Tokopedia is a pioneer of e-commerce in Indonesia. After serving millions of consumers and merchants for more than a decade, this unicorn company is planning to go public in 2021, possibly through a merger with on-demand services and payment firm Gojek.
Right now, when users open the Tokopedia application or website, they find a broad range of services—online retail, digital payments, a ticket sales portal for trains and planes, hotel bookings, movie and event tickets, subscription plans for streaming services, and even investment products.
Founders William Tanuwijaya and Leontinus Alpha Edison came up with the idea for Tokopedia in 2007 while reflecting on Tanuwijaya’s childhood experience. Born and raised in Pematangsiantar, a city in North Sumatera, he was an avid reader. But access to new books was limited; he had to wait for relatives from a nearby town to visit and bring him new volumes. When he was older, Tanuwijaya’s father and uncle sent him to Jakarta for school. In the capital, the stores had everything he needed and wanted. That was when it hit him: small towns and big cities offered vastly different access to products. Maybe technology could even things out.
Two years later, with starting capital from an acquaintance who believed in the founders’ vision, the duo launched the online marketplace Tokopedia.
What does Tokopedia do?
Toko is Indonesian for “shop,” and is the first half of the portmanteau that is the company’s name. The founders’ choice of this designation reflected an early objective to build an all-encompassing marketplace for Indonesians. Tokopedia’s trajectory through the years shares some similarities with that of Alibaba, which also started out as an online retail portal that eventually branched out into a basket of business sectors.
Tokopedia came on the scene at the right moment—it hosted a wider variety of products and facilitated transactions safely when there weren’t many online marketplaces operating in Indonesia. On Tokopedia, users could withhold payment if they were scammed, which was a sea change from deals made on Kaskus, a popular forum where most Indonesians bought and sold goods in the 2000s.
In its early phase, Tokopedia’s service was solely limited to selling and buying things like one might on Taobao or Amazon. Most of its merchants were small and medium business owners, and Tokopedia took a commission from every transaction.
The platform quickly built a solid user base. In 2014, they caught the eyes of SoftBank and Sequoia Capital, which resulted in an investment to the tune of USD 100 million.
In 2019, Tanuwijaya said in an interview with Reuters that he wants Tokopedia to be a “super ecosystem” for merchants and consumers. The USD 100 million from SoftBank and Sequoia gave Tokopedia a war chest for its diversification, with fintech at the top of the agenda by 2016. The platform introduced a payment channel for use cases like mobile phone credit and electricity bill credit, followed by train tickets. Eventually, Tokopedia introduced banking services like a credit card application feature developed in conjunction with Standard Chartered, UOB, and Citibank. Users were able to do all of this in one app. Again, it was a new form of convenience.
Flourish with fintech
Business was booming, and Tokopedia was only about to become bigger, faster. In 2017, the company received another USD 1.1 billion in dry powder from Alibaba Group and SoftBank.
The team at Tokopedia recognized that fintech was key to their success. To convince people to spend more money on the platform, payment and financing features had to be smooth and easy to use. To make that happen, Tokopedia linked up with e-wallet Ovo and became a strategic shareholder with a 41.08% stake, according to a report by market research company M2Insights. This didn’t just integrate Ovo into Tokopedia’s payment options. It also gave Tokopedia’s users the ability to use Tokopedia itself like an e-wallet without installing Ovo on their phone.
That was the moment when Tokopedia stepped up its presence in consumer fintech offerings, truly breaking out of its own confines.
Even more collaborations were in the pipeline. A partnership with Orori meant users could invest in gold commodities through Tokopedia Emas, a shariah-compliant investment feature that was popular with Indonesia’s Muslim population. In 2019, the company moved on to link up with state-owned pawn broker Pegadaian for this service. Tokopedia also added mutual funds, another popular investment option among young Indonesians, to its catalog.
“Branching into fintech is a great move, as it promises rapid growth and adoption, it also broadens its user base,” said Institute for Development of Economics and Finance (Indef) researcher Bhima Yudhistira Adhinegara to KrASIA.
