Southeast Asia VC: Common tastes

Iflix has already established itself as the Netflix of Southeast Asia, signing up five million users to a video-on-demand service that sells for one quarter of the price charged by its US-based counterpart in many markets. The company’s most recent funding round was at a post-money valuation of $450 million.

The Iflix proposition is straightforward: target as many of the estimated 2.5 billion smart phone users in emerging markets as possible. This has carried the company from Malaysia, the Philippines and Thailand into Indonesia, Brunei, Sri Lanka, Pakistan, the Maldives and Vietnam. It is now entering the Middle East and Africa.

Last month Iflix took another step forward in its mission to win the hearts, minds and subscriptions of Southeast Asian consumers by announcing plans to produce its own original content. The company has commissioned “Magic Hour,” a drama series based on an Indonesian movie of the same name, and a comedy show format that will be customized for Malaysia, the Philippines and Thailand.

This strategic play highlights how start-ups are increasingly seeing Southeast Asia as a homogeneous market: a network of key urban centers in which consumer tastes within the younger demographic are converging as a result of digitally-enabled distribution of media. What sells in Jakarta and Kuala Lumpur will sell in Manila and Bangkok – with the possible exception of comedy, it seems.

“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 Ho Chi Minh City (HCMC) will also appear on social media in Jakarta,” Amit Anand, a founding partner at Jungle Ventures (an early investor in Iflix), told the AVCJ Indonesia Forum last week. “In the last 4-5 years, compared to the last few decades, we have seen a lot more homogeneity between these consumers.”

A study published last year by Google and Temasek Holdings noted that the six major ASEAN markets – Indonesia, Malaysia, the Philippines, Singapore and Thailand – constitute the world’s fastest-growing internet region, with the existing user base of 260 million on course to reach 480 million by 2020. The internet economy is projected to be worth $197 billion by 2025, up from $31 billion in 2015.

The combined population of Indonesia, Thailand, Malaysia, Vietnam and the Philippines is more than 550 million, but the 75 million people in Jakarta, Bangkok, Kuala Lumpur, HCMC and Manila account for a disproportionate share of economic activity. For example, Jakarta is home to 12% of Indonesia’s population but generates 27% of GDP, and its GDP per capita is more than twice the national average.

Companies that manage to address these five urban centers as one could be looking at an even more valuable proposition than other scale markets in the region. India’s six largest cities are home to 85 million people, but their spending power is less than one fifth that of the Southeast Asia five. Moreover, the gradual emergence of local payments and logistics infrastructure means it is becoming easier – although not necessarily straightforward – to target these cities.

It is expected that the homogeneity apparent in digital behavior will translate faster and at greater volumes into consumer behavior that can be monetized. E-commerce is tipped to be the major contributor to the $197 billion internet economy, and a string of online retail and marketplace businesses have already established themselves as cross-border properties, from Lazada to Reebonz.

However, this kind of expansion is not for everyone. Jungle divides the likely winners into consumption-based (e-commerce) and network-based (services start-ups in transportation, payments and media) businesses. For the former, scale means a presence in at least five large cities, with 500,000 shoppers in each one spending at least $100 million per year, and net revenues of $250 million or more. For the latter, it means 50 million or more users spending $40 each per year, resulting in revenues of $2 billion.

And even if the model makes sense, executing this strategy across multiple markets will inevitably bring growing pains in terms of technology, talent and reconciling the need for customization with the desire for standardization. As with all VC investments, identifying the best idea is only part of the battle.

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• Topics
• Southeast Asia
• Early-stage
• Technology
• Consumer
• Venture
• TMT
• Indonesia
• Vietnam
• Malaysia
• Philippines
• Thailand