Indonesia Internet still in its early days

The tech opportunity in Southeast Asia will reach US$200 billion, if you believe in the joint research by Google and Temasek.

We all know the future is bright, but where are we now? In the market there has been some chatter that the obvious opportunities have already been taken, life will be harder for new ventures.

We disagree on this notion. In fact, we believe that Indonesia’s internet is still in its early days, with opportunities just emerging. Why?

Half of Indonesia population still offline

According to We Are Social, the internet penetration rate in 2018 is still around 50%. This is up from about 34%two years ago, but still half of the population is not connected.

And you can imagine that when the growth trends, even slowing down a bit (which is normal), would still be enticing.

Not to mention that Indonesian who have connections to Internet super are the fourth on the average time spent on the internet with 8 Hours 51 Minutes per day. Trailing closely behind Thailand, Philippines, and Brazil.

Compared to China?

You might say, but China also has an internet penetration of barely 55%, according to a number of sources, yet many investors already feel that the Chinese market is saturated.

However, China is a different story where too much liquidity has poured into venture investment, resulting in fierce competition and (very high) Customer Acquisition Cost for companies not affiliated to any of the BAT.

In China, unicorns are still being created every week, it is just requires more strategic thinking and alliance building from the venture builders.

Companies and entrepreneurs have been exploring previously untapped demographics, with the success of Kuai, Pinduoduo and Qutoutiao.

In terms of GDP per capita, Indonesia is at China’s 2008 levels, right before the mobile internet explosion in the latter.

Indonesia has a median age of 30, well below China’s 37. Even in 2008, China’s median age was already approaching 34.

Another key difference is, Indonesians are not bogged down with mortgage, yet – that means much more consumption power for the same level of income.

Ecommerce not saturated yet

While we have previously argued that ecommerce in the region, Indonesia included, is increasingly dominated by the big players. The landscape is far from being set.

Unlike US, where Amazon takes 49% of ecommerce market share, or China, where Taobao & co. control almost 80%, we do not see a dominant player in Indonesia yet.

In addition to that, with ecommerce only taking less than 2% of total retail (versus China’s almost 14%), there is ample opportunity in the growth market than current stock.

Which means, even if your market share is 80% in Indonesia now, if you do not actively and aggressively take the growth market, your 80% might become 30% in 1-2 years’ time.

Lazada is a clear example, letting Shopee grabbing land that they should have firmly taken.

If Club Factory can overtake Alibaba-backed Paytm Mall in India, while can’t the same happen in Indonesia?

No leader in mobile payment

According to We Are Social , 72% of internet users in Indonesia are accessing internet using mobile phones. This is facilitated by the availability of cheap smartphones to the Indonesian population coming online for the first time. Despite high number of user accessing internet using mobile phones, there is no prominent market leader on the mobile payment services yet.

Looking at the current state of mobile payment market share in Indonesia, the biggest e-wallet provider is Go-Pay and T-Cash with about 10 million users. Already big? When you ask around in the streets of Jakarta, you will see most people still pay with cash, or through convenience stores.

Unlike in China where mobile payment is ubiquitous, the payment options using e-wallet in Indonesia are still very limited and only available through big merchants.

There are tens of millions of mobile internet users who have not seen the benefits (and convenience) of real mobile payment.

Not to mention that the prevalence of mobile payment is actually the enabler of many business models in China.

Not much competition in almost every other area

When you scan through the market, apart from payday loan, in most areas you would only see one or two major players, which is unusual for a market with such potential.

In China, any promising sector would soon see dozens, if not hundreds, of players racing to take the crown. The only explanation for the lack of fierce competition in Indonesia is that the market is still in its early stages.

The best is yet to come

Do not wait for too long though, you might miss the real take-off!

There is ample late stage capital loitering around the region, what you need now is to start building, such that in 1.5-2 years time, you will become mature enough to fly with the tailwind.