Opinion: To understand Alibaba’s Tokopedia investment, look at Paytm

Image credit: The map of ecommerce in Indonesia. by Iprice.

Two of the strongest performing ecommerce companies in Indonesia – Lazada and Tokopedia – can be seen forging an alliance through shared investor Alibaba. Comparison site Iprice lists both on top ranks in several metrics.

Indonesian ecommerce players will have to adapt to this new reality. Consolidation is already taking place, with conglomerates like Salim and Djarum bundling their resources through acquisitions. The Alibaba-Lazada-Tokopedia trio won’t just affect Indonesia’s ecommerce landscape. It’s also set to crank up the heat on startups in payments and financial services, taking a leaf from Paytm’s playbook.

Cornering Indonesia

Alibaba already controls Lazada, which has presences in Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam. By getting Tokopedia on its side in Indonesia, Alibaba has set itself up to corner the country’s market. It’s deemed hard to navigate due to its size, diversity, and limited infrastructure – but promises high rewards. The Southeast Asian digital economy is projected to be worth US$200 billion by 2025, with Indonesia taking the largest chunk.

Tokopedia and Lazada won’t necessarily fully align their goals just because they share Alibaba DNA. The ecommerce firms overlap in many accounts – both sell a vast variety of goods like fashion, electronic devices, household products, and cosmetics. Yet they’re different enough to complement each other well. An alliance, or even just a neutral position towards each other, would allow them to focus on their strengths rather than battling for dominance on all fronts.

Lazada’s strengths:

• It’s a regionally known brand. It has access to the majority of Southeast Asia’s [up-and-coming consumer class](https://qz.com/591380/southeast-asias-middle-class-is-diverse-confident-and-growing-richer-by-the-day/).
• Lazada is part online retailer, part managed marketplace, which means it has – to some extent – control over sellers, product quality, and reliability. Sellers need to provide a business license and ID.
• It operates warehouses and in-house logistics, now with the help of Alibaba’s logistics arm.
• It offers cash-on-delivery – a payment option risky for business but convenient for customers.
• It acquired Redmart, an online retailer specializing in the groceries segment.

Tokopedia’s strengths:

• Tokopedia is a marketplace without its own warehouses and logistics, which means it has lower operational costs.
• Consumers sell directly to one another, resulting in high product diversity. Registration is instant.
• It’s been focused on growth in Indonesia and understands the local market well.
• It has branched out into offering non-physical goods like tickets, prepaid phone vouchers, digital subscriptions, bill payments, and insurances.

Possible synergies

In a shopping street in the East Java city of Surabaya. Photo credit: John Ragai.

When Alibaba acquired Lazada, CEO Max Bittner gave some insight into how the companies planned to combine their strengths.

An important piece of the puzzle: merging Alibaba’s logistics arm, Cainiao Network, into Lazada to form an international logistics backbone for cross-border trade.

One immediate impact this has had is that Lazada now handles deliveries for Taobao in Malaysia, Bittner told Tech in Asia. Taobao is Alibaba’s C2C marketplace – similar to Tokopedia.

How much is Tokopedia worth?

Paytm in reverse