Why You Should Pay Attention To Turkey’s Startup Scene

July 29, 2011

Istanbul turkey

Sina Afra

Sina Afra is the Chairman and CEO of Markafoni.

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    Robin from Techcrunch wrote a few days ago “If there’s one thing I keep hearing over and over when it comes to the European startup scene, it’s that investors who are not seriously looking at the Turkish market may be missing out on some of the continent’s biggest digital companies in the next 10 years.”

    This is only one example. There are many like this. Turkey has changed, massively. And with the changes in Turkey, the Turkish internet environment changed.

    So lets start with some facts about Turkey online market:

    Turkey has 35 M internet users – according to IWS. A figure which is also confirmed by Comscore and Turkish Telekom. This makes Turkey to the fifth biggest internet population in Europe (after Germany, Russia, UK and France) and number 13 in the world.

    According to the Interbank Card Center (in Turkish: BKM), the Turkish eCommerce had a volume of 24.4 B TL (16.3 B USD) in 2010. The growth from 2006 to 2010 was325% and the first half year of 2011 generated a volume of 15.9 B TL (10.6 B USD). Huge numbers and huge growth rates even if taken into account that the Interbank Card Center includes also some mail order revenues into the total number.

    The number of those users who spent money on the internet is estimated with 6-9 M users. There is no official number for this but it could be perceived as the consensus range of all estimates. If you assume the higher end of this range, the eCommerce penetration rate is 25% (of all internet users) which still leaves a great potential for the future. In countries like Germany or UK, the eCommerce penetration rate is around 60%. Exactly this number is creating an enormous push on the Turkish eCommerce market. What would happen if Turkey reaches the 60% eCommerce penetration rate? In two years from now… Just make the math, and you will understand why eCommerce is hot in Turkey (for founders and for investors)

    Turkish internet users have the third highest engagement in Europe – measured in online spent hours. The average Turkish internet user spent 29.4 hours in March 2011 online.

    Turkey is Facebook country No. 5 (Facebook users) and very close behind the UK. I would guess in a few weeks from now, UK will be No. 5 and Turkey No. 4 in Facebook. But not only on Facebook, the Turks are also very active on other services. Turkey is Friendfeed country No. 1 and the No. 8 country for Twitter.

    The Turkish online user is young: 70% of all online users are younger than 34 years (i.e. only 39% of all internet users in the UK are younger than 34 years).

    Another reason for the eCommerce friendly environment is the high credit card penetration. Turkey has 46 M credit cards (2010) and a credit card penetration rate around 60%. Compared to Europe where the credit card penetration rate is lower than 50% (the UK leading the credit card penetration rate with 67%), Turkey is an El Dorado for eCommerce companies as they do not have the problems of Russia and some other Central and Eastern European countries with “cash on delivery” (which triples your return rates).

    The B2C logistic infrastructure is also extremely well developed. Turkey has many competing delivery companies. Just to give an example: Markafoni is able to deliver any order after shipping to the customer in 24 h if the customer lives not more than 600 km from Istanbul away. For all other distances it takes the delivery companies 48 h. Even to a small village at the Iraqi border.

    And this year, Turkey experienced two big transactions (eBay acquiring GittiGidiyor and Naspers / MIH acquiring Markafoni) which delivered new valuation benchmarks and showed that Turkey has an internet market delivering three digit M USD valuations. Beside this mega deals, the companies are announcing every week the closing of another A-Series, B-Series etc. Kleiner Perkins, Intel Capital and many others started to participate at the growth of the Turkish online market.

    Beside all the facts and figures, there are so many observations which are so difficult to capture in statistics. Like the story from a Turkish company called Socialwire where the founders decided to open a second HQ in the valley (just to be closer to the investors in the valley). Or the story of eTohum, a seedcamp like incubator, which is receiving hundreds of business plans each year and has managed to present every year 2-3 start-ups which have been very successful later. There is the story of Limk, a Turkish start-up which gets his power from North and Latin America (especially Chile). So many stories to tell but if I had to reduce the Turkish internet market to two headlines, I would say COMPETİTİON and SPEED.

    Let’s start with competition. Turkey’s first group buying company was Groupon – launched April 2010. Today we have almost 200 group buying companies in Turkey. Groupon lost the market leadership to Grupfoni and the top 3 players control approx. 80% of the market but there are still 200 other players here. How many group buying players are active in Germany or in France? Two dozens? The only two countries with a similar level of competition are Brasil (400 group buying companies) and China (4000 group buying companies). The competition in the Turkish market is not limited to group buying. There are almost 20 flash sales companies or almost 10 local video sites etc. The competition shapes everybody and is creating highly efficient markets.

    Speed is another key word for Turkey. The entire country is on speed but the internet sector especially. The decision making processes are fast (everybody who has ever done business in Turkey will confirm this), the end consumers expectation levels are high (almost all eTailers deliver within 48 h) – speed counts on many levels. I have never seen a market which is so focused on speed.

    The main bottleneck of Turkey is still a lack of capital but after the deals of GittiGidiyor and Markafoni, I am sure that this obstacle will disappear soon. Every time I meet a Turkish start-up they tell me how many (non Turkish) investors they have met. And the bigger companies started to develop and execute a global vision. Like yemeksepeti opening up in Russia, Dubai and Cyprus. Or like Markafoni which aims to launch after Australia, Greece and Ukraine other businesses in- and outside of Turkey.

    Turkey is hot: İt has a big domestic market with many young users who love to spend time online. Facebook, Twitter, Friendfeed are heavily used. The Turks spent significant amounts of money online and we all know that this is just the beginning. The second biggest credit card penetration rate in Europe and the very well developed logistics network provide a great infrastructure for the further development of eCommerce. The lack of capital disappears day by day.

    If we turn back in five years from now, we might say “2010 and 2011 have been the golden times for investment in Turkey”.

    A sleeping giant is awakening right now.

    This post originally appeared on SinaAfra.

    Article source: SAI http://feedproxy.google.com/~r/typepad/alleyinsider/silicon_alley_insider/~3/--pryoe5oIk/why-you-should-pay-attention-to-turkeys-startup-scene-2011-7


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