“This is nothing short of a sea change for the region,” says Faisal Ghori, a principal at strategy consultancy Middle East Ventures.

the Middle East has become an “increasingly important” market, says Faisal Ghori, principal at Middle East Ventures, a Washington-based business strategy consultancy focused on the Middle East and North Africa.

“In the next five years, you’re going to see people taking risks on both the entrepreneurial and the invest- ment side,” says Ghori.

Hope is often in short supply in the Middle East, but that may be quickly changing, at least for the region’s entrepreneurs. On August 25, Yahoo!, the Internet giant, announced that it will acquire Maktoob.com, the Middle East’s largest web portal and online community founded and operated in Jordan. As the very first acquisition of a Middle East-based technology company by an American technology giant, this is nothing short of a sea change for the region. Overnight it has bolstered the region with instant credibility and given its entrepreneurs reason to hope that they too can succeed in creating companies. The acquisition, in short, has fundamentally altered the technology landscape in the Middle East.

Earlier this week Yahoo! announced that it will acquire Maktoob.com (read the press release here).

Below, we speak to Samih Toukam, CEO and founder of Maktoob.com; Emile Cubeisy, Managing Director of IV Holdings; and Khaldoon Tabaza, Managing Director of Riyada Ventures.

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MEV: What does this means for you and your organization?

Samih:  This is a great success story for me and the maktoob team. We have worked hard and proved that it is possible to create something good out of the Arab world. We are all proud of what we have done.

Emile: IV Holdings congratulations Yahoo! on its acquisition of Maktoob.com, which opened up broader opportunities for Arab online entrepreneurs and firms.  For Accelerator and IV Holdings, this strengthens our conviction in what we have always believed, that Arab entrepreneurs will play an important role in shaping the global internet and interactive landscape.  An industry and an opportunity that has always sought validation has found it.  For IV Holdings, this is an important milestone, in that it proves to Arab entrepreneurs that if you focus on building true value in your businesses, execute patiently and with professionalism, and go through the full stages of growth, real exit opportunities will emerge.  It proves to the wider investment community that real opportunities for value creation does exist in the knowledge-based talent pool in the Arab World, and validates the existence of quality entrepreneurs that can pull it off.

Additionally, Maktoob’s history of working with regional VCs to build itself up towards global relevance validates the importance of our industry’s role in helping Arab entrepreneurs achieve their full potential, something that IV Holdings is a first mover in committing itself to.

Khaldoon: The Yahoo! Maktoob deal is an inflection point for the Internet industry in the Arab world, a milestone that indicates that the online market in the Arab world has reached critical mass, and the start of a new phase for start-ups, VCs, and the industry at large in a region that remains largely untapped in terms of its potential, and that will be one of the key drivers of growth in emerging economies in the years to come.

MEV: What does this means for Jordan and the region?

Samih: It’s a success story for Jordan and the region and a message that we can build something big and strong in the Arab world and this is where we should be focusing our investments, in the talents and brain power that we have not in real estate and buildings.

Emile: This reaffirms Jordan as a regional beehive of technology and dot.com entrepreneurs.  In a journey that started in 2000 with Jordan’s focus on its human resources as its differentiator, and its emphasis on global economic relevance, not just local and regional, Maktoob, as one of the first pioneers, has confirmed this belief.  We should expect to see many more such success stories from Jordan, especially due to what they have already proven they can accomplish.  We are ripe with entrepreneurship, and the Yahoo! acquistion of Maktoob will only shed more light on the innovation and the entrepreneurs in Jordan.  The ripple effect to entrepreneurs in neighboring countries will be felt as well in the coming years.

Khaldoon: This will no doubt encourage investors from the region to be more proactive and aware of venture investments, and most importantly, it will encourage international investors to pay attention to the Arab world as a source for deals (rather than just capital). It should also encourage accomplished expatriate Arab entrepreneurs to look towards their home countries for their next venture, as well as encourage experienced Arab talent at home to take the step towards creating new start-ups.

