Ethar El-Katatney

Facebook: Let’s Do Business

Posted in Uncategorized by Ethar El-Katatney on June 17, 2009

Facebook: Let’s Do Business
Close Up
Business Today Egypt
June 2009

facebook
Photo Credit: Mohamed Allouba

 No start-up capital, no rent, no taxes, no licenses and instant access to your customers. No longer just a dream.

By: Ethar El-Katatney

Twenty-two year old Yasmine Medhat made a gross profit of LE 28,000 and a net profit of LE 6,000 in one day. It took her 20 minutes to set up her business, and she made her first sale within an hour of opening. She began two months ago with no start up capital, pays no rent, electricity or taxes, has no employees, stores no inventory and has no fixed costs. Over 1,000 people now know about her business and yet she hasn’t spent a single piaster on advertising.

Welcome to the new way of doing business: Facebook.

Originally a social networking site, Facebook has evolved into something hard to define. In Egypt, the site has been used as an enormously successful matchmaker, protest-organizer, and now a business platform.

Finding their efforts blocked by the red tape, bureaucratic obstacles, lack of finance and numerous costs and regulations involved in starting a business in Egypt, it is a platform to which fledging entrepreneurs are turning.

With around 10% of the 12.57 million Egyptians online using Facebook — over 1.2 million according to the company — these entrepreneurs may just be onto something.

The Businesses

Facebook is based around user-created web pages and groups: simple, one-page universal templates that include a section for recent news, comments, discussion threads, photos, videos, links and events, along with a public description and picture for the group. Originally used for discussions or fans interested in a topic, the concept quickly evolved into a suave marketing tool for businesses. Then the groups evolved one step further, into actual businesses.

The premise seems ridiculously simple, almost too good to be true: Set up a group, think of a name and a logo, write a one paragraph summary of what you’re selling and how customers can order and pay for it. Upload photos and descriptions of the products. Invite all your friends to join the group, and watch as the clients roll in. It sounds easy, but it works.

Medhat is a recent graduate of the American University in Cairo and mother of a one-year-old son. She has no business experience and did not study business. On a trip to the United States, she realized that brand name designer scarves — used as hijabs by a certain segment of Egyptian women–were sold in outlets at much cheaper prices than at the actual stores. So when she got back to Egypt, she browsed the internet and contacted a number of suppliers who told her they could ship the scarves to her in Egypt. They sent her photos of their current inventory, so she immediately set up a group on Facebook, uploaded the photos, and invited all her friends to join. Twenty minutes later, she’d made her first sale and Echarpé was born.

Two months later, Medhat is a smashing success. Her Facebook group has over 1,000 members, and she sells around 20 designers scarves a week for LE 600-1,000 each, complete with her own self-designed logo that she sticks on the packaging. She collects a 50% cash deposit from customers before ordering the scarves — she pays her suppliers via Western Union — and the other 50% on delivery. Once a fortnight she orders from suppliers and puts a new collection of photos online.

Medhat can sell scarves cheaper than her few local competitors, as she has no fixed costs. She has now branched out into selling original, second hand and replica scarves, with profit margins of 20%, 40%, and 60% respectively.

“I’m lucky that I’ve found such a niche,” says Medhat. “I sell a product for a lot cheaper than my competitors in Egypt. I pay very little for customs — perhaps LE 250 for 80 scarves since they are so light and the customs [officers] don’t really know their value. The people on Facebook can afford to buy designer scarves, and if they don’t like the product once it’s here I can always resell it easily.”

Not just suits and ties

Medhat’s story is just one among hundreds. Facebook currently has 214 groups listed as ‘Businesses-Home Business’ in the Egypt network, although that is not necessarily an accurate measure, as not all businesses list themselves or even that they are located in Egypt.

There are three types of people who use Facebook for businesses. The first type are those with already established ‘brick and mortar’ businesses, who are using the online group as a way to raise awareness of and market their products, becoming ‘brick and click’ businesses. One such business is Tarkhan Gallery, a 15-year-old furniture gallery in Mohandesin previously known as Gallery Gharieb.

