How to navigate Indonesia’s untapped long tail e-commerce

This article is written by Andy Li, founder of Kaya, an emerging Indonesian e-commerce marketplace that helps people sell long tail products online. Andy has a wealth of experience in the gaming and fintech sectors in Southeast Asia.

A majority of the investors I have spoken to ask me the same question, “Why do you run an e-commerce platform with past experiences in gaming, fintech and B2B sectors?” My career graph seems bizarre to them as each of these industries require different skill sets, and this seems like a huge risk. 

The evolution of Kaya in Indonesia

I took the leap and started my own fintech startup, Silot.AI, in 2017 to build a knowledge graph for banks and other financial institutions in Southeast Asia. Little did I expect the business to morph into Kaya, a unique e-commerce marketplace in Indonesia. Kaya caters to consumers and sellers who, for whatever reason, have preferred long tail products, and will continue to do so. 

You might think that e-commerce in Indonesia is already saturated. There are sellers on social media platforms like Facebook,  Instagram and TikTok and e-commerce players as well like Shopee, Lazada and Tokopedia. However, long tail sellers, whose products and services are non-standardized and hardly scalable still find it hard to have a place to simply sell their ware. 

Our research on the ground verified that there is indeed demand for an online version of pasar malam (night market). 

Many Indonesians who sell online are part-time sellers who are looking to earn an extra income or small businesses who don’t have a centralized supply chain and means to sell in bulk. Existing platforms are quite complex for them and they want a comfortable and easy-to-use platform.

Supply chain differences between China and Indonesia

Though e-commerce is booming in Indonesia, it is unreasonable to expect small businesses and part-time sellers to meet the same standards as huge companies and distributors on e-commerce platforms. Contrary to what people usually believe, many of these sellers are actually in big cities as well. 

Sellers on e-commerce platforms like Shopee and Lazada are expected to sell quantities in bulk. Due to the lack of a standardized supply chain (except for a few FMCG categories) in Indonesia, they rely heavily on imported goods from China to meet demands. 

They go to China because there are huge industrial clusters dedicated to manufacturing every possible product on the planet. There are dedicated lanes for every product like a lane for lights, a separate lane for buttons and a whole street for shirts. There are huge factories where everything is manufactured in large quantities and there are multiple sellers with large, centralized supply chains to meet high demands.  

When you move southeast to Indonesia and expect the same supply chain and products from sellers like in China, you are going to be disappointed. On Kaya, we have seen a lot of different, impossible to scale products and services, such as tailoring, car washing, completing homework, and products you would normally find in a pasar malam like roasted chestnuts, clothes for kids, fruits, etc. 

Demand for long tail products

For example, a guy on Kaya was selling different kinds of clothes, the kind you would normally find in a pasar malam, and on first look, I didn’t think he would get a lot of customers. But boy, was I mistaken. He sold more than 150 pieces a month. This might be small compared to major items such as instant noodles or cigarettes on larger platforms, but for a small casual seller, this is quite impressive. 

More interestingly, I have no idea how and why, but people wanted to buy those kinds of clothes and other similar stuff. I spoke with my friends in Indonesia to understand this culture, but they found it hard to understand as well. I guess this is because they are from a different social class compared to the folks who are customers of Kaya.

These are interesting insights that you would normally not read in any report or article. We learnt about these consumer preferences in Indonesia through trial and error at Kaya. The highlight of Kaya’s pivot to long tail products is that people downloaded our app through word of mouth and referrals by friends and family. Without promotions and marketing, Kaya is now already amongst the top platforms on Google Play Store. 

Source: App Annie

This may not seem like a big deal, but after enough ground research, we found that a majority of small businesses in Indonesia have apprehensions about going online, and these referrals were a stamp of approval that we were headed in the right direction. 

Fintech integration in e-commerce

I would also like to think that my experience in the fintech industry helped me go the extra mile to make Kaya accessible. When it comes to small businesses, addressing their pain points and earning their trust is crucial. In the past, before financial services were established, real-world trust was the credit score.  With services going online, people find it difficult to trust online sellers and the products they buy from them. 

When we spoke to small businesses, another major concern was the lack of secure payment methods. Big institutions are not bothered by this because long tail customers do not generate much value and are deemed to be risky. Even the platforms which advertise that they provide credit to unbanked people focus on servicing customers who already have a KYC. 

Here is where the team’s fintech, credit scoring and gaming operations experiences come into play. Compared to lending, credit scoring for Kaya’s transactions is actually easier as we do not need as many data points. Besides, we capture people’s existing social circle when they refer their family, friends etc., allowing the establishment of a trust network. 

So as Kaya develops, and more transactions happen online, it is a natural next step to extend credit through the platform. We still do not know the best way to do it. However, we believe this trust network and credit scoring through social graphs will help buyers analyze online sellers and decide if they should trust them.

Another barrier for people taking their business online was the high transaction costs that cut into their profits. After hearing their concerns, we decided to offer different payment methods like cash on delivery and redirecting leads to their retail stores to generate revenue. 

Though it is in an experimental phase, we are trying to iron out the different challenges small businesses face. When we see millions interacting on the platform on a daily basis and many long tail sellers generating sales on Kaya, it gives us the confidence that this can be done. 

We can’t say that we fully understand such long tail e-commerce yet. In fact, we are discovering new insights about ordinary Indonesian sellers and consumers every day. This feedback will be used to improve our product and strengthen our operations. 

E-commerce is driven by user behaviour and what Kaya does is simply move existing behaviour online.  We believe this is more sustainable than forcing a behaviour in an ecosystem, no matter how many incentives you throw at them. 

If you are interested in ecommerce in Indonesia or have insights you would like to discuss with me, please feel free to reach out. The opportunity is exciting, and we welcome any help we may receive.