Earlier this month, Google, Temasek, and consulting firm Bain & Company released the fourth edition of the e-Conomy SEA 2019 report. This year’s edition features five key sectors: digital financial services, e-commerce, ride-hailing, online media, and online travel.
KrASIA recently interviewed Randy Jusuf, the managing director for Google Indonesia, to discuss the 2019 report.
KrASIA (Kr): What is new in the 2019 edition of e-Conomy SEA?
Randy Jusuf (RJ): This year, the report is a collaboration between Google, Temasek, and Bain & Company, which helped conduct deep analysis for the report. We included a new sector, namely digital financial services. The adoption of digital payments has finally reached the inflection point and is expected to cross USD 1 trillion by 2025.
We also compared the growth of the internet economy between metropolitan areas and non-metropolitan areas. Metros represented more than 50% of the internet economy in 2019. However, there are also growth opportunities outside of metros.
Kr: How do you view the growth opportunities for metros, compared to that of non-metros?
RJ: The opportunity to develop is not only in big cities but also in smaller ones. We took the sample from seven cities in six Southeast Asian countries. For Indonesia, we chose Greater Jakarta as a sample. Interestingly, these big cities in Southeast Asia represent 15% of the population of Southeast Asia. The metro areas represent 30% of the GDP but made up half of the total internet economy in 2019.
If you look at the gross merchandise value (GMV) pattern spending per capita, today, metros are almost six times that of non-metros. What’s interesting is that both are still growing.
The internet economy of beyond metros will grow fourfold between 2019 and 2025, twice as fast as in metro areas. We will see tier 2 and tier 3 cities coming up.
Kr: What else have you observed concerning metros versus non-metros?
RJ: The adoption of financial services beyond metros is also increasing. More subscribers beyond metros are paying for premium online media services such as gaming, music, and video on demand.
In Indonesia, for example, 46% of all Google searches for internet packages come from non-metro areas. We also observed the trend that travel-related queries on Google last year grew 1.5 times faster from outside metros, compared with metros.
Kr: From the report, which sector did you find has grown the quickest compared to others in Southeast Asia, particularly in Indonesia?
RJ: If we look at four sectors, which are e-commerce, ride-hailing, online media, and online travel, they are growing fast. In Indonesia, the internet economy is estimated to be valued at USD 40 billion in 2019. It has more than quadrupled in size since 2015.
We observed that e-commerce and ride-hailing (including food delivery services) are the fastest-growing sectors, exceeding industry expectations.
E-commerce is the biggest and the fastest-growing sector, contributing USD 21 billion to Indonesia’s internet economy. Online travel is the second biggest contributor, about USD 10 billion in 2019. For ride-hailing including food delivery services, it will amount to USD 6 billion and the online media sector will hit USD 4 billion by the end of 2019.
Kr: How well have e-commerce and ride-hailing been doing?
RJ: From 2015 to 2019, the GMV of Southeast Asia’s e-commerce sector had jumped seven times from USD 5.5 billion to more than USD 38 billion. We estimate the region’s GMV will reach USD 150 billion by 2025.
Ride-hailing has more than quadrupled in value from USD 3 billion in 2015 to almost USD 13 billion in 2019. The sector has the potential to exceed USD 40 billion by 2025, driven by the booming food delivery sector. In 2019, ride-hailing players in Southeast Asia are not just providing transport services but also a whole range of offerings, including food delivery and financial services.
Kr: What has the e-commerce growth in Indonesia been like?
RJ: In Indonesia, the e-commerce sector has grown the fastest, in fact, 12 times from USD 1.7 billion in 2015 to USD 21 billion in 2019. This has been followed by a sixfold growth in the ride-hailing sector, from USD 0.9 billion in 2015 to USD 6 billion in 2019. Both sectors have been fuelled by the funding and the intense competition from local and regional players. All sectors, including online travel and online media, are getting benefits or support from digital payments, either from Gopay, Ovo, Dana, or LinkAja.
Indonesia will still become the fastest and largest internet economy for Southeast Asia. We estimate the internet economy will reach USD 133 billion by 2025. E-commerce and ride-hailing sectors will lead the growth, reaching USD 82 billion and USD 18 billion for each sector by 2025.
Kr: The ride-hailing and e-commerce sectors are experiencing rapid adoption and fundamental shifts in consumer behavior. What are some of the recent developments in e-commerce?
RJ: In Southeast Asia, the e-commerce sector has grown very large. It has allowed access to a global marketplace and provided value, choice, and convenience unmatched by traditional brick-and-mortar stores. Along the way, e-commerce has become a unique social experience, with many deals and elements of entertainment.
The rise of online promotions is a good reason for consumers to shop via e-commerce platforms. In Indonesia, we have “Harlbonas” for example, or the online shopping festival day. According to Google Trends, we know that interest in promotions and coupons is pretty high, with the number of searches doubling in the last four years.
We also see many other innovations that encourage users to dabble in e-commerce. Some e-commerce websites show live streaming videos of popular influencers “unboxing” gadgets and provide reviews of their brands, for instance. E-commerce players now combine “gamification” within their platforms to engage customers, so they do not just order goods and leave.
Third, is seller development. E-commerce companies try to focus on the supply side by ensuring that their platforms have high-quality products and brands from reliable sellers. Working with sellers to boost sales and profits is now a strategy, given that sellers tend to be “stickier” on platforms than consumers.
Kr: What about ride-hailing?
RJ: As for ride-hailing, we see that these companies in Southeast Asia are not just providing transport services but also a whole range of offerings, including food delivery and financial services.
Food delivery services are the result of a fundamental shift in consumer behavior since 2018. Previously used only occasionally by a small group of users, it is now common for professionals and families to order food online for everyday meals and special occasions. Food delivery services have become popular in metro areas. According to Google Trends, queries for online food delivery brands have grown more than 13 times in Indonesia over the last four years.
Loyalty and rewards are related to profitability. Some players look to grow profitability; they learn from traditional industries and implement tier memberships. Promotions are more targeted and this helps them to progress toward profitability.
Kr: What potential high growth sectors do you see flourishing within the next few years?
RJ: I think food delivery will have the opportunity to grow bigger. From the Southeast Asian side, the mix of transport and food delivery growth rates began to range from USD 0.4 billion to USD 5.2 billion from 2015 to 2019. The size of the online food delivery sector has surged by almost 15 times in the past four years. We estimate food delivery will reach USD 20 billion by 2025.
We also see the fintech sector growing much more in the next few years. Meanwhile, edtech and healthcare tech startups have become the new areas that have growth potential, driven by the many problems that need to be solved.
