Expert: Indonesia won’t be the next China for ecommerce

A few years ago, people were nothing but bullish about ecommerce in Indonesia. With a population of over 250 million and rapidly growing internet adoption, the archipelago bore a lot of opportunity for online shopping among many other emerging Asian markets. It was going to be the next China – or so they thought.

“But starting last year, most VCs and founders noticed that this market is not gonna be China – or as big as China. In four to five years, it’s only gonna be 2 percent of China,” stressed Tesong Kim, CEO of fashion flash sales estore VIP Plaza, during TIA Jakarta 2016’s Panel Without Fear.

Tesong, who led Japanese ecommerce giant Rakuten’s Indonesian operation prior to launching VIP Plaza, cited some numbers: Indonesia’s ecommerce market is worth US$4 billion today, while China’s is valued at US$600 billion. By 2020, he estimates that the market will grow to US$20 billion for Indonesia and US$1 trillion for China.

The high hopes for Indonesia drove investors to inject big money into the nation’s ecommerce players like MatahariMall, Tokopedia, Bukalapak, and Lazada, he said.

How to conquer a market: focus on market share or make money early on.

With enormous funding came the tough battle of acquiring users and scaling. Luring customers through deep discounts – burning loads of cash in the process – became the heart of the game.

“There are two major ways to enter and conquer a market. The first is to spread out as fast as you can and kill your competitor, build moats around your castle, fill it with as many crocodiles and fire pits as possible so anybody getting close to it won’t be able to pass through,” explained Sukan Makmuri, CTO of ecommerce and payment startup Kudo, who sat on the panel with Tesong.

“The second way is to really bootstrap and make as much money as early as possible so no matter what happens – like a nuclear holocaust hitting the ecosystem – you will survive and thrive.”

In Indonesia, Sukan said most have opted for the first one.

Shrinking subsidies

The tide started to turn last year, however. “The worldwide funding situation went down and startups in Indonesia started to focus on profitability,” Tesong observed.

That meant a cut on their subsidies as well as marketing and ad budgets – which makes it more challenging for the industry.

Indonesian consumers are “extremely, extremely” price-sensitive, stressed Sukan. “Once you pull out subsidy, consumers immediately start looking the other way.”

Make ‘em stick