VCs target Southeast Asia's urban consumers - AVCJ Forum
Indonesia is sitting at the heart of an increasingly homogeneous Southeast Asia market in which start-ups can execute cross-border strategies by leveraging similar consumer habits across major cities.
The region is expected to have 480 million internet users by 2020, up from 256 million in 2015. Indonesia already has an internet penetration rate of 51%, but it is projected to see the sharpest uptick in users, rising from 92 million in 2015 to 215 million in 2020.
The bulk of economic activity is concentrated in Jakarta, which accounts for 27% of GDP, and where the GDP per capita of $7,207 is 2.19x that of the national average. It is a similar story across Bangkok, Kuala Lumpur, Ho Chi Minh City (HCMC) and Manila – and investors increasingly see the young populations of these urban areas as a single target market.
“A 24-year-old in Jakarta thinks very similarly to a 24-year-old in Singapore, Delhi or Shanghai – content that appears on social media in HCMC will also appear on social media in Jakarta,” Amit Anand, a founding partner at Jungle Ventures, told the AVCJ Indonesia Forum. “In the last 4-5 years, compared to the last few decades, we have seen a lot more homogeneity between these consumers.”
Most consumer technology businesses in the first 3-5 years of their evolution focus on a select group of cities rather than whole countries' populations. The combined population of Jakarta, Manila, Bangkok, Kuala Lumpur and HCMC is 75 million, only 10 million short of the total for India’s six largest cities, but these people’s spending power is more than five times higher than in India.
“It has become easier to target these metros,” Anand added. “The cost of delivering a package was $3, but now it’s $0.70-0.80. You can also plug and play – you don’t have to think about providing your own infrastructure because there are existing players in areas such as payments and logistics.”
While these markets are still at a relatively early stage of development, investors expect to see this homogeneity in digital behavior to become ever more apparent in consumer behavior as well. Jungle estimates that online consumption by the 100 million population of Southeast Asia’s 10 largest cities could be worth more than $50 billion a year.
Indonesia is projected to have 141 million middle to affluent consumers – defined as households with basic monthly expenditure in excess of $150 – by 2020, up from 74 million in 2012. According to Credit Suisse, 92% of internet users have been on social networks in the past six months, 57% have used instant messaging, and 26% have shopped online. The number of shoppers is more than double the 2015 figure.
Facebook has 93 million users in Indonesia across its different platforms and 96% first access the service via mobile devices. Text as a medium for sharing information is falling while photos and videos are rising, and this evolution in the way people engage is impacting how they consume. A growing proportion of ad spending on Facebook comes from small-scale retailers who direct users to their Instagram accounts.
“I invested in an e-commerce vertical that specializes in shoe retail and they were selling everything through Instagram,” said Khailee Ng, a managing partner at 500 Startups. “Three times more shoe sales in Indonesia are through platforms like these rather than through formal e-commerce channels.”
This in turn affects how Facebook is developing its business. While the bulk of revenue comes from ad sales and there are no plans to change that, the company introduces new functions based on the need to reduce friction on the platform. For example, a pilot marketplace program was rolled out in response to people listing items for sale through Facebook groups and wanting to make that process easier.
“When I was a banker I would think about services innovation and product innovation, I didn’t think about distribution innovation,” said Sandhya Devanathan, country head for Singapore at Facebook, who previously worked at Standard Chartered. “What you will see is the emergence of business models that are tapping into distribution innovation.”
More on Southeast Asia
Latest News
Asian GPs slow implementation of ESG policies - survey
Asia-based private equity firms are assigning more dedicated resources to environment, social, and governance (ESG) programmes, but policy changes have slowed in the past 12 months, in part due to concerns raised internally and by LPs, according to a...
Singapore fintech start-up LXA gets $10m seed round
New Enterprise Associates (NEA) has led a USD 10m seed round for Singapore’s LXA, a financial technology start-up launched by a former Asia senior executive at The Blackstone Group.
India's InCred announces $60m round, claims unicorn status
Indian non-bank lender InCred Financial Services said it has received INR 5bn (USD 60m) at a valuation of at least USD 1bn from unnamed investors including “a global private equity fund.”
Insight leads $50m round for Australia's Roller
Insight Partners has led a USD 50m round for Australia’s Roller, a venue management software provider specializing in family fun parks.