Why everyone’s wrong about Southeast Asia’s true ecommerce potential

With 600 million people, a growing middle class, and rising internet penetration, Southeast Asia is often considered the site of the next ecommerce gold rush. Alibaba’s US$1 billion landmark acquisition of Lazada — Jack Ma’s largest overseas acquisition to date — happened here earlier this year. But headlines and hyperboles aside, how big is the opportunity for ecommerce in Southeast Asia exactly?

The $88 billion opportunity?

Photo credit: Pexels.

Little data exists on the current and projected size of the ecommerce market in Southeast Asia. Part of this is because it’s still a nascent industry and, as a result, legacy institutions like government and research firms are still playing catch-up. Part of it is also because C2C (customer-to-customer) ecommerce, estimated to be anywhere from one-third to half of the total ecommerce GMV, is largely unregulated and untaxed. It doesn’t help that the majority of C2C in Southeast Asia actually happens on social platforms like Facebook and Instagram, facilitated by conversations on messaging apps like LINE and Facebook Messenger.

That said, several reputable organizations have taken a stab at assessing the size of ecommerce in this region. One early attempt at market sizing comes from AT Kearney in collaboration with CIMB. Published in early 2015, the report estimates the current market size at US$7 billion (as of 2013) and projecting a future potential of US$89 billion.

More recently, Google and Temasek sized the current ecommerce market in Southeast Asia at US$5.5 billion as of 2015. The report also foresees that the market will grow to US$88 billion as early as 2025.

However, it’s important to note that Google and Temasek paint only a partial picture: they’re leaving out C2C and peer-to-peer (P2P) marketplaces such as OLX, Carousell, and Instagram because of difficulties in obtaining data.

Why existing estimates on Southeast Asia’s ecommerce potential are wrong

Photo credit: Pixabay.

US$88 billion seems like a big deal. But as soon as you put it in context, you may start to wonder if this is the right number: the US ecommerce market today is a US$394 billion market. But the US is a much more mature ecommerce market – and both Amazon and eBay are older than some of the junior staff on my team.

What about China? China surpassed the US in 2013 to become the world’s largest ecommerce market in terms of GMV.

Today, Chinese ecommerce is a US$700 billion market, making up about 13 percent of the country’s total retail. With a population half the size of China, shouldn’t the future potential of ecommerce in SEA be a little bit brighter than a mere US$88 billion?

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