“My son pushed me to set up a group,” says owner Iman Tarkhan. “I never thought that I would get customers from it but I did and my furniture isn’t cheap — an average sofa goes for LE 10,000. I was showing my furniture at the exhibit at the Baron Palace in May and some people came who said they knew about me just from Facebook.”

The second type of people are those who have a website or a catalogue but no store and use Facebook as an additional selling or marketing tool. With LE 50, 27-year-old Abeer Selim and a couple of her friends began Art & Crafts in 2004, selling handmade cards and guestbooks. An architect by training, Selim is an editor at a real estate magazine. Initially, she and her friends started selling their goods to friends and through booths at events like concerts and other large gatherings. They soon cottoned on to the idea of selling products through Facebook.

Although the Facebook group Art & Crafts only has around 500 members so far, its creators have already branched out into designing wedding invitations, guestbooks, and decorations. They have become so successful with their customer base someone actually stole the logo they designed and set up another group with the same name, aiming to capitalize on their success. Selim reported them to Facebook, and the other group was shut down.

“Before Facebook we had to go to events, renting out a stall, and produce flyers. That cost a lot and it was only for one day. But with this group clients can find us any time without costing us anything. It’s amazing,” says Selim.

The last type of Facebook business is the entrepreneur like Medhat, those who have realized the massive potential of Facebook as a sole business platform. Some of these Facebook-only businesses have 50 members. Others have 5,000. But in terms of what they sell, they usually fall into two categories: selling handmade products, or importing goods. The handmade products can be as simple as computer designed cards or as intricate as hand sown and personalized baby blankets. Those who import goods either import one type of product such as replica handbags, or serve as ‘middlemen’, uploading photos of products (usually clothes), taking orders, and then delivering them.

Niche products

A quick browse of groups of Facebook’s Egypt network shows that the businesses are either importing products not easily available in Egypt, or selling handmade products targeted to a certain market.

Take for example 24-year-old Fadwa Attia’s painted T-shirts. Attia’s graduation project in 2006 involved painting, and she decided on a whim to paint some designs on T-shirts for herself, drawing inspiration from Egyptian culture. So many people asked her where she bought her T-shirts from that she decided to make and sell some. For a whole year, she would paint designs on T-shirts — which typically takes her a couple of hours per T-shirt — and sell them in booths at events. She was moderately successful, but outside of events she would only get two or three orders a month.

In September 2007, Attia set up a Facebook group for her friends. It instantly took off. Within a month she had over 1,000 members and more orders than she could possibly fulfill. Within six months, she had quit her job to focus solely on her new business, which she branded Fofo, complete with a caricature of herself. Today, her group has over 5,000 members, and she paints not only on T-shirts but on bags, sweatshirts, tank tops and sweaters.

“I could never have done what I’ve done without Facebook,” she says. “It’s truly incredible. The minute I upload new designs people find out about them. I get 15-20 orders a week now and I can’t keep up. People like my designs, and I make enough money to live on quite comfortably.”

The Price advantage

“Effective pricing is reducing the ability of the customer to compare prices and that’s why unique products are important,” says Dr. Ahmed Taher, CEO of marketing consultancy Solutions Consulting. “If they’re not widely available you can charge high margins and no one can compare.”

But if your product is not as unique as one of Attia’s hand painted T-shirts, selling it cheaply can be a way to gain customers, and that seems to be one of Facebook businesses’ main advantages.

Smuggling goods from abroad has always been big business in Egypt. A decade ago people would sneak suitcases full of clothes in random sizes and styles into Egypt from abroad, avoiding paying custom duties by saying the clothes were theirs. Word of mouth and furtive text messages would ensure people would find out about the ‘selection.’ But the range was limited; essentially what you saw was what you got.

The introduction of catalogues gave customers a different way of ordering goods from abroad, but at exorbitant prices. Facebook, on the other hand has changed the system completely. Now customers can see what they want through a group, order it, and have it shipped to their doors — for a lower price than in the local market.

Hany Serry and Nancy Kamel have used Facebook to completely update the way they do business. Thirty-year-old Serry is a consultant for textile companies. Through his job, he has contact with suppliers abroad who buy clothes from outlets and during clearances — and therefore are a lot cheaper than normal.

