Indonesia to be Asia’s next digital powerhouse: Google-Temasek

• 40% of the US$197bil SEA digital opportunity is in Indonesia
• It has the highest number of startups in the region, not Singapore

 
INDONESIA’S Internet economy will be worth about US$81 billion in 10 years, or about 40% of the total Internet economy of the entire South-East Asian region, which is predicted to hit US$197 billion by 2025.
 
This is according to the e-conomy SEA 2016 report released in May jointly by US tech giant Google Inc and Singapore’s sovereign wealth fund Temasek Holdings.
 
The report noted that Indonesia’s Internet economy is growing 26% annually, driven by the growing number of users and e-commerce, online travel, and ride-sharing companies.
 
“The kind of Internet user growth that we are seeing in Indonesia will eventually change the way Indonesians learn, set up businesses, and communicate,” said Google Indonesia managing director Tony Keusgen (pic above).
 
“This is why companies need to change too – now is the time for them to take advantage of the momentum,” he said in Jakarta last week.
 
Indonesia currently hosts 29% of all startups in South-East Asia, or about 2,033 such companies, compared to the 1,850 startups whose home is in Singapore, considered by many to be the region’s startup hub.
 
READ ALSO: Indonesia’s vision: 1,000 startups by 2020
 
The Google-Temasek report also found that Indonesia’s Internet economy growth would be mobile-driven – about 43% of users in Indonesia are already using mobile devices to access the Internet.
 
“Indonesia is no longer a mobile-first country, but a mobile-only country – products built from a mobile [mindset] will have a better chance to win in the Internet market here,” said Keusgen.
 
Not only is Indonesia being shaped by the smartphone, it in turn is shaping how the device will be used in the future, he argued.
 
E-commerce leads the way
 

 
Of the three industries that the e-conomy report looked at – e-commerce, online travel and online rides – it is e-commerce that is expected to be the leader of Indonesia’s Internet economy over the next 10 years.
 
Keusgen said that South-East Asia’s e-commerce gross merchandise value (GMV) will reach US$87.8 billion in 2025, and Indonesia will take 52% of that or around US$45.7 billion – from a GMV of only US$1.7 billion in 2015.
 
GMV is the total dollar value of merchandise sold on an online platform.
 
There are currently 18 million Indonesian online shoppers who are driving the sector’s rapid growth, a number expected to reach 119 million or about 48% of the region’s online shoppers by 2025.
 
“E-commerce players clearly have a lot of opportunities here,” said Keusgen, pointing to the increasing number of people getting online, and the growing smartphone and Internet penetration rates.
 
“Not to mention the ongoing efforts to improve the logistics and payments infrastructure across the archipelago,” he added.
 
Online travel soars
 
After e-commerce comes the online travel market, which consists of the booking of flight tickets and hotels via the Internet.
 
South-East Asia’s online travel market is expected to reach US$76.5 billion in 2025, with Indonesia carving out 32% of it, or about US$24.45 billion.
 
“Here in Indonesia the middle class continues to grow, with about 90 million people estimated to be in this category in 2030. These people have a great desire to travel, and this is going to drive the online travel sector,” said Keusgen, citing McKinsey & Co statistics.
 
He declared that technology and the Internet would make travel much more appealing and accessible to these people.
 
Online rides rise
 
British lubricant producer Castrol ranked Jakarta as the city with the world’s worst traffic in its Stop-Start Index.
 
Online ride-hailing startups such as homegrown Go-Jek, US-based Uber, and Singapore-based Grab, are being seen as problem-solvers, according to the Google-Temasek report.
 
READ ALSO: Go-Jek’s US$500mil funding a game-changer for Indonesia
 
This is also why Indonesia will become the leading market for the online rides segment, grabbing 43% (US$5.63 billion) of South-East Asia’s total market value of US$13.1 billion in 2025.
 
Currently, Indonesia’s online rides market is valued at US$800 million, or about 32% of South-East Asia’s US$2.5-billion total.
 
“Go-Jek is driving the segment in Indonesia like no other: It spotted the basic problem of Jakarta’s commuters, and took the traditional motorcycle taxi business to the next level with technology and the Internet,” said Keusgen.
 
The online rides market also opens up opportunities for food and grocery delivery services, amongst others.
 
The dampers
 

 
Despite the exciting potential growth, the Google-Temasek report suggested that Indonesia would still need to invest US$15-20 billion over the next 10 years.
 
“Many venture capital firms and investors are looking at the country as a great market, and therefore will continue to pump money into it,” Keusgen said.
 
However, these investments will need other ecosystem components such as a talent pool, payment mechanisms, stable and reliable Internet and logistics infrastructures, and greater consumer trust.
 
And of all these, “the toughest one is making sure Indonesia has enough talents and engineers to support this growth potential,” said Keusgen.
 
“Indonesia needs to push talent development in digital marketing, coding, website and app building, and data analytics,” he added.
 
Related Stories:
 
SEA Internet economy set to boom: Google-Temasek report
 
SEA VCs are laggards, Singapore truly a startup hub: Google-Temasek report
 
Google says committed to building a ‘meaningful Internet’ in Indonesia
 
 
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