Tokopedia rolled out fintech facilities for its merchants too. Sellers could take out loans through Tokopedia Pinjaman Modal (Tokopedia Capital Loan), where the company worked with a number of banks and online lenders. The program then rebranded as Modal Toko in 2019, as Tokopedia partnered with P2P lender Modalku, the Indonesian counterpart of Singaporean P2P lending platform Funding Societies. Now, merchants can borrow up to IDR 300 million, or around USD 20,700.
In August 2020, Tokopedia launched its own peer-to-peer lending platform, Dhanapala. This vertical is specifically geared toward Indonesia’s micro, small, and medium enterprises (MSMEs). Consumption loans run in the band of IDR 2–5 million (USD 138–345) with a 3% interest ceiling, while productive loans are capped at IDR 200 million with a monthly interest of 1.5–2.5%.
Tokopedia also launched TokoScore, a credit scoring system, the first of its kind for an e-commerce platform in Indonesia. The company is steadily adding new services that complement its core business in its online marketplace, creating a holistic ecosystem for merchants and buyers, covering payments, insurance, and even capital provisions.
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Nurturing small sellers
MSMEs are the backbone of Indonesia’s economy. Small enterprises make up more than 90% of businesses in the country and contributed to around 60% of the country’s gross domestic product, according to the Cooperatives and Small and Medium Enterprises Ministry. Opening up a small shop, be it a warung that carries daily necessities or a warteg that serves hearty street food, is the main source of income for many people in smaller towns and cities.
Due to uneven internet coverage and spotty digital literacy across smaller Indonesian cities and towns, many of these businesses are slow to adopt new technological tools. Often, these remain as cash businesses, where every element of day to day operations is conducted manually. The Center for Indonesian Policy Studies (CISP) found that out of 62.9 million MSMEs in Indonesia, only 13% are aware of digitalized services that could rope in extra business, including marketplace listings and online marketing campaigns. Many tech companies see this segment as ripe for reaping.
Tokopedia is on this front as well. Merchants that aren’t online represent opportunities for the company to land a broader footprint, cultivate a wider user base, and develop even more products. Tokopedia launched the Mitra Tokopedia app in 2018. Similar to rival Mitra Bukalapak by Bukalapak, the platform lets the owners of small businesses like grocery stores and warungs sell digital essentials like data packages, electricity tokens, and video game vouchers. The app also functions as a terminal to order wholesale goods for restocking.
The branching off continued even further. Tokomart is an e-grocery service that links up users with the nearest listed store, which could be a branch of LotteMart Indonesia or Hypermart, perhaps facilitated by Sayurbox or a street stall.
Last year, to roll with changes brought by the COVID-19 pandemic, Tokopedia started a meal kit delivery program named Nyam! The rapid addition of these new services not only gave the company ways to sustain its momentum during lockdowns, it also opened up long-term revenue sources, because the habits of ordering meals and groceries through apps will likely remain even after the pandemic subsides and daily life returns to normal.
Why is it worth so much?
At the moment, Tokopedia is valued at USD 7 billion. Its potential merger with Gojek would create an entity valued at around USD 18 billion. This union might be a way for the two Indonesian tech pioneers to feed off of each other’s rosy IPOs in a quest to hit a combined valuation of USD 35–40 million as publicly traded companies.
“Many factors played into deciding the company’s valuation. Some of them are projected cash flow in the long run, along with the company’s market share,” said Indef’s Yudhistira.
Tokopedia is consistently among the top three most visited e-commerce platforms in Indonesia, even though it has never been part of any massive sale events. (Tokopedia sees mega sales as unsustainable ventures.) While it no longer leads in web traffic—Sea Group’s Shopee managed to race ahead by late 2019—Tokopedia did service 114,655,600 monthly visits in the last quarter of 2020.