MEV: What does this mean for entrepreneurs throughout MENA?

Samih: It’s a message to all entrepreneurs out there that hard work and innovation will pay off.  Maktoob is just the beginning for many success stories to come.

Emile: While entrepreneurs in the Arab World have always believed, it will be hard for the mainstream to neglect what they have always felt…the region will firmly be entrenched as part of the global internet landscape much sooner than many believe.  For these entrepreneurs, it allows the spotlight to be shifted towards them a little, as they now have a proof point that innovation, perseverence,  passion, and relevance, if effectively executed, can yield globally relevant businesses.

MEV: What does this mean for foreign investors investing in tech. in MENA?

Samih: It means that its time to invest in the Arab world. The market is ready and has huge growth potential and there is good talent and brains out there and also good exits for your investments.

Emile: We’ve had our early entrants in our market, most notably Intel Capital, Microsoft, Cisco, among others that should be recognized.  Foreign investors, while their focus may be on China and India, will now take notice of the MENA Region as a viable market in which innovation and value does exist, and where realistic exit opportunities are emerging.  The stars are aligning for the Arab tech and internet industry, a fact global investors are sure to notice more and more over the coming few years.

Khaldoon: As an acquisition that is a first of its kind, all eyes will be on Yahoo!/Maktoob to test the chemistry on the long-term between Yahoo! and the Arab culture and community. On the shorter term, the industry will be closely watching to monitor the integration of Maktoob’s team inside Yahoo!, the delivery on the promises to Maktoob’s employees in terms of their stock options and benefits, and how will Yahoo! deal with many border-line intellectual property issues on Maktoob especially with regard to video music, and software, which made up much of the recent growth of Maktoob as a result of acquisitions in the past few years.

The QRCE recently announced the start of its 3rd Annual National Entrepreneurship Competition which will award $70,000 (USD) in total cash prizes.

Google will be offering a special $10,000 (USD) award for the best online focused business. The King Abdullah II Design and Defense Bureau (KADDB) is also offering $10,000 (USD) for the best business plan catering to defense and security.

To date the QRCE’s business plan competition remains the regions only technology focused business plan competition.

Neither of the cable operators have confirmed the cause or location of the outage but some reports suggest it was caused by a ship’s anchor near the port of Alexandria in Egypt.

As Middle Eastern businesses continue to come online, issues such as this reinforce the desire of others to remain offline. Worse yet, it harms the regions image of having reliable infrastructure for ICT development.

Internet companies with funny names, little revenue and few customers are commanding high prices. And investors, having seemingly forgotten the pain of the first dot-com bust, are displaying symptoms of the disorder known as irrational exuberance.

But, yes there are some astronomical valuations being thrown around. When it comes to valuation investors and entrepreneurs both know its more art than science; and investment bankers are more than eager to help the investors and entrepreneurs reach “the right valuation” (after all, that’s how they get paid). Having said that there are few signs of the “irrational exuberance” from the side of the bankers. They are all too familiar with the collapse of the first bubble and what that meant for their industry.

On the venture capital/entrepreneurial side, however, the matter is different. Entrepreneurs are now demanding sky-high valuations for nascent companies, if not ideas. Entrepreneurs are now often blinded by the valuations of YouTube, Facebook, and other Web 2.0 companies and demand similar valuations. VCs, then, are forced to educate entrepreneurs and temper expectations. While Ning, as the NYT article points out, is being valued at $200mm, some if not most of that valuation is being driven by the previous success of Marc Andreesen (of Netscape and Opsware fame). In the Valley, success begets success and VCs are more likely to invest with a proven entrepreneur than take a risk with someone who’s unproven. VCs are in a difficult position as they are inevitably confronted with the informing entrepreneurs that they are not Marc Andreesen – not an easy task.

