An insider account of how Lazada changed the ecommerce game in Indonesia

“When I was approached by Rocket, I quit my job and signed up with them to launch Lazada.”

Photo credit: Lazada

The following is an edited excerpt from Digital Indonesia: Connectivity and Divergence, edited by Edwin Jurriens and Ross Tapsell. You can buy a copy here.

In 2012, a new era was dawning in Indonesia with the physical entry of foreign players into the market who were prepared to make large investments to establish a foothold in the industry. Into this environment came the lead search party for ecommerce, Rocket Internet, which touched down in late 2011.

Its arrival marked the beginning of a third phase in the history of the Indonesian technology scene, one characterized by the entry of foreign startups, with a physical presence in Indonesia, whose growth was propelled to a large extent by mobile-driven commerce.

The Samwers

At the helm of Rocket Internet stood a trio of German brothers, the Samwers. They had spent their youth copying successful American business models and replicating them in Europe. In 1999, while still in their 20s, they launched a German-language version of eBay, after their attempts to open a local office with the Californian company’s blessing had been rebuffed. They were promptly bought out by the Silicon Valley giant for £35 million, within 100 days of starting operations. Their meteoric rise didn’t stop there. Rocket expanded its horizons to gain experience in the developing world through the successful deployment of a fashion ecommerce site, Dafiti, in Brazil, and later by taking operational responsibility for the roll-out of Groupon in China.

At the head of the family stood Oliver Samwer, the media-averse middle brother, who provided the operational smarts and drive behind the company’s Asian deployments. Samwer intended to open a slew of ecommerce sites across the developing world, including several in Indonesia. What seemed so obvious to the Samwers was frequently viewed as irrational by commercial operators in developing markets, including many in Indonesia.

Instead of trusting in the macro trends (which Western entrepreneurs like the Samwers believed would result in the transference of technology and rapid growth in less developed parts of the globe), many domestic companies in Indonesia continued to believe that the barriers that had prevented the uptake of technology in the past would remain insurmountable.

Coping with skepticism

When Rocket’s merchandise buyers went into their first meetings with major Indonesian distributors, they noticed that the most common response from their Indonesian counterparts was to question the plausibility of the ecommerce model for the archipelago. Rather than seeing the opportunity, skeptics focused on the entrenched weaknesses in the Indonesian ecosystem – poor infrastructure, lack of trust in the safety and veracity of ecommerce sites, and shifting government regulation – which they worried would prevent the spread of ecommerce in the country, in spite of the successes of sites like KASKUS, the growth of local players such as BliBli and the accelerating penetration of smartphones.

Personally, I agreed with the Samwers’ vision. I believed in the growth story, and I had moved to Indonesia to be part of it. I was intrigued by the history of the country and its transition to a modern economy. At university I had studied Indonesian history, and after several years in Australia with a global management consultancy, I asked to be transferred to its Jakarta office, where I assisted blue-chip companies to modernize their activities. The opportunity for ecommerce in Indonesia was obvious to me. I had lived through the birth and growth of ecommerce business models in the West and remembered the time when the same arguments about trust and reliability had been used in the United States (where I had studied) and in Australia. The opportunity to be part of the development of Indonesia’s technology industry seemed a lucky and fortunate one.

When I was approached by Rocket, I quit my job and signed up with them to launch Lazada. Although most people inside the company believed in the story, many foreign companies and foreign investors shared the misgivings about the industry. They found it difficult to see past a set of commonly known facts that prejudiced their view of Indonesia: it was a victim of locally born terrorists; it was a Muslim-majority country; and it had been spectacularly bankrupted during the Asian financial crisis, precipitating the fall of a longstanding and stable (if corrupt and despotic) government and the wild depreciation of the country’s currency. Could the recent growth story really be relied upon to continue in light of Indonesia’s dubious and checkered past? Little evidence in the technology sphere existed to disprove their fears.

Even in 2012, no company had yet managed to secure an exit of meaningful proportions. The general sentiment among many foreign and domestic digital entrepreneurs was that Indonesia promised so much, but had actually delivered so little.

Still, Rocket was not (completely) alone in its buoyant view of the Indonesian technology scene, nor was it the only conspicuous entrant into the market. Renowned American internet giant eBay entered the Indonesian market in 2012 through a partnership with Indonesian telecommunications company Telkom. Even more conspicuously, the world’s leading internet company, Google, announced that it would establish a local office in early 2012. If the actions of global giants such as eBay and Google were not enough to disprove the doubters, by late 2012 another global player, McKinsey and Company, was adding its voice to the chorus of international companies singing the praises of Indonesia’s digital future. The global consultancy firm released a report suggesting that Indonesia could become the world’s seventh-largest economy by 2030 and told of 90 million new consumers, as yet untapped, who would soon come online amidst continuing economic growth.

Lazada’s success

By the time of the McKinsey report’s release in September 2012, Rocket had been operating in the country for almost 12 months, and the early indications from inside Rocket’s two largest ecommerce sites, Zalora and Lazada, were indeed looking very positive. The two sites had been live since February and March respectively, and over the course of the ensuing months, most market insiders could already see the impact on the local industry. Rocket’s aggressive hiring tactics were the first signal of the companies’ likely impact on the market.