Why Turkey is hot

img_3668Robin 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 was 325% 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  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

This is Istanbul

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: 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.

sapphire-istanbul

Note: The article was re-published by Businessinsider.com on July, 29 2011. Many thanks

August 08, 2011: I would like to share two great follow-up articles on this post: Cem Sertoglu and Ari Bencuya

YORUMLAR

  1. Startup Accelerator

    Excellent article! My eyes are absolutely on Turkish Startup community. There had already been good signs for companies with global potential from there. The challenge is not to get distracted with the hype within Turkey and carry the company to that global platform right away.

    I’m proud to be working on such projects..

    Ky Ekinci
    Co-Founder
    Office Divvy ™

  2. Tahir Agaoglu

    Very nice article. I liked it very much.

    I prefer a Turkey without any Internet censorship. The market it big, and its really growing up very fast and stable.

  3. Huseyin Caglar

    Nice article..
    It also shows that Turkish Government must find a way to take tax from internet companies which make money by Turkish citizens but do not pay any tax !! as Facebook, google, ..etc

  4. Dr. Fatih Mehmet GUL

    Great article.
    Turkiye has a great potential for the future competitiveness between other developed countries with its young population and “young companies”.
    We have to start from today to design our education system and prepare young population according the needs of future.
    On the other hand, we have to assist and train start-up companies to make them ready to manage international expansion and business with successes.

  5. eCommerce Blog

    Turkey is an El Dorado for eCommerce companies. -Loved it!

    Looks like the young lads of Turkey are rolling up their sleeves to make it big on the eCommerce bandwagon. This should be the right time around for e-Commerce Specialists to hit the node.

    Also more people on the internet would always lead to more competition and better services for the users in return. Just love this trend 🙂

  6. netbook user

    A really interesting article, but leaves a couple of questions in my mind:
    First, is there any data of the spread out of the Internet users? and aren’t they mainly in Istanbul? Is it really a problem, or an opportunity anyway?
    I would be thankful if you could elaborate on that or at least show some english language sources of info

  7. Jameel

    Well written article.

    I’m tyring to find the size of the Turkish e-commerce market, and I don’t think your data makes sense: 6-9M users, spending $16B a year… so everyone is spending $2K per year online!

    Seems way too high. what’s the average salary in Turkey? How much of their income after tax does this work out to be?

    My guess is the $16B includes all online transactions, including banking & money transfers between people. Not pure e-commerce revenue.

    Has anyone seen what that number should be?

  8. Heath

    There is certainly a great deal to learn about this subject.
    I like all of the points you’ve made.

  9. flyy

    Markafoni does not deliver the products within 24 hours or 48 hours. actually it last a week:)

  10. Sina Afra

    @flyy I have never said this. Markafoni delivers in 7 working days. The 24 / 48 h in the article are about the courier services and their delivery times 🙂

  11. Penelope

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