#Asia Backseat driving: Key takeaways from the Google/Temasek e-commerce report


The ‘e-conomy report’ points to an e-commerce industry set for serious growth, but it also highlights potholes and obstacles in the region


Yesterday, Google and the Singaporean government investment company, Temasek, released a joint perspective report covering the e-commerce industry in Southeast Asia that was widely passed around the startup community.

Titled ‘e-conomy SEA’, the team melded ‘Temasek Research’ and ‘Proprietary Google Data’ with interviews with 59 industry players and secondary sources such as WorldBank information.

The report analysed three sectors of e-commerce — firsthand e-commerce, travel, and media (advertising and gaming). The countries analysed were Indonesia, Singapore, Malaysia, Thailand, the Philippines and Vietnam.

By highlighting Southeast Asia’s status as the world’s fastest growing Internet region, the report projected the e-commerce industry in the region would be worth US$200 billion, driven by a 32 per cent compound annual growth rate in first-hand e-commerce.

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To get the bigger picture of the fantastic data points and interesting insights, e27 suggests you to take a look at the full report here.

But, we had to have a hot take, so here it is:

The Big One: The Alibaba Factor

With the exception of a few logos used to highlight the types of companies falling under ‘firsthand e-commerce’, the report was agnostic towards specific companies.

Which meant that while going through the report, one question kept popping up. “So how does Alibaba fit into all of these projections?”

At the launch event — referring to the company’s purchase of a controlling stake in Lazada — Alibaba Group Executive Vice Chairman Joseph Tai said, “It’s very, very helpful to use to be able to present something that is more of a geographically diverse platform.”

He went on to explicitly state that Southeast Asia is on the table for  Alibaba subsidiary companies such as logistics firm Cainiao, financial services company Ant Financial, and payments platform Alipay.

After the Lazada deal in April, e27 interviewed players in the industry, most of whom expressed the sentiment “a rising tide lifts all boats.”

This was certainly the case in the US as the growth of Amazon allowed niche companies to fill the gaps.

An Alibaba dominated region is not necessary a terrible outcome, but it behoves the industry to understand that if the Southeast Asian e-commerce sector paves the way towards a US$200 billion industry, it is inevitable that Alibaba will have a massive role.

Numbers that stand out

Total retail market in 2015: US$7 trillion. Total retail market 2025 projections: US$14 trillion. Total e-commerce market in 2015: US$31 billion. Total e-commerce 2025 projections: US$200 billion. 

So yes, e-commerce is projected to grow much faster than traditional retail, but these numbers also point to a US$200 billion industry that is still a shrimp in the retail ocean.

Every country in the region will have an e-commerce market worth over US$5 billion. Indonesia is projected to reach US$46 billion.

It points to a rising tide and suggests every country in the region will have a significant e-commerce industry moving forward. What’s the saying? “One per cent of a trillion dollar industry is still 10 billion dollars”.

Online hotel and airline services expected to hold 85 per cent of the market by 2025.

Unlike e-commerce, the travel industry is trending towards domination via Internet. The number is ‘real world meets data set’ as booking travel plans online has entered the Google-sphere; it is hard to imagine life before.

Ride-hailing services are likely to grow five times by 2025, to a US$13 billion market.

This seems like a difficult prediction to make. The advancement of autonomous vehicles, public transportation developments and, of course, legislation to ban ride-hailing services are part of the industry reality. With legislative decisions being made, seemingly, with no rhyme or reason, a ten-year projection for the ride-hailing industry seems overly optimistic.

Including other industries, VC deals were worth about US$1.1 billion in 2015 but 88 per cent of investments were centred around Singapore and Indonesia. Furthermore 61.4 per cent of total investment from 2010 to 2015 was in e-commerce.

These trends seem to be changing as other countries (Vietnam) are building a reputation and different industries (fintech) are suddenly sexy. But, the numbers highlight VC investment in ‘known commodities’ and an ecosystem without much diversity.

For example, in Singapore, 131 deals lead to US$820 million worth of financing in 2015. But two companies, Grab and PropertyGuru accounted for over half of that amount, about US$480 million.

Furthermore, it is also worth noting that 18.8 per cent of startups fall under the ‘lifestyle and e-commerce’ genre.

The six big challenges: Talent/Engineering, Funding Capital, Payment Mechanisms, Internet Infrastructure, Logistics Infrastructure and Consumer Trust.

Ironically, it is the ‘big challenges’ that should present the most optimism.

Why is that? Because the only factor that seems especially difficult to overcome is consumer trust.

Payment mechanisms are improving with all sorts of fintech companies entering the startup world and the talent gap is closing as startups become an evermore intriguing career choice. Funding capital will come as more companies find success, and infrastructure will hopefully  improve along with the regional economic growth.

Final rant: A decade is a century

Much of the justification for such the optimistic projections is that 70 per cent of the population is under the age of 40, Southeast Asia has a lack of major box office retail (citing a statistic that retail stores per capita is one third of the US), and region is experiencing a rapidly growing middle class.

Along with 3.8 million people coming online every month, there is a reason to smile.

However, 2025 is a long ways off. While sales and projections have a certain degree of projectability, politics do not, so any data point projecting for such a long period of time should be taken with a grain of salt.

Consider the fact the most important economic story of the last decade (the 2007-2008 financial crisis) went off the rails in about a year. Yes, some financial analysts had begun to see the writing on the wall months or even years early, but not a decade before.

Also Read: There is a hero in all of us: Fantasy sports app SportsHero launches with a US$2.4M funding

Today, Southeast Asian community still does not fully understand how, or if, Indonesia’s e-commerce roadmap, the Philippines’ recent election, Malaysia’s 1MDB scandal, and Thailand’s military junta will affect business. Is China’s economy set for a hard landing? Will Japan learn to adapt to an aging population before a major recession? These questions have ripples in our region.

Point is, the data is an amazing analysis of how the industry is trending at this moment. But in the world of technology, a decade might as well be a century.

The post Backseat driving: Key takeaways from the Google/Temasek e-commerce report appeared first on e27.

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