Part of the challenge is that there is now an abundance of capital chasing technology deals. As VentureOne and Ernst & Young have pointed out (read it here), VCs invested $7.1bn in 3Q07. Tech investing used to be the domain of seasoned VCs. It is now open to traditional LBO and hedge funds who are now also competing with Sand Hill Road. And unlike VC firms, LBO and hedge funds offer cheaper money to entrepreneurs, meaning higher valuations. As such, when VCs think they’ve spotted a promising company, bidding wars are not uncommon.

At the end of the day, VCs know that there are very few companies that will be able to promise the astronomical returns they seek, so when they spot a company that appears to be a winner, valuations will naturally increase.

The NYT article paints a nearly ominous picture – foreboding of the crash – but what the article fails to point out is that unlike last time, these companies are not going public. Public investors are well aware of the consequences in buying shares of companies that had no revenues. We won’t be seeing an IPO of Twitter anytime soon. But what VCs know, and what the article doesn’t mention, is that companies which have a large and growing number of sticky users, often turn huge profits for VCs (think Hotmail, Skype) and often become hugely successful businesses (which is what Facebook is being primed for and which is why companies like Meebo and Twitter were so sought after for investment).

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The Middle East nowadays doesn’t evoke a sense of technology development, and innovation or much of anything else unrelated to a few things in the imagination of most: Iraq, oil, terrorism, and increasingly the question “will the Bush administration or the next American government bomb Iran?” Over the next few days and weeks, this blog, will seek to change that (to some extent), and provide a fresh perspective on the overall technology landscape in the region.

As the inaugural post, I’ll begin with a few starting observations that are important when considering technology (or most other businesses). More than half of the region’s population is under 25 and internet penetration is increasing rapidly. Purchasing power in on the rise with the introduction of readily available credit. In short, the Middle East over the next few years will have a key target demographic, that is widely sought by most everyone, and with money to spend.

The MENA region extends from Morocco in the West to Iraq in the East, including wide swathes of Asia and Africa. To simply say the “region is this” or “the region is that” would be to oversimplify the complexity of various histories, peoples, cultures and religions that reside in it. Yet, to some extent it becomes necessary to have some general observations as a starting point for discussion. As such, please pardon any generalizations from my end, and I encourage readers to please participate in the comments section to share their views and opinions in keeping my perspectives grounded in the various realities that comprise the Middle East.

Having put that disclaimer out there, let’s continue. In this post, I hope to provide a general overview of the region’s technology landscape that will frame future posts, and assist in understanding the region. As such, I offer the following points of observation:

1) Technology is widely misunderstood in the region. If you’re talking about a technology business in the region you might as well be talking about Jack and his beanstalk. With the exceptions of familiarity with Google, and to a lesser extent YouTube and Facebook, very few people know what a technology business is. As such, building a successful technology business in the region is particularly challenging.

2) The greatest success in the region with tech. has been in IT services. The largest private players in the region have been outfits providing support, sales and consulting services for the region’s various large industries and companies. This is an area that has shown considerable growth and success. It remains largely privately owned. The largest global software and hardware players (Microsoft, Oracle, IBM, Sun, etc…) have all played in this space.

3) Funding? Fuggetaboutit. Investors in the region are loathe to invest in technology businesses. The region has experiences a real estate boom where itinerant Bedouins that had land once considered worthless have emerged as the landed elite. As such, investors in the region look to investments with “guaranteed returns.” There is no such thing as early or seed stage investing. Angels remains a religious phenomenon, very few to be found as investors. And those that do exist, entrepreneurs view as their piggybanks with no rational reason as to why.

4) The Tech bubble also burst in the Middle East. Many individuals don’t know or have simply forgotten that investors in the region lost billions in the tech. bubble. The largest investors in the Middle East invested across the board in some of the world’s most known venture funds and lost a great deal of money, in companies that evaporated as soon as they went public (think WebVan). This is a memory not easily forgotten.

