Big Opportunities in Turkey’s Digital Economy

Turkeyas a favorable investment destination has been a popular topic in the investment communitythis year. By now, the pillars of the Turkish investment thesis are well understood by investors, so there is probably no need to rehash these except to note briefly:

• High-growth, dynamic and stable economy

• Young, growing population

• Strategic geography with access to key markets

• Structural reforms

However, if our goal is to identify the most attractive investment path in Turkey, the information and communications technology (ICT) sector is probably the foremost candidate.

Ethernet cable connected to laptop computer.
Paul Eekhoff | Photographer's Choice RF | Getty Images
Ethernet cable connected to laptop computer.

According to the prime minister's office, the sector’s growth is outpacing GDP growth significantly, with a compound annual growth rate of almost 15 percent over the last decade. The size of the sector, estimated at about $29 billion by Deloitte, is still significantly below the EU average, pointing to a nice upside.

The sector is still dominated by the telecommunications industry in terms of revenue. However, the driver of growth will probably be the result of an offline-to-online migration in multiple sectors, similar to what has been experienced in the United States and the European Union.

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A dramatic characteristic of the Turkish market is how connected it is. The Turkish Investment Agency estimates 50 million Internet users. With 32 million users, Turkey ranks as the seventh country on Facebook. The aggregate attention on digital media is immense.

However, this is in deep contrast to the commercialization of this connected community. My firm estimates the number of people who have ever completed a commercial transaction online in Turkey is around 5 million, a mere 10 percent of the Internet users.

Therefore, one of the key explosions will be in e-commerce. We have started seeing the first signs of this with extreme-growth e-commerce startups like Trendyol, Markafoni and Grupanya, which already have millions of dollars in monthly revenues. Bolstered by a very strong payments system (51 million credit card holders according to the Turkish Interbank Card Center) and an effective logistics infrastructure, the wave of pure online e-commerce companies and e-commerce arms of brick and mortar players are here.

Another key area to grow is digital content. Historically, content has been tough to monetize effectively in Turkey. However, we are starting to see improvements, through micro payment service providers and effective ad networks.

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One sparkling example is Peak Games, a Turkish social gaming company that claims nearly 10 million daily active users, making it the third-largest social gaming platform in the world. The growing Turkish sphere of influence in the region will enable other digital content companies to grow rapidly and play their part in the rising digital economy.

Finally, I should note the most critical underpinning of this bullish outlook: the talent base to drive this growth. Here there are two factors: The strong technical education system of the country, and the reverse brain-drain that has begun shifting top-tier talent back from the U.S. and Europe.

Cem Sertoglu
Source: Earlybird Venture Capital
Cem Sertoglu

According to the IMD World Competitiveness Yearbook, Turkey ranks above Poland, Romania, Hungary and Bulgaria in the availability of qualified engineers. The increasingly vibrant ICT environment in the country has started to attract back the best and the brightest Turkish technical talent from graduate programs and top technology companies abroad.

Last year saw the first major exit of a Turkish technology startup to a global strategic buyer, when eBay acquired GittiGidiyor, the leading Turkish e-commerce platform, which was followed by Naspers’ acquisition of Markafoni.

This year, global sports digital media company Performhas acquired Mackolik, a local sports content portal. In the years to come, we should see increasing amount of global investment attention to the Turkish ICT market.


Cem Sertoglu is a partner at Earlybird Venture Capital in Istanbul. He has a Bachelor of Arts in Economics from the University of Texas at Austin.

Disclosure: Sertoglu is a current investor in Grupanya and a former investor in GittiGidiyor. Earlybird’s 2007 fund invests in Peak Games.

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