Indonesia’s ecommerce race gets brutal

“Shopee is requesting for you to close your shop in Lazada for December 12. Just one day,” read a WhatsApp message that Shopee sent to merchants ahead of the 12.12 year-end sales festival. The company, in exchange, would reward merchants with incentives like improved visibility and subsidies.

This tactic, which has been ongoing for a few years and likely isn’t isolated to Shopee, has been part of a campaign by the ecommerce company to one-up rivals.

Initially, Shopee committed at the beginning of 2019 to cut down on sales and marketing spending.

However, it sprinted hard in the opposite direction despite remaining unprofitable. Among other things, it splurged money to engage football superstar Cristiano Ronaldo in an unforgettable – and some say cringeworthy – marketing campaign.

In Indonesia, Southeast Asia’s largest ecommerce battleground, the platform’s enlarged promotional budget has coincided with a stagnation in certain metrics of local rivals Bukalapak and Tokopedia, according to performance indicators seen by Tech in Asia and industry insiders we spoke to, who have opted to remain anonymous.

“Indonesia’s getting tougher and tougher,” says a prominent ecommerce executive, who adds that while the market as a whole appears to be growing, Shopee and Lazada have captured the bulk of this year’s gains.

It seems ecommerce marketplaces in the country are entering red ocean territory as they fight tooth and nail over an expanding but still limited pool of merchants and buyers.

Shopee is lighting a fire under local rivals who are trimming costs following the WeWork saga and Uber’s poor stock market performance, which have soured investment appetites for unprofitable tech unicorns.

Competitors, meanwhile, are pivoting to capture new opportunities. They dismiss the importance of Shopee’s recent gains, which are propped up by aggressive marketing. “These external metrics are just indicators and can’t be used as the north star to build a meaningful and enduring tech company,” says a senior executive at an Indonesian ecommerce marketplace.

Why did Shopee change its tune?

To make sense of Shopee’s about-face, first understand that the ecommerce venture is parent firm Sea’s major gamble. Its games publishing empire, Garena, is a money-printing machine that has turned its founders, Forrest Li and Gang Ye, into billionaires.

Garena has had a blockbuster 2019 so far, with an adjusted EBITDA (a measure of profitability) soaring to 5x of the previous year.

How are rivals responding?

Is there room for a third tiger?

Will the spending spree continue?