5) Politics? Who said anything about politics? As I mentioned earlier this is a region known globally for things that go bump in the night. It’s often known for its wars, its instability and horrific acts of violence that either happen here or originate from it. Some refer to it as an “unfriendly neighborhood,” quite the euphemism. It would be naïve to ignore the region’s global politics and those of respective nations that make up the Middle East.

6) There is a nascent public financial market. While the possibility of IPO’ing was non-existent a few years ago, the Dubai stock exchange has provided the ability for companies and investors to have meaningful liquidity events.

7) We’re still at the very beginning. Although the technology sector is fairly mature in the U.S., particularly in Silicon Valley, it remains in its infancy in the Middle East. While this may strike some as self-observant, I can’t overemphasize this point. It’s often said that Europe is 2-3 years behind the U.S., and Asia 3-5 years. If that’s to be believed the Middle East is a good 5+ years behind. Bearing in mind that those time gaps are shortening over the years, the region globally lags behind. There remain abundant markets to be served and opportunities to be found for the plucky entrepreneur, it just means getting accustomed to the region’s particular uniqueness which isn’t without its perks.

Jordan is home to some of the most well known technology companies in the region. Chances are that if there’s a technology company that is well known in the region it originated or was incubated in Jordan. But for a region as condensed as the ME and for country as small as Jordan there’s never been a meetup…till now.

It’s been a few years in the making but with the support of the QRCE, I’m very happy to announce that we’ll be launching TechConnect – The Middle East’s First Ever Tech. Meetup in Amman. Details can be seen on the flyer below. Thanks also to Jeeran for sponsoring the event.

The event is invite only, so if you’re interested in attending please send me an email.

Founded in 2003, The Queen Rania Center for Entrepreneurship based at the Princess Sumaya University for Technology exists to promote tech. based entrepreneurship in Jordan, in that regards it’s the only center of its kind in the country and perhaps within the region (with the notable exception of Israel). There is a nascent culture of tech. based entrepreneurship in Jordan and it needs all the help it can get.

The Center has four established programs: 1) the Technology Commercialization Program, which hopes to patent and license IP; 2) the Queen Rania National Entrepreneurship Competition, a business case competition for budding entrepreneurs throughout Jordan (the most visible of the four); 3) Connect Jordan, a networking organization; and 4) DART (Dream, Aim, Reach and Target), an entrepreneurship society for students. The Center is sponsored by the Jordan Telecom Group, The National Fund for Enterprise Support (Nafes), and Jordan Business.

Officially:

Established in 1991, the Princess Sumaya University for Technology (PSUT) is a specialized nonprofit ICT Jordanian university. In the year 2003, PSUT embarked on a vigorous development and expansion plan. An integral part of the plan was the establishment of an Entrepreneurship Center that would be located at the heart of Jordan’s scientific, academic and R&D corridor. The idea was to name the Center after a prominent Arab dignitary known for his/her distinguished role in supporting economic growth and entrepreneurship. Thus, work towards launching the Queen Rania Center for Entrepreneurship (QRCE) started in October 2004.

The center aims at national development and planned to be the regions’ corner stone for technology commercialization and entrepreneurship advancement. The QRCE targets university students, researchers, innovators, entrepreneurs and others. According to PSUT’s development plan, the next step will be the establishment of a business school to be linked to the center.

Working closely with local and international organizations; the QRCE will focus on issues such as: capacity building, consulting, counseling and developing the local “Entrepreneurial Personality & Spirit”. Furthermore, the QRCE will actively work on extending the intellectual wealth of Jordan while maintaining strong links with the business community in general.

Thus far, the Center has been known for its case competition which has helped launched: Faye3.com, which calls itself “the first Arabic Social Network in the world with an Arabic taste;” and Ketab Technologies, a developer of tech. focused education solutions (their first product is an electronic white-board). Both companies were winner of the case competition.

I had a chance to sit down with Basel Kilany, Acting Director, and Mohammad Khawaja, Project Manager, at the QRCE.

QRCE Podcast:
The QRCE.mp3