If You Think Indonesia's e-Commerce Market Is Perplexing, You Haven't Done Your Research
Aulia Masna - 12 April 2014
Several days ago Quartz published an article about the state of the e-commerce industry in Indonesia. The article pointed out the quirky characteristics of the Indonesian market which contribute to the challenges for anyone wishing to operate an online commerce venture in the country. Andrias Ekoyuono of startup incubator Ideosource and Magnus Ekbom of e-commerce giant Lazada weigh in on the matter.
Lily Kuo mentioned in her Quartz article that Indonesia's large internet population and widespread mobile usage "make it ripe for a big bang in e-commerce". However, she said that the market isn't as clear cut as it may seem to be due to a number of factors, making it a "perplexing e-commerce frontier".
Andrias Ekoyuono disagrees with this notion. "I think the specific matters that occur in any market cannot be considered confusing but certainly adapting to markets is a compulsory undertaking in any line of business. Besides, the current conditions seems to have been laid out well enough".
Concerns on growth of e-commerce The article pointed out that while there are nearly 75 million Internet users in the country, less than half of them spend three hours or more per day online. This is certainly an issue for Internet-based businesses because if people aren't spending enough time online, they won't be exploring and would be less likely to shop. However, e-commerce sites in Indonesia have been experiencing continuous growth since 2011 and their numbers keep growing.
Online store BerryBenka which specializes in women's wear recently received a $5 million funding to expand its business in the country while lifestyle and accessories outlet Shopdeca announced that it has acquired Eriin, a Singapore e-commerce company, alongside receiving additional funding earlier this month. These are evidence of investor confidence in the Indonesian e-commerce scene and a viable market growth.
The annual #1212 sale in December, which is starting to be a tradition for Indonesian e-commerce sites, has been hailed a rousing success by many of its participants who mostly received major spikes in both traffic and revenue during the sale period.
Additionally, "less than half" of 75 million still gives you more than 30 million Internet users. That's more than the entire population of Australia and more than all of Malaysia. Even compared the the United Kingdom, it's roughly the same number of adults online everyday in 2013, which is 36 million, according to Britain's Office for National Statistics.
Consumers are highly mobile Kuo's second point is that Indonesians shop from their desktop computers at the office during work hours, citing Rakuten Indonesia CEO Rio Inaba. While she is right to point out that home internet connection adoption is low, she fails to recognize the use of mobile devices. Ericsson's latest mobility report says Indonesia added six million more mobile subscribers in Q4 2013.
Take Lazada, for example. The Rocket Internet-owned company has only been in the country just over two years yet it has managed to become the leading online shopping destination. CEO Magnus Ekbom told DailySocial recently that the company's business is now being driven primarily by mobile consumers. The number of people purchasing items from Lazada's mobile app and website have outnumbered those who purchase from their desktop or notebook computers.
Ekbom said that there are three things driving online shopping and e-commerce; mobile, marketplace, and content marketing. On mobile, "we now have a majority of our business coming from mobile devices and platforms, a year ago we were at single digits". This alone shows the massive shift towards mobile-oriented e-commerce as opposed to relying on office computers. Additionally this negates the belief that e-commerce requires a significant adoption internet at home.
Ekbom has the support of Ekoyuono regarding mobile consumers. "The lack of home broadband Internet isn't an issue. Mobile Internet penetration is very large so business owners should be able to anticipate that opportunity".
Indonesians, especially those in major cities, are extremely mobile and spend a lot of time on the road (mainly due to traffic jams), and as a result, Indonesians are among the top social media addicts in the world. What's there to do when you're stuck in the car, train, or bus for several hours per day? You're more likely to tweet, shop, or read.
Bank transfers remain the preferred method of payment When it comes to payment, it's true that it's not as streamlined as most major Internet merchants or marketplaces would like it to be. With roughly 15 million credit cards, that amounts to fewer than 20 percent of the number of online Indonesians. The Indonesian credit card associationexpects that number to go no higher than 16 million in 2014. With only 15 million cards however, the association notes that in July 2013, credit card transactions reached nearly US$2 billion, the highest it has ever been. While there's no readily available data on how much of that is spent online, e-commerce provider company Vela Asia estimated that there were 20 million online shoppers spending up to $8 billion online in 2013.
The low distribution of credit cards gives rise to other methods of payment. Cash on delivery is popular but this is in slow decline according to many e-commerce site owners. Digital wallets and mobile money promoted by many mobile carriers as well as banks have yet to see significant traction despite years of promotions, with total active users in the low single digit millions according to telco and banking sources. Escrow services, known locally as "rekening bersama" (literally joint account) are popular with certain sites.
The prevailing e-commerce payment method is bank transfer both via internet banking as well as ATM. This "manual" method may be the least integrated of all methods, save for cash, but it's the most preferred way. To accommodate this, most sites allocate a payment window of about 24-48 hours before transaction is automatically cancelled due to non payment.
Shops on social networks and messaging services As for Indonesians preferring to set up shop on social networks and messaging services such as Instagram, Facebook, Twitter, BlackBerry Messenger, Line, WhatsApp, and the like, Ekoyuono said, "it should be accepted as a local consumer behavior that needs attention and as part of market adaptation". Fact of the matter is, "e-commerce companies are growing well at this point whether in large scale such as what is being done by Lazada and Zalora, or in other sizes and categories".
Local online payment company Doku made an attempt to streamline these separate stores by creating a unified shopping cart but that effort, though seemingly simple and practical, has yet to live up to expectations. Sellers on places like Instagram and Facebook don't seem to be willing to sign up and learn to use an additional payment service. They're perfectly happy dealing with bank transfers.
According to Ekbom, the article "would have been relevant two years ago. Today the situation is very different –although I agree that the Indonesian e-commerce market is extremely exciting in the coming years." He also said that "the hindering factors/drivers are outdated".
For Ekoyuono, "the e-commerce infrastructure is more than ready at this point, it just requires a thorough execution that matches the market condition".
The Indonesian e-commerce scene market may well look perplexing to many outsiders but for those who have immersed themselves in the landscape, it's clear what issues they are facing and how to go about overcoming them. The biggest challenges include identifying and understanding the market and local consumer behavior, and working within the restrictions of the laws to discover the best approach. It's no use coming to this country with an existing strategy and state of mind previously deployed in other markets because the characteristics are very different.
A good primer for the Indonesian e-commerce market is this deck from Andry Suhaili, CEO of price comparison site PriceArea.
updated with paragraphs about payment, unified shopping cart, presentation deck, and subheadings for clarity
[header image from Shutterstock]