“I realized that people were selling imported clothes a lot more successfully through Facebook,” says Serry. “I used to get the stock and have open days in my house, but there’s only so much time you can dedicate to it, and [your house] has to be like a storehouse. People are also sometimes wary of going to the home of someone they don’t know — especially women.”

So in September 20008 he started a Facebook group. With a two-line description and two mobile number contacts for Kamel and himself, the group, The Most Fashionable Original Clothes are in Cairo Now, now has over 5,000 members. They receive 8-10 orders per week, with people choosing from the photos he uploads.

“Facebook is free,” says Serry. “My profit margin is 60-70% and even then my prices are only 25% of the prices the clothes are sold for in Egypt. Some items are 400% cheaper. And even though in the past couple of years a [multitude] of clothing stores have opened, I can buy something for LE 100 and sell it for LE 150 while it’s sold for LE 200 in the store,” he says.

“I can only do this because I have no store. A store would bring in people from the street but the items would be more expensive. I don’t pay customs, no one does. I remove the tags of clothes and sew them on when they get here. My shipments are never more than 2-3 suitcases so they’re never stopped.”

Serry and Kamel’s group is only one of dozens upon dozens, who illegally import everything from baby clothes and swimsuits to shoes and hair-straightening products.

Shady Adel and Marvy Hany, both pharmaceutical students, set up their group, Marvelous Beauty: Fabulous Fashion Factory, in December 2008. Adel’s father owns a pharmacy, and soon Adel realized that makeup was one of the biggest sellers. So he got in touch with an importer who smuggles in makeup and presto, the group was born.

“Because we don’t pay taxes or rent, we can price our products a lot cheaper than the market,” says Adel. “The makeup — though most is branded, like Christian Dior — is at least three or four times cheaper than the market price.”

Beginning with a shared start-up capital of LE 1,500, today the group has almost 2,000 members, and Adel and Hany receive between 12-18 orders a week. They deliver products all over Cairo for a fee of LE 10, and make a 20-60% profit on their sales.

A Promoter’s Dream

Promotion wise Facebook is a dream come true — free, immediate access to a network that is always connected and has money to spend: according to a recent MCIT report, 51.8% of households that make more than LE 8,000 per month have computers, and 20.34% of them use the internet.

“It’s like having a store in the most successful mall which people visit every day,” says Taher. “People don’t even go to Citystars every day — but they do go on Facebook at least once a day.”

A group owner starts their client list by inviting their online friends, who can easily number 500 or more. When one person joins a group, his or her friends are notified, and they may be interested. A group that sells similar products to that of another group will list that group in a section titled ‘related groups,’ thereby increasing the circle.

Within a couple of days a Facebook business owner could have a couple of hundred people not only aware of his or her group, but also interested in buying the products. And unlike a website which must be visited to find out about new products or updates, Facebook group members are instantly notified when a group is edited in any way.

Even people who don’t sell their products solely through Facebook find it an incredibly useful marketing tool, primarily because of access to potential clients.

Rasha Rashad is the owner of Zakhareef, a store that sells oriental themed home accessories and makes custom made home furniture like couches, curtains, and tables.

Rashad started selling candles to stores in 2003, and eventually opened her own store. She joined Facebook in 2008 for the sole purpose of marketing her store.

“As a small business I have very little budget for marketing,” says Rashad, “and Zakhareef is a project that is highly reliable on personal contacts — either to know new people who work in handmade products, or clients who want to buy a personal item or learn a craft as a hobby. So Facebook seemed like a perfect media. I have quite a large personal network and I was sure that most people in that network have a large network on their own [who] I sensed would be interested in Zakhareef’s services and products. It was quite difficult to reach people in my network and their network relying on a mailing list for the obvious maintenance and spam problems. Facebook structure solves this problem instantly without any effort from my side, which is great!”

The Unlicensed Web

More and more Egyptians, attracted by lower prices and the convenience of online shopping are buying products through Facebook businesses. But this begs the question: How is it possible for a customer to trust an unlicensed, unregistered business with no physical location their money, when Egyptians at the best of times are wary of online transactions?

