This is how Southeast Asia’s internet economy will become a US$200 billion industry by 2020

With more than 330 million internet users in Southeast Asia (SEA), various researchers and analysts has highlighted that eCommerce in the region is well on track to become a major industry in the years to come.

A research by Google indicated that SEA’s internet economy growth has exceeded expectations and has reached US$50 billion in 2017, outpacing earlier growth expectations by 35 per cent.

An earlier research by Google estimates that around 3.8 million new users will come online each month in the region. This makes Southeast Asia the fastest growing internet region in the world between 2015 and 2020.

This, combined with a burgeoning young population (70 per cent of SEA is under the age of 40), rising disposable incomes (all six major SEA countries will break the estimated US$3,000 GDP/capita barrier), greater availability of payment systems, and a lack of available organised retail will spur the growth of the internet economy and is estimated to a value of US$200 billion by 2025.

Vital indicators of SEA’s eCommerce potential:

1. SEA is a mobile-first economy

The average Southeast Asian spends about 3.6 hours utilising mobile internet every single day. This figure is not just the highest in the world but is the only region with this unique statistic.

2. Southeast Asians spend almost twice as much time as Americans in eCommerce marketplaces

On average Southeast Asians spends about 140 minutes shopping online each month, making it twice as much as Americans in eCommerce marketplaces. Shoppers in the region are relentless consumers as they are very likely to shop during working hours as well. Considering the average number of orders of the local country as reference (100 per cent), the number of orders is highest between 9am and 5pm when people are traditionally at work or school.

3. Southeast Asian startups raised a total of US$7.86 billion from investors in 2017

At 0.18 percent of GDP, the amount of investment into Southeast Asian startups is on par with India’s and a vote of confidence in SEA’s huge internet potential. As of 2016, more than US$2.52 billion was raised by Southeast Asian eCommerce startups. This figure tripled in 2017 raising a total of US$7.86 billion from investors, that’s the highest growth since 2013 and came about despite the number of deals falling to 320 from 335 according to Tech in Asia.

4. Low level of correlation between conversion rate and the level of maturity of each eCommerce market

Among the most important metrics for any eCommerce operator is their conversion rate. Conversion rate reflects both the quality of a company’s marketing activities and the website’s effectiveness. In its simplest definition, conversion rate is the percentage of website visits that turn into a product purchase. Improving conversion rate can have a dramatic effect on the bottom line and profitability of a business.

5. The Basket Size results is closely correlated to the GDP per capita of each country

Basket size is another key metric for any eCommerce operator which heavily impacting the unit economics profitability of the business. The metric measures the average total amount spent for every order made by customer over a defined period of time. The basket size is structurally different among verticals and the market positioning of each merchant.

6. Bank transfer is the most popular payment method across SEA

Due to low credit card penetration in the region (with the exception of Singapore), eCommerce players in SEA had to face unique challenges, unbeknownst to the western eCommerce markets.

As a consequence of this structural shortcoming, a much more diverse range of payment solutions have proliferated in the region. Each country displays very different patterns which highlights the challenges that merchants face when expanding regionally with a one-size fits all approach. Hence, benefiting merchants what are flexible and ensure that they are able to cater to the needs of each unique market.

Among the most pressing challenges hampering the growth of the internet economy is the shortage of local talents in the region. Google notes that this issue is the most pressing when compared to five other key challenges. This has led to Southeast Asian players opening tech hubs in other regions such as China, India, and the US where top talents are more readily available.

Emerging companies grapple with identifying the right executives choosing between highly experienced foreigners or nationals who understand the local context but lacked experience. Responses to these challenges by SEA start-ups has been mixed due to the diversity of the economy and that no one-size-fits all solution is best suited to meet this challenge.

Though highly challenging, the future remains bright as governments and education institutions across the region has spotted eCommerce sector’s high growth potential have put in initiatives to fill the missing gap.

On top of this, a wide variety of performance-driven affiliate partners are available, enabling eCommerce players the ability to obtain local expertise with through partnerships. Major players in the region such as Lazada is a good example. They actively partner with on-ground local partners to expand their customer base.

As the year 2025 draws nearer, time will tell if the internet economy’s aspirations will come to pass. To overcome these hurdles and grab hold of the future, Google stated that the success of SEA startups in the next phase of the ecosystem will depend largely on how well CEOs can grow themselves as the internet economy matures in the years to come.

Jeremy Chew is the senior content marketer for iPrice group, the fastest growing product meta-search platform in Southeast Asia. For further information, please visit https://iprice.my.

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