medium sized websites in Egypt and the Middle East that will be able to aggregate their combined audiences and resources into a feasible medium for potential advertisers. Expect more on this in bt in the coming months.

Finally, one of the current ‘traditional’ advertising agencies could enter the market with a bang, creating a dedicated online division and reaping the first-mover advantages that would come with it. Given that these businesses already have the extensive expertise, sales force, relationships with advertisers and creative resources, they would be in the best position to go online in a big way.

In the case of online advertising in the Arab world, opportunities abound. It’s like being in Silicon Valley circa 1999, only this time there are a multitude of successes and failures to learn from — and nobody is thinking of hawking an online pet supply store.

One Cairo-based business that understood the potential of the internet early on was the regional investment banking giant EFG-Hermes, whose various funds have bankrolled internet startups since the days of the first dotcom boom, and continue to do so today. Maktoob.com, the largest website in the Arab word, received early stage investment from EFG-Hermes back in 2000, as did many of the successful LinkdotNet family of websites. Sites such as Masrawy, Mazika, Otlob, CareerMidEast and Arabfinance were all funded in the early stage by EFG-Hermes, before being packaged together as a group of websites under the banner name “Next Media,” which was subsequently sold to LinkdotNet.

“We were there from the beginning,” says Hany El-Sonbaty, a partner at EFG-Hermes Private Equity who was and is heavily involved in providing venture financing to technology startups. “We were big believers in the potential for these businesses, and we still are,” he says, going on to explain that in the period from 1999-2001, the company was involved in practically every website financing deal in the country.

EFG-Hermes have since sold their stake in Maktoob.com for a profitable sum, but their dedicated Technology Development Fund II venture fund will continue to look for internet startups in the Arab world with the potential to go big. El-Sonbaty believes that, given the relative immaturity of the Arabic internet, the opportunities are enormous for entrepreneurs and investors willing to put in the hard work. “You build it; have the right infrastructure, have it operate seamlessly, finance it properly — and you can really dominate” he says.

Most American entrepreneurs and businesses would kill for the chance to go back in time and get into the internet game before the bubble blew-up, burst and then blew-up again. The internet is so well developed in most major markets that it is now a game mainly played by the big boys; barriers to entry are getting higher by the minute as more and more money is required to compete with the advertising, staff and hardware resources of the big players.

Things once were different, and a time certainly did exist when the big boys were kids (either kids in age or kids at heart) in garages and bedrooms, smart enough to see the future before the grown-ups did. Those were the Jerry Yangs and Sergey Brins, people now sitting atop the most influential technological movement in history.

For an Arab entrepreneur, it is time to wake up. The Arab-language internet in 2007 is the English-language internet in 1999, with all the opportunities, fortunes, disasters and triumphs ahead. The big difference? Now you have DSL-speed internet, search engines that work, and an advertising market that has matured internationally and is waiting to boom at home. Fortunes are there for the making, land is open and ready to be grabbed, and most importantly, examples surround you, waiting to be learned from.

Cash in, and I’ll let the guys at Time Warner know that you’ll be expecting their call.

According to website ranking service Alexa, the top Arab-language websites in its Global Top 1,000 list are:

The third biggest website in the world is the biggest website in the Middle East, twice over. Google’s Saudi Arabian site is the hottest website in the Arab world, coming in at number 52, while its UAE site came in at number four, ranked 135 globally.

The most successful Arabic web portal, Maktoob is most popular in Saudi Arabia, offering services such as news, games, webmail and chat. Founded by Jordanian entrepreneurs, the company has received investments from EFG-Hermes and the UAE’s Abraaj capital. The company is now working on developing a Facebook-style Arabic social networking website.

A sports portal, Koora.com (and its English language sister-site Goalzz.com) covers a dizzying array of world sports, from Premier League football to Swedish handball, and everything in between. The site is run by an army of volunteer moderators.

A hub for free downloadable software, little information was available regarding the operators of the site or its background. The site offers downloads of software, books and mobile phone applications, as well as links to other online resources.

This Kuwait-based web portal targets a young, predominantly female audience, offering an online matchmaking service, women’s interest articles and news, access to online competitions and music downloads.

How They See It

We used to have to go into a company, when we are selling online advertising, and we would have to start with “what is the internet.” Literally, that is where we would start, and go from there to our websites, the opportunities etc. Obviously it was tough work. Now, things have changed. We can start further down the line, and there is more awareness about what the internet means for business.

Advertising agencies, they still haven’t caught up. What we would like to do is go into the advertising agencies and work with them. They see it as a threatening thing, like we want to take over. It’s not. We just want them to know what the opportunities are for them, and how they can work with the internet to get the best deals for their clients. It makes sense for them.

Introducing a good search engine will really help push forward the Arabic language on the internet. So many things right now are being held back because there isn’t a good Arabic search service, and we believe that when people try ouqt Taya, they will start searching more in Arabic, which means they will start reading more websites in Arabic, and so on. That is one of the big contributions we believe our company will make toward a better Arabic internet.

Another major priority is translation. A service that can translate English websites into Arabic, and vice-versa, would open up a lot of the internet to people who otherwise would never have been able to access it. This is something we are very interested in.

There are three kinds of businesses that make money from the internet, as I see it. One type is the ISPs, and it is fairly straightforward for them: As internet use grows, so does their business. ISPs are doing just fine.

The second type of business is creating content. These are people who we can help through our search by helping direct traffic to their content. AdSense lets these people monetise their content, which is very important.

The third kind is the businesses who want to sell their goods and services online. This is where I see the main bulk of the money being made: Businesses in Egypt with a niche product, who want to sell that product in Saudi Arabia or anywhere across the region. Helping these business is one of our main areas of focus.