How 922 Islands Are Fueling a $25 Billion Indonesian E-commerce Market
Before relocating to Southeast Asia from New York, I knew very little about Indonesia. It came up in conversation as more of a vacation destination rather than an emerging digital unicorn. Now that I’ve spent quality time in Indonesia, I believe I’ve seen the unicorn, and her name is mobile e-commerce.
The Indonesian e-commerce industry, with its 308.2 million unique mobile users, is in HYPER GROWTH mode. Based on an A.T. Kearney report, the ASEAN e-commerce market, fueled by Indonesia, is growing at 25% a year. This puts the region’s growth on par with that of China, the world’s fastest growing and largest e-commerce market.
Indonesia’s e-commerce itself is slated to reach $25 billion within the next 4-5 years, transforming the archipelago into the single biggest e-commerce market in Southeast Asia. Over time, Asia will be home to three e-commerce superpowers — China, India, and Indonesia. And unlike her Asian siblings, Indonesia will be the only truly mobile e-commerce superpower.
From a Venture Capital point of view, Indonesia has become the most important emerging market in Southeast Asia. In 2015, according to Tech in Asia, there were around 27 seed funding deals and 30 series A rounds in Indonesia. The majority of that went towards e-commerce companies, with the big splash being Mataharimall and its $500-million-dollar investment from Lippo Digital Ventures (now Venturra Capital).
While many have made predictions that Indonesia’s digital economy will experience significant growth, in the e-commerce vertical, it’s already begun. In fact, no less than 67% of Indonesians used their smartphones to shop in the past year. Combine that with a per person average of 3.1 hours spent a day on the mobile internet and it’s easy to understand why the VC money is pouring in.
And what about foreign born competitors? Now that Indonesia will allow foreigners to own 100 percent stake in local e-commerce businesses, they’re getting in on the action as well. Chinese giants Baidu, Alibaba and JD.com have already created localized versions of their apps to take on local giants Tokopedia, Mataharimall, Lazada, Bukalapak, Sale Stock, and many others.
With 922 inhabited islands in Indonesia, it’s hard to have a brick & mortar presence everywhere. Insert the e-commerce mobile app, with its 24/7 customer support, and now you have access to all 250 million Indonesians. Delivering to all 922 islands, well that’s a whole other blog topic, but let’s hope it doesn’t involve drones in the air.
What’s been impressive working in this space, is the urgency and attention to detail of these e- commerce companies. They’ve got bright young minds bringing their apps to market. Intelligent young minds who are eager to learn, and really value the data and collaboration with their partners. A whole generation of digital savvy e-marketers has been born, and they’re quickly becoming invaluable assets to their companies.
But it’s not all rainbows and happy times in Indonesia. There are issues in this ultra competitive e-commerce space.
1. Quality Traffic and Rising CPIs: There’s not enough supply to meet the demand of the e-commerce players when it comes to mobile ads. They all want quality, life long users, and they’re all buying from the same ad networks. With the limited amount of networks that can deliver, prices will continue to rise.
2. Delivery: Many existing logistics companies weren’t built for B2C. This is why we’re seeing companies like Lazada, MatahariMall, and aCommerce building out their own last-mile delivery. This, combined with a lack of public transportation in Jakarta plus over 2 million commuters relying on motorcycles for transportation and the end result is a major headache.
3. Acquiring and Retaining Talent: The biggest challenge often cited by e-commerce players in Indonesia is the lack of talent. And while Rocket Internet companies like Lazada have done everyone a favor by training the next generation of performance marketers in Indonesia, with the advent of mobile app marketing, it’s an entirely new playground with even less talent to go around.
4. Payments (and particularly Mobile Payments): With 3.2% credit card and 11% debit card penetration rates in Indonesia, no wonder that bank transfer and cash-on-delivery (COD) are the two most popular payment methods when it comes to shopping online. Compared to using a credit card, PayPal, or Alipay in more developed e-commerce markets, bank transfer is a huge pain, although not impossible when buying on a desktop in Indonesia. However, when it comes to mobile e-commerce, companies in Indonesia better offer COD or they’ll risk losing out on arguably the biggest mobile e-commerce opportunity in the world. Unfortunately, and related to the delivery challenge, offering nationwide COD across 922 islands isn’t exactly the easiest job.
I still haven’t booked my vacation spot in Indonesia yet. But when I do, and I inevitably forget my sunscreen, I’ll have a plethora of e-commerce apps to choose from to get my same day delivery.