Prepaid Nation. Or How Online Services Companies Can Make Money in Indonesia

The other day Pando published a story about how being "big in Indonesia" is like a kiss of death for Path. In a similar way, this seems to apply to other companies like BlackBerry, Friendster, Multiply, and Koprol, though obviously not to all international technology companies. With that in mind, what failed them and why is Indonesia such a tough market to crack financially?

There is no doubt that Indonesia is a very lucrative market for social networks, being in the top five for services such as Twitter, Facebook, and Path, with Google+ managing to make it into the top 20 websites in the country, but it's widely understood that Indonesians are averse to paying for services which is why it's difficult for Internet companies to make money in the country. Not entirely true.

Indonesians will definitely pay for online games or tech services but only on their terms. This was borne out of the habit formed by local mobile network subscriptions, more than 80% of which are made up of prepaid services. This is something that online companies have actually adopted but not far enough at this point perhaps because they are still beholden to their home market-oriented business models.

These days online services are essentially prepaid services. With postpaid services you're only charged at the end of the month after you've made use of them but this doesn't apply to most online services because they charge you up front. You can't for example use Adobe Creative Cloud apps without paying first. The same applies to advanced features of Office 365, Dropbox, Box, iCloud and practically every other paid online service, but they all have one big barrier as far as Indonesians are concerned: credit card. We'll get back to credit cards a bit later.

The biggest example of Indonesians' willingness to pay for services is the massive popularity of ringback tone (RBT) before the industry was shut down a few years ago. It's clearly a non-essential service but Indonesian mobile consumers adopted RBT in droves sending the local music recording industry to rely almost solely on ringback tone revenue to maintain their existence until end of 2011 when the government shut it all down. It's made a come back but nowhere near the heights it reached in previous years.

Back in 2010 Sarah Lacy wrote an article for TechCrunch about how Zynga was killing it in Indonesia. Games like Zynga Poker, Mafia Wars, and Farmville were so popular in Indonesia that local payment company Indomog scored an exclusive deal to distribute Zynga game cards in the country through which people buy Zynga credits. Today though, most people in Indonesia (and the world for that matter) talk about Zynga in a nostalgic context, if at all.

Didiet Noor, who was a game developer before he joined BlackBerry, wrote an article about how online games were making money in Indonesia through the sale of virtual goods. "Recehan" as we say here, minuscule transactions that amount to a lot when done often enough, was how they made their money and it looks like it remains the key to making it in Indonesia.

Indonesia is a heaven for tobacco companies as the majority of the population smoke. Those who smoke tend buy cigarettes not in whole packages but in single sticks. They buy them only when they want to smoke and the roadside convenience stalls will only happily oblige because they know there are enough people who do this which allow them to sell cigarettes individually at higher per unit prices.

BlackBerry did not explode in popularity in Indonesia until the carriers began offering BIS in tiny chunks. When the service was only beginning in the country in the mid 2000s it used to have a one size fits all policy, but in an attempt to popularize it, the telcos broke it down and had packages that cover only certain online services. This means people who subscribe to the Rp 5000 per day Social package for example can only use BlackBerry Messenger, Facebook, and Twitter. They don't even care that they can't open websites because most of them only want to connect with their friends and family.

This and the fact that people can pay for data packages using their phone credits or airtime made BlackBerry extremely popular and helped propel the company to be the leading smartphone brand in the country until recently.

Something like music streaming for example might benefit greatly from adopting a similar approach. While companies like Guvera, Rdio, and Deezer offer subscriptions on a monthly basis at very low prices, they have yet to allow daily packages or work together with mobile carriers to make it that much easier to pay. With the lack of credit card adoption in Indonesia, it's perhaps wiser to embrace carrier billing the way MixRadio has to help eliminate that barrier and get consumers to not only sign up but also pay up. They surely have considered this but could be hampered by negotiations that have yet to be resolved.

Paying for cigarettes by the stick and for online services by the chunks may sound crazy because the cost will end up being higher when everything is added up at the end of the day but it enables immediate access because consumers don't have to spend all the money up front. This is a key point that companies need to understand. Indonesians are willing to pay but most of the time circumstances make it difficult for them to do so. By making the process easier, the money will flow.

For another take on the same subject, Ario Tamat published his views earlier today.

[header image from Shutterstock]

*A Microsoft representative clarified that MixRadio has yet to use carrier billing but Windows Phone Store has