E-commerce growth peaked in 2012 at 85 per cent, but it started seeing a downward trend in the following years, according to a DailySocial report
In January, DailySocial released the Annual Startup Report 2015 that captured the state of Indonesia’s tech startup scene. The report aims to help both local and foreign entities to better understand the landscape.
Indonesia is a mobile-first nation, with 85 per cent of people accessing Internet via smartphones. Tech startups play a crucial role in building the country’s digital climate, as half of the country’s most popular sites were locally developed.
The country also has the fourth largest Facebook population in the world, and 69.3 per cent of the Internet users are Digital Native or early adopters of digital technology.
Here e27 has compiled the key findings from the research below:
Shop ‘til you drop!
While Indonesia is considered to be the next biggest e-commerce market after China and India, the figures paint a different picture. While the e-commerce growth peaked in 2012 at 85 per cent, the number starts to decrease rapidly between 2013 and 2014 — from 71 per cent to 45 per cent. It then stabilised at around 37 per cent in 2015, but the number is now expected to decline slowly in the upcoming years.
The Indonesian public might have seen advertising battles among various e-commerce platforms on TV and billboards, with Tokopedia and Traveloka coming out as top spenders for TV advertising budget.
In an interview, DailySocial’s Founder and CEO Rama Mamuaya told e27 that the trend will continue this year as e-commerce companies will increase the advertising budget in a bid to win customers’ attention. While digital and mobile advertising budget stood at USS$800 million in 2015, the number is expected to reach a whopping US$7.8 billion in the next four years.
“Advertising industry in Indonesia is getting more and more dependent on e-commerce and digital startups, as these startups start to dominate the ad spending. This will go throughout the year,” he explained.
Growth in e-commerce sub-sector is often followed by growth in fintech. Moreover, fintech enables mobility and accessibility and can also help reduce operating costs for small businesses.
However, the role of fintech in Indonesia’s e-commerce sub-sector remains small, as bank transfer remains the most popular payments method at 57 per cent, followed by cash-on-delivery at 25 per cent.
Follow the money
The report also reveals that 2015 was an exciting year for VC investments, with a record of at least 70 publicly announced investments. Approximately 50 VCs invested this year and they include investments in startups outside of Indonesia.
The year also saw significant growth for angel investments with the launch of Angel EQ and ANGIN.
“Our ecosystem needs much more angel investments done. We cannot sustain these many VCs operating in the country without angel-invested companies feeding their pipeline,” Dondi Hananto, Founder of Kinara Indonesia said.
Seed funding dominates investment in Indonesia at 49 per cent, followed by Series A at 30 per cent. Strategic partnership only accounted for one per cent of the whole investments in the country.
As expected, the e-commerce sub-sector dominates the scene with 33 investments in 2015 alone, with fintech following at six investments. However, DailySocial predicts that the situation will change drastically in 2016 with on-demand services dominating investments by 38 per cent, while e-commerce at 13 per cent.
“We believe that all boils down to the huge market fragmentation in Indonesia, which still relies heavily on offline. So it requires some sort of a seamless experience to change the offline shopping culture to online,” Mamuaya explains.
Houston, we got a human resource problem
Key challenges that Indonesian startup founders face are talent acquisition (46 per cent) and capital availability (35 per cent), with infrastructure and government regulation left behind at only 19 per cent when combined.
The DailySocial report also stated that it is very hard to find digital-savvy professionals across all functions, especially in tech. Talent war and poaching are common among well-funded startups, with the quality of Indonesian higher education being seen as the root of the problem. Universities do not produce enough tech talent having the ambition and drive that suit the fast-paced startup environment.
When asked what the government should do to improve the quality of education, Mamuaya said: “Scrap the whole curriculum, sit down with 20 biggest recruiters in Indonesia [be it online or offline companies], and build the curriculum from the scratch,” he said.
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