Rivals view Yahoo!'s Arabian adventure

As other global internet companies eye the Middle East cautiously, the US giant has seized the day, Douglas MacMillan reports

On the pages of Arabic-language website Bentelhalal, men and women from Saudi Arabia, Egypt, and other parts of the Middle East and North Africa list personal details and describe the qualities they're looking for in a mate, such as "polite", "stylish", and "God-fearing". It's reminiscent of a US dating site, except for one big twist: all of these singles are ready to marry.

Bentelhalal is just one popular site within Maktoob, the large Jordanian internet property that Yahoo! announced last week it was acquiring for what the website TechCrunch reported to be $85m (£52m). It's also a sign that Yahoo!, which trades in tech news and celebrity gossip, has entered a different world.

The purchase gives Yahoo! command of one of the most visited online news portals in the Arab world, with business, finance, games, blogging sites that reach an estimated 16.5 million people. Yahoo! says it will translate its home page, email and instant messaging services into Arabic but plans to keep Maktoob's local flavour mostly intact.

While rivals Google and Microsoft have tiptoed cautiously into the Middle East, Yahoo! will be the first major internet company from the West to run a full online content business in the region. How the company navigates the cultural and legal norms of the Arab world will be watched closely by competitors back in America. So will its approach to internet censorship.

The relatively tiny market for online ads in Arab countries has companies stepping carefully into the market. Microsoft partners with an Egyptian ISP for its MSN Arabia site, and Google offers an Arabic-language version of its search engine. But neither has entered the Middle East with as much conviction as Yahoo!. "Many of the emerging markets are very similar. You have nascent penetration of online users and ad dollars," says Keith Nilsson, Yahoo!'s senior vice-president for emerging markets. "The Middle East is unique because you have a continuous language which a very large population speaks – one of the reasons we were interested in this acquisition."

The market for online advertising and transactions in the Middle East may be tiny by Silicon Valley standards, but experts say the potential is huge. Maktoob is largely supported by online ads, which are expected to make up a $142m market among Arabic-speaking countries by 2011, according to Dubai-based Madar Research.

"The Arab citizen is hungry for local content in their local language, and this is something that has enormous potential for internet companies," says Soumitra Dutta, a professor of business and technology at Paris business school Insead. Mr Dutta says the Middle East has improved its technology competitiveness faster than any region in the world over the past five years, according to a study he conducted with researchers from the World Economic Forum. Technology companies that include Cisco Systems and SAP are seeing fast growth in the region, and Cisco has been investing aggressively there.

Yahoo! sees its success in the region dependent on catering to local markets. "We have to have a team in place that understands the nuances between each country," says Mr Nilsson. While Maktoob currently has a sales force in five countries, he says the plan is to develop local sales forces in all the countries the site reaches.

As it expands to the Middle East, Yahoo! is taking pains to avoid the kinds of government complications it has encountered in Asia. The company was criticised in 2004 for providing information to the Chinese government that critics say led to a 10-year prison sentence for journalist Shi Tao. Since then, Yahoo! has helped to form the Global Network Initiative, a symposium of web companies and advocacy groups that share advice about dealing with governmental requests. So far, the efforts appear to be paying off in Vietnam, where the company is expanding despite government restrictions on blogging and other online activities.

The Arab world will be another test. A report published in March by Reporters without Borders listed a number of the region's states – including Egypt, Iran, Saudi Arabia, and Syria – on its annual list of countries it considers "enemies" of the internet for jailing bloggers and otherwise preventing free speech on the web. "Political filtering is strong in the region," says Rob Faris, the research director for Harvard University's Berkman Center for Internet and Society.

Yahoo! says it plans to abide by local laws while operating Maktoob but will also protect users' freedom of speech. Yahoo!'s lawyer, Michael Samway, says that when the company was performing its due diligence, it studied "the potential intersection points with human rights challenges". One cautionary measure was already in place: Maktoob keeps its users' private information stored on servers "outside the region", which would prevent them from being subject to local governments' demands.

In the past year, several Middle Eastern bloggers have complained about notices from Maktoob to take down their postings, says Helmi Noman, a research affiliate with Harvard's Berkman Center who has studied internet censorship in the Middle East. A Saudi blogger, Khalid Naser, received a letter from Maktoob that said it had been ordered by a "state authority" to shut down his blog, according to Mr Noman. Mr Samway, without addressing that specific case, says blocking in the region has typically been enacted by internet service providers, not Maktoob. Nevertheless, Maktoob's terms of service for bloggers currently forbid posts that could offend religions or political leaders.

Yahoo!'s competitors are watching its Arab-world expansion closely while taking more halting steps. Google has opened offices in Dubai, Egypt, and Saudi Arabia in the past two years, focusing much of its efforts on providing translation tools and educating local advertisers about using its programs. Online ads in the region are "very small but ... growing", says spokeswoman Joanne Kubba.

Middle Eastern web users are eager for news and online entertainment tailored for them. As US tech companies look to cash in, they're entering a region more fraught with cultural and political shoals than other emerging markets they hope to crack.

This article originally appeared in Business Week magazine