SEA Internet economy set to boom: Google-Temasek report

• South-East Asia is fourth largest Internet market in the world with 260mil users
• Region’s Internet economy to grow from US$31bil in 2015 to US$197bil in 2025

 
SOUTH-East Asia, already the world’s fourth largest Internet market, is expected to grow even further according to a joint report from US technology giant Google Inc and Singapore’s sovereign wealth fund Temasek Holdings.
 
From Indonesia with 92 million users to the Philippines with 55 million users, the Internet population in several South-East Asian countries is expected to grow at a double-digit compound annual growth rate (CAGR).
 
The Internet population in the region as a whole will have a CAGR of 14%, greater than China’s 4% and the United States’ 1% growth rates, according to the e-conomy SEA 2016 report from Google and Temasek.
 
“South-East Asia is the fastest growing Internet region in the world – every month across the six countries [covered by the report], we are adding 3.8 million users,” Google South-East Asia and India vice president and managing director Rajan Anandan said at an event presenting the findings.
 
“Today, 124,000 new consumers in our region will join the Internet for the very first time, and there were 260 million Internet users at the end of 2015.
 
“By 2020, South-East Asia will have 480 million Internet users – this is a very, very big number, almost half a billion users,” he added.
 

The e-conomy SEA 2016 report used data from Google, publicly available sources, expert interviews, and research from Temasek.
 
It covers six countries: Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam, and focuses on three sectors: First-hand e-commerce, online travel, and online media (digital advertising and games).
 
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Growth drivers
 
South-East Asia’s booming Internet economy is being driven by a number of factors, with one obvious one being increased access.
 
“Affordable smartphones and data are really driving this revolution,” said Rajan.
 
“Of the 260 million Internet users in South-East Asia, 220 million of them access the Internet via a smartphone.
 
“We are a smartphone, mobile-driven economy. Of the 3.8 million new Internet users coming online every month, 100% of them are on mobile,” he added.
 
Another factor is the region’s relatively young population. “70% of consumers in South-East Asia are below the age of 40, and they spend more time on the Internet,” said Rajan.
 
Finally, there is the region’s gross domestic product (GDP) growth, which averages 5%.
 
“This is important because the magic number for Internet consumption is US$3,000 – when the economy grows beyond US$3,000 per capita, what we see is a significant acceleration in segments like e-commerce and others,” said Rajan.
 
The Internet economy
 
The report found that the region’s Internet economy – comprising first-hand e-commerce, online travel and media – was worth about US$31 billion in 2015. This is expected to increase by 6.5 times by 2025, to hit US$197 billion.
 
Of the three sectors, e-commerce contributed US$6 billion, online travel hit US$22 billion and online media was worth US$4 billion in 2015.
 
Rajan said that based on detailed modelling Google has done, by 2025, e-commerce will contribute US$87.8 billion, online travel will hit US$89.6 billion, and online media will be worth US$20 billion.
 

The e-commerce sector will see an exponential increase from US$5.5 billion in gross merchandise value (GMV) in 2015 to US$87.8 billion in 2025, without including the e-commerce occurring through social platforms.
 
“We haven’t included [social platforms] because we haven’t been able to size it accurately, but we believe that the growth will come from organised platforms,” said Rajan.
 
E-commerce growth will be driven by factors such as the increasing income levels.
 
“As consumers become wealthier, they have more [disposable] income, and that’s where the e-commerce tipping point happens,” said Rajan.
 
Other factors driving e-commerce are the increasing Internet penetration, as well as “the lack of organised retail in the region,” he added.
 
The number of buyers is set to increase from 49 million in 2015 to 247 million in 2025. Annual purchases per buyer will increase from six in 2015 to 14 in 2025, and basket sizes will grow from US$18 to US$26.
 
“Not surprisingly, Indonesia is a large part of it at US$46 billion [out of US$87.8 billion],” Rajan said of the e-commerce market.
 
“Also very interesting, Thailand, the Philippines, Malaysia and Vietnam are US$8-billion to US$11-billion markets, while Singapore will be a US$5-billion market.
 
“To give a sense of scale, the entire e-commerce market in India in 2015 was US$10 billion,” he added.
 

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LCCs lead the way
 

 
The online travel market, consisting of the online booking of airline tickets, hotels and taxis, buses and rail, is set to grow from US$21.6 billion in 2015 to US$89.6 billion in 2025.
 
During that period, airline booking is set to grow from US$12.5 billion to US$ 40.1 billion, hotels from US$6.6 billion to US$36.4 billion, and rides from US$2.5 billion to US$13.1 billion.
 
“One of the most interesting insights from the research is that the online travel industry (at US$12.5 billion) is already four times the size of the e-commerce industry, and despite the explosive growth we are going to see in e-commerce, online travel is going to be bigger in 10 years,” said Rajan.
 
“The other interesting thing about the US$89.6 billion is that it is significantly bigger in gross booking value than the two biggest online booking sites, Expedia (at about US$16 million) and Priceline (at about US$55 million),” he added.
 

Airline bookings (US$12.5 billion) make up the bulk of the online travel market and will be continue to be driven by low-cost carriers (LCCs).
 
“The single biggest driver is the large presence of LCCs in the region – in South-East Asia, 35% of air travel is on LCCs, and they tend to lean towards online booking,” said Rajan.
 
In Asia overall, LCCs make up only 13% of bookings overall.
 
As with e-commerce, Indonesia also leads in online travel and is expected to continue to lead in this segment, accounting for 37% of online airline and hotel bookings in 2015, and expected to rise to 55% in 2025.
 
“Thailand is close behind at US$19.8 billion,” said Rajan. “Also, if you look at Singapore, Malaysia and Vietnam, they will be US$8-billion to US$10-billion markets, which are very sizable as well.”
 
Indonesia also leads the rides segment, with a projected US$5.6 billion market in 2025, up from US$800 million.
 
All South-East Asian rides markets are expected to exceed US$1 billion by 2025, with Thailand and the Philippines hitting close to US$2 billion.
 

Mobile-driven digital media
 
The region’s digital media segment, made up of digital advertising and games, was worth US$4 billion in 2015 and is expected to grow to US$19.6 billion by 2025.
 
Games will largely be driven by mobile gaming, which will make up about 80% of the total US$19.6 billion.
 
“Out of the 260 million Internet users in South-East Asia, over 150 million play games,” said Rajan.
 
The average mobile revenue per gamer stands at US$5.90, and “only 1% to 3% of gamers actually pay to play,” according to Rajan. This figure is expected to jump to US$21 per gamer in 2025.
 
“The lack of forms of payments is the single biggest constraint in the market, and high-value users will pay a lot more than what they are paying today,” he added.
 

Finally, digital advertising is also set to grow from US$2.1 billion in 2015 to US$9.9 billion in 2025, buoyed by changing consumption habits and large population sizes.
 
As usual, Indonesia will again lead the pack, with a US$2.7-billion market in 2025. Thailand will be a close second at US$2.3 billion.
 

A lot of this growth will be driven by more people getting on the Internet, the growth of e-commerce and performance-based industries, as well as all companies using digital to drive customers,” said Rajan.
 
“The growth of performance advertising is a very big driver, as well as the advent of online video.
 
“South-East Asia is one of the fastest growing online video markets in the world, and as online video consumption grows exponentially, we will see advertising dollars follow as well,” he added.
 
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