The key concern is addressed by the fact no transactions are made online: all business is done in cash, either face-to-face or thought bank transfers. This also means the Facebook business owner is a lot closer — even instantly available by phone — to their clients than many other faceless brands or multinational chains. “The client on Facebook has a voice, and the producer has a face,” explains Taher. “This means a Facebook business can be perceived to be more trustworthy than a real, licensed, online store since you know them.”

Secondly, it is incredibly easy for a customer to find out what people thought of a product and seller — and this will have more weight if a friend has referred you to the group — by simply reading the comments on the seller’s page: happy customers and disgruntled customers alike will write.

Facebook business owners are also often more flexible in returning or exchanging goods if the customer isn’t satisfied, especially if they can be resold easily. Generally, the relationship between seller and consumer is more of an intimate, one-to-one relationship — in essence combining an old-world relationship of trust with the modern media of the internet — something today’s big business struggles to do.

There’s no doubt that Facebook businesses are making good money. But where exactly do these unlicensed, unregulated, unregistered, untaxed and unwatched businesses fall from the government’s perspective? The most probable answer would be e-commerce, which, covering all buying and selling over the internet, is still very much uncharted water in Egypt. (See sidebar).

A lack of legal framework for web activity and the government’s lackluster efforts at promoting and facilitating e-business has provided Facebook business owners with ultimate freedom. None of the Facebook business owners interviewed seemed overly concerned that they might be fined for smuggling in goods or selling them without a license. Very few keep accounting records. Even fewer have taken the time to register their brand names.

It’s true that selling solely on Facebook does pose some difficulties: a Facebook business owner will miss out on potential clients who are not on Facebook and those who still want to see a tangible product. He or she may get orders from phony clients. And if the mentality of Egyptians towards using credit cards online changes, then ‘middlemen’ shoppers may become obsolete.

The businesses profiled here are only the tip of the iceberg. Through Facebook, customers can now order Tupperware, makeup, candles, food, clothes, Indian pashminas, cards, baby gifts, jewelry, accessories, home furnishings and much, much more. The Facebook business economy is changing constantly with every passing day. Groups are forging partnerships, offering discounts if you buy from their partner groups, merging into larger groups, and getting bigger by the day.

Competition will increase — when it’s so easy to set up a group, what’s to stop someone else from setting up a group identical to another, and perhaps even using the same suppliers? As Egypt gets more technologically savvy, it’s hard to predict what the e-landscape will look like in a couple of years. Only time will tell, and with the government laying low for now, the sky is the limit. bt

 

E-Commerce in Egypt

According to a recent MCIT report, only 0.44% of Egyptian internet users use the internet for e-commerce. That’s a tiny percentage, but it’s still equivalent to over 55,000 people — a not negligible amount. The figure does not include Facebook businesses and any other untracked form of doing business online.

But e-commerce in Egypt has been on the backburner for a number of years, despite the potential for making money on the internet. In 2007, The Economist Intelligence Unit (EIU) ranked Egypt as number 58 out of 69 countries in terms of e-readiness rankings, where they evaluated a country’s e-business environment and how amenable a market is to internet-based opportunities.”

In order of importance the six criteria used to rank the countries were: “consumer and business adoption; connectivity and technology infrastructure; business environment, social and cultural environment, government policy and vision; and legal and policy environment.”

Egypt’s e-readiness score was 4.26/10, which was worse than its score and rank in 2006, where it scored 4.30/10 and was ranked number 55. In Egypt, the government’s activities toward helping e-commerce grow are limited to supporting infrastructure like e-payment and e-signatures.

Consumer mistrust of online transactions and a lack of legal clarity surrounding e-commerce are two of the reasons Egyptians are not enthused about buying online.

“Although Egyptian credit-card holders are gradually becoming used to using their credit cards on international sites such as Amazon.com,” states the EIU report, “they are still wary of using their credit cards on domestic sites.”

The MCIT report reveals that in 2008, 71.4% of Egyptians were ignorant about e-commerce, while 20.9% simply refused to use online transactions– up from 10.1% in 2007.

In 2004, the much publicized and hyped e-signature law was issued, going into effect a year later in May 2005 with Ministerial Decree 109.

Unfortunately, the law — which involved the creation of the Information Technology Industry Development Authority (ITIDA) under the MCIT — has produced little else of substance.

