In 2017, many investors were left in the red, when previously promising startups such as RedMart, Fastacash and Elevenia failing. A few others (which we can’t name here) are struggling and close to folding.  

 

Many of these startups raised good investment even from the start, but failed anyway. There were a host of reasons, but we prefer not to speak about what separates a good startup from a bad one, as we often do. In this piece, we would like to sum together what can the market expect moving forward in 2018 (some of them are quite outlandish).

 

Ecommerce companies will bail-out/purchase last-mile logistics companies

Last mile logistics companies typically earn low gross margin on total revenue. Given the competition of the industry, and many players entering the market, it has become a buyer’s market. Ecommerce companies have incorporated these last-mile logistics companies into their delivery support, and it will not be long before big players such as Alibaba who have already established a logistics hub in Malaysia to buy into (or invest) into existing players (not necessarily a startup).

Also, for players such as JD and Amazon who are keen to set up a foothold in the Southeast Asian market, it will also be part of their strategy to bail out or to purchase outright a fleet to manage deliveries and deploy their influence. In our opinion, it is inevitable – simply because these last-mile logistics companies are addicted to growth which is financed by the demand generated by ecommerce companies. The owners would rather sell their companies than face having to wind down their business due to under-utilised fleet.

There will be, however, a handle of winners in each market – they are the SF Express of each market: having mastered processes, working with a diverse portfolio of clients, and not held hostage to any large ecommerce player. In China SF Express is pretty much the only one that is not owned by a big player, or held hostage – we do not expect more players of such calibre in each of the Southeast Asian markets.

 

Smaller online commerce companies might be purchased by marketplace companies

Perhaps it may sound outlandish, but we are expecting companies such as Facebook (or perhaps Alibaba’s Lazada) to set a precedence, by purchasing one or a few online commerce (food delivery, ecommerce, hotel booking, groupon-clones, services) companies in the region to fuel their marketplace expansion in Southeast Asia. As to how they would hope to integrate these companies remain unclear to us, but it does make logical sense.

Timing may make perfect sense as the funding into these types of online commerce companies have been few in between, and their performance lacklustre. We know a few them receive new funding because investors are really running out of options, not because their performance is warranting the valuation. For these, being onboard a platform such as Facebook would prove to be the winning formula which will ensure their success.

 

Entrenched fintech companies face stiffer competition against fintech ICO-funded companies, and may even go broke

Grassroot fintech companies (those which are not affiliated to any of the local conglomerates) have not been getting lots of love in the past few years. Although some of them (mostly payment gateways) have settled in for decent market share, we still have not seen decent exits either via IPO or strategic acquisition (Kudo is NOT a payment company). Some early players, such as PaysBuy in Thailand have been sold to their competitors. This is definitely not a very positive outlook for their peers in Southeast Asia. Funnily, PaysBuy was bought by Omise, which through OmiseGo token also ICO-ed. OmiseGo tokens are now worth US$2.6 billion as of the time of writing.

It remains to be seen what would Omise’s competitors do right now. It would be completely possible to just use their financial success (high token valuation) to perhaps put their competitors out of business. If that is not convincing enough, smaller crypto exchanges such as Hong Kong based Binance have quietly in 6 months become the one of the biggest crypto exchanges in the world, at one point managing trading volumes of US$6.1 billion per day.

Binance had raised US$15m in their recent ICO, and are using the proceeds of ICO to market their platform and services. They have been pulling outrageous stunts, for example giving away a Lamborghini Huracan. We will definitely see more and more of such companies springing up in Southeast Asia. And if you are their direct competitors, you would really hope that they act like lottery winners, squandering their money away. But that, more often than not, is just wishful thinking.

 

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