Indonesia presents much opportunity for e-commerce among other emerging Asian economies, with current projections putting this archipelago nation’s e-market at $130 billion by 2020 (coming third behind China and India). With an estimated annual growth rate of 50 percent and strong mobile-first initiatives, retailers have a unique opportunity in Indonesia to focus on developing truly mobile platforms to help facilitate e-market growth, particularly in the consumer packaged goods (CPGs) sector (Thanks to a strong local industrial base, local made goods will outpace imported goods in both production and sales).
Indonesia’s current e-commerce market is similar to China’s online marketplace beginnings, with a large pool of entrepreneurial sellers providing goods purchased based largely on social media recommendations. Similarly, e-commerce in Indonesia also mimics the early U.S. e-market, which was flooded with customers wary to trust online payments and retailers. Indonesia is truly unique in that it has the potential to create a hybrid of the widest opportunities from America and China’s e-commerce economies, propelling the Indonesian online marketplace onto the global stage.
Indonesia has established itself as one of Asia’s foremost mobile-first nations, with a StatCounter report estimating that in 2015, more than 70 percent of Indonesia’s internet traffic originated from mobile devices.
Further evidence that Indonesians have embraced mobile-first initiatives comes from social media, with Indonesians having the highest mobile Facebook usage rate worldwide, with 63 million users in 2015. Further projections put Indonesians’ future Facebook access via mobile being almost 99 percent by 2018, showing a true dominance over desktop platforms. The mobile-first path that Indonesia has taken also allows retailers to focus on creating truly mobile functionality, presenting unique opportunities to dominate in the retail space.
Indonesian e-commerce startups and funding
E-commerce startups founded in Indonesia or targeting it as an untapped market are growing exponentially, something reflected in increased interest in startup fundraising within the archipelago nation.
aCommerce, an end-to-end e-commerce service provider, closed a Series A venture capital round of $10.7 million, while raising another $10 million in funding ahead of a planned Series B raise later in 2016; this action is being led by MDI Ventures, a VC-initiative launched by Indonesian telecom giant Telkom Indonesia.
Indonesia’s e-commerce market is on track to be one of the largest in Asia.
Jakarta-based grocery delivery app HappyFresh raised an impressive $12 million Series A round in 2015, with investors led by Vertex Ventures and Sinar Mas Digital Ventures. HijUp, another Indonesian e-commerce startup, closed a second seven-figure seed funding round from investors, including Fenox Venture Capital and 500 Startups.
However, the behemoth of all Indonesian deals so far comes in the form of Tokopedia, an online marketplace that raised an impressive $100 million round led by Softbank and Sequioa Capital. Mid- and later-stage investors should definitely keep an eye on Indonesian startups, which are clearly having very little trouble finding early-stage interest and investment.
Why specifically Indonesia?
Prospering with multiple entrants
Indonesia’s retail market currently consists of CPGs being sold in retail spaces known as “fragmented trade,” which is primarily made up of independent small business owners. E-commerce is currently growing at a rate twice as fast as fragmented trade, forcing many of these independents to turn to the e-commerce model. This in turn creates a sea of individual sellers eager to satisfy e-consumer demand, alongside mass retailers targeting this same demographic.
Unlike other Asian nations, Indonesians currently do not solely rely on mass retailers to guide their purchasing decisions, allowing for these individual sellers to maintain market share. This in turn allows the e-market segment to be open to any competitor determined enough to form a market impact, something uncommon in other mobile-first nations.
Procuring specialized goods to rural areas
Many Indonesian cities are currently woefully underdeveloped, because of a lack of strong government and infrastructure to support retail construction. However, e-commerce’s rise in popularity exploits this challenge by allowing consumers to purchase CPGs previously unavailable in their specific locales.
With lots of potential growth in rural and semi-rural areas, e-commerce specifically allows Indonesian consumers to source hard-to-find goods, as opposed to other nations, where rural areas would not have as high use of internet-capable mobile devices. In fact, popular Indonesian online site BliBli has more than one-third of its 2.5 million customers living in rural areas, providing goods ordered almost exclusively off mobile platforms to a population whose sole form of internet access comes via smartphone. This procurement of specialized CPGs to rural areas makes Indonesia a uniquely perfect place for online marketplace growth.
Providing truly mobile-first platforms
Indonesia’s e-market also allows for retailers and participants in the fragmented trade space to focus on developing truly mobile-first platforms. This specifically targets the mobile user as the captured demographic, instead of simply re-tooling a desktop platform to a mobile one.
This truly mobile-first scenario also allows sellers to use smartphones to their advantage, gathering hyper-personalized data to target individual Indonesian consumers as opposed to just specific demographics or groups among Indonesia’s more than 250 million population.
Mobile-first also allows for the easier entry of participants into the Indonesian e-commerce scene, with startups having the flexibility to choose what CPGs they sell, and even who they want as a consumer, through market penetration via mobile apps.
Profitability through social media
With other mobile-first nations being split between different social media sites (China:Weibo/QZone/Tencent QQ; India: Facebook/Google+/Twitter; Philippines: Instagram/Snapchat/Facebook), Indonesia is unique because of its widespread use of a singular social media platform: Facebook (with more than 92 percent of Indonesians having a Facebook account).
Indonesian consumers are very wary of online payments, much like Americans were in the early online marketplace days.
With so much of Indonesians’ current purchasing power being shaped through social media recommendations, focusing on developing integration with Facebook’s platforms offers companies a unique space to potentially profit through direct CPG sales, advertising or even partnerships. Tying Facebook into popular sites such as online forums like Kaskus and Tokobagus, or even online stores like Sukamart, could lead to the inclusion of high-quality videos, product comparisons and optimized images, alongside other mobile-first features, to encourage e-market growth.
Potential with online payments
Indonesian consumers are very wary of online payments, much like Americans were in the U.S.’ early online marketplace days, particularly when compared to other mobile-first populations. Many e-commerce transactions are currently paid through either direct bank transfer or bayar di tampat (cash-on-delivery), which is greatly limiting e-commerce growth through lost transactions.
With Indonesian spend growing nearly 10 percent annually, bayar di tampat will soon be unsustainable. Creating a trusted solution to utilize online payments could lead to huge growth, with retailers both large and small being able to streamline their business flows for optimum efficiency.
Procuring a modernized logistics/delivery platform
Indonesia currently also presents a unique opportunity for e-commerce growth because of the country’s weak infrastructure and poor logistics system. This provides a huge growth area for the e-market, with sellers able to vertically integrate their delivery systems with their ordering ones.
In the age of companies developing in-house solutions instead of relying on outsourcing, the untapped logistics market also gives rise to the growth in Indonesian e-commerce. Companies have the ability to develop proprietary, or even simply more efficient, delivery systems as another form of competition in the online marketplace, with supply strength being a key component in e-commerce.
Often underestimated as a driving economic force among its more well-known Asian brethren, Indonesia presents a variety of unique opportunities in becoming one of the largest e-commerce spaces.
With so many mobile internet users, combined with weak internal infrastructure, companies and individual sellers alike have the potential to grow the e-commerce market to heights unseen. Additionally, a growing middle class with disposable income will only help spread e-commerce growth, alongside a rising influx of both individual sellers and corporations vying to compete in the e-market.
Indonesia’s e-commerce market is on track to be one of the largest in Asia, utilizing mobile-first platforms to provide all Indonesians with convenient access to consumer packaged goods.