Tokopedia’s dominant position is all the more significant when we realize that e-commerce takes up the largest portion of Indonesia’s digital economy. In 2020, its gross merchandise value (GMV) reached USD 32 billion—nearly 73% of the digital economy’s USD 44 billion GDP, according to a report by Google, Temasek, and Bain & Co. By 2025, the number will grow by 21% and hit USD 83 billion.
If Tokopedia wants to get the most out of its hold over an enormous sector, it must offer even more to all users and merchants. A union with ride-hailing company Gojek could strengthen Tokopedia’s logistics capabilities, while Tokopedia’s offerings in the fresh food segment fit Gojek’s grocery service GoMart and meal delivery service GoFood. Gojek’s B2B ecosystem—which spans point-of-sale (POS) terminals, e-wallet GoPay, ad service GoScreen, and merchant networks—could appeal to merchants that use Tokopedia to sell their goods.
Tokopedia’s valuation depends on its solid position in Indonesia, where there is still plenty of room for more users to join and use the platform. “Indonesia’s e-commerce market is currently on track to reach USD 83 billion by 2025. And Tokopedia is one of the largest players with solid positioning,” said Heru Sutadi, executive director of the Information and Communication Technology (ICT) Institute Indonesia, to KrASIA, “Their stock may appeal to investors seeking exposure into this booming sector.”
Regardless, it won’t be an easy ride for Tokopedia even after it goes public. One local competitor, Bukalapak, is also weighing an IPO this year. Furthermore, in May 2020, Tokopedia drew criticism after the personal information of up to 91 million users was possibly leaked—some of it was up for sale on the dark web. This prompted an investigation by the company and Indonesia’s Ministry of Communication and Information Technology. Even though Tokopedia walked away relatively unscathed, the matter did bring about questions about its data security practices and long-term reliability.
Why is it looking to go public now?
In early 2021, Tokopedia was reportedly approached by a blank check company for a SPAC merger, which would take the company public in the United States. But president Patrick Cao has expressed his desire for a local listing.
Indef’s Yudhistira said that a couple of factors play into the decision for Tokopedia to go public this year. “First, both companies [Tokopedia and Gojek] are mature enough to stop their cash-burning period and should have started generating profit.”
Right now, Tokopedia’s major rival is undoubtedly Sea Group’s Shopee, which is now the leading e-commerce portal in Indonesia and continues to widen the gap in monthly active users. By the end of 2020, it had a comfortable lead of 15 million over Tokopedia.
With plenty of capital from Sea Group, Shopee is able to sell products at steep discounts and offer promotions like waived delivery fees. These promotions have been effective in luring Indonesian consumers. The user count of Shopee’s e-wallet, ShopeePay, is swelling in Indonesia, making the stakes of Tokopedia’s forays in fintech even higher.
Tokopedia has reached a scale where it is difficult to raise the funds it needs. Last year, when the company sought USD 350 million from investors, it failed to secure that full amount. Google and Singaporean government-owned holding company Temasek eventually did cut a check in November 2020, but the investment fell severely short of the original goal.
Public markets offer a new way for the company to pull in fresh cash. “Raising money from an IPO seems to be the most viable route for them to maintain their position,” said Yudhistira, “But since going solo might not be appealing enough for investors, the two companies [Tokopedia and Gojek] have to merge to increase the appetite of local, or perhaps foreign, investors.”
Moreover, it’s about time for investors to reap returns from the money they poured into Tokopedia. SoftBank Group chairman and CEO Masayoshi Son has reportedly given the go-ahead for a union between Gojek and Tokopedia, providing momentum for both companies’ IPO plans.
Earlier in February, Son also pressed some of SoftBank’s high-profile portfolio companies to move forward with stock market listings, Nikkei Asia reported. Son said the companies should capitalize on strong investor appetite for the tech sector. With few paths left for continued fundraising, Tokopedia’s motions to gain a stock ticker may be an essential step for a company that has come very far in a very short span of time, all rooted in one boy’s desire to find the books he wanted to read.