“The law and its executive regulations provide legal standing for electronic signatures with the aim of stimulating e-commerce growth by providing an amenable regulatory environment,” states the EIU report.

One of ITIDA’s roles, according to Abdel Rahman El-Mawawi, media researcher at ITIDA, is licensing a limited number of certificate service providers in Egypt, in order to provide e-signature services, issue digital certificates and corresponding electronic signatures for citizens and private sector companies’ clients.” In the five years since the law was issued, four companies are still in the process of being licensed.

The law focuses on e-signatures, and doesn’t pay much attention to the broader concept of e-commerce, which it does not even define. Neither does it specify legal protections for e-commerce brands or marketing concepts, though it does imply that ITIDA should promote and regulate e-commerce.

Article 5 of the law does, however, stipulate that a duty at the rate of 1% from the revenues of services and businesses extended by the establishments working in the field of communication and IT shall be imposed on and undertaken by these establishments in favor of [ITIDA].”

Under this article, e-commerce activities should supposedly be paying 1% of all revenues. However, this has never been enforced.

Why is e-commerce so neglected? The answer is simple: the market is still too small and that the government has bigger fish to fry.

“The legislators and regulatory authorities have more than their fare share of problems,” says Dr. Ahmed Taher, CEO of marketing consultancy Solutions Consulting, “and e-commerce is the least of their worries since the volume of business is very minimal relative to all of society. […] Plus, it’s not only difficult but requires knowledge of technology and we all know that the calibers of people who are in authority are lowest when it comes to technology.”

The Egyptian Center for Intellectual Property and Information Technology (ECIPIT), which operates under the umbrella of the MCIT, trained 1,000 students in 2008 in programming. Ahmed Abdel Khaleq, who is in charge of the e-business program, says the course is offered to teach young programmers who work in companies that use e-commerce.

“E-commerce is Egypt is still not an issue,” says Abdel-Khaleq, “because of the mentality of the Egyptian who likes money to be in his hand and given to the seller in front of his eyes, hand to hand. E-commerce needs security, which costs a lot and so a company needs to have enough customers to justify the expense. Demand is not high enough yet and that’s because Egyptians have still not warmed up to the idea of e-commerce.”

“E-commerce in Egypt is in its infancy,” agrees Wael Amin, President of IT services firm ITWorx. “It’s best not to encumber it with legislation, because with fast changing [industries] like technology it will limit creativity and innovation. This industry is deregulated by design and the wisdom of doing so is clear. [With these] infant industries we must leave them to their own devices because if we try to regulate them and hold their wings, we will break them.”

“People in Egypt are developing their own business models to take advantage of e-commerce. The tried and tested business e-commerce models in the West like Amazon.com are not very transportable to the Middle East because of the difference in e-maturity and e-awareness and e-security and the much lower penetration rates of computers and credit cards and e-payment methods. So entrepreneurs and companies are finding their own space in developing e-commerce. Facebook is one example,” says Amin.

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2 Responses

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  1. AbdelRahman El-Mawawi said, on December 27, 2009 at 11:25 pm

    That’s a brilliant especially after E-signature service official launch!
    Well I have my own e-marketing experience for more than 4 years specialized in search engine oprimization (SEO) and search engine marketing (SEM). You may also write about this issue as there are promising Egyptian talents in this field.

    It is not only about E-commerce🙂

    Keep it up!

    AbdelRahman El-Mawawi

  2. Abu El-Fotoh said, on March 14, 2010 at 8:14 pm

    And The Small Shall Play Big
    First of all, this is an excellent and useful article. Really good job covering, i guess, every angle of it, especially the regulatory framework.
    Second, I want to add that Thomas Friedman wrote in his bestseller book, The World is Flat, that because of the internet small businesses will be able to act big. I think this what is going to happen in Egypt in the years to come. I mean, we will see Facebook groups selling to other governerates inside Egypt, and then to other Arab countries. They can sell to gulf states’ customers as they don’t have customs on incoming goods for example.
    And hopefully, if the government is able to catch up and draft a regulatory framework to e-business more trustable, e-business will be a source of many jobs to the many jobless Egyptians.


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