Will Multiply's Closure Disturb the E-Commerce Business in Indonesia?

We were surprised on Friday by the announcement of Multiply's closure as of 6 May 2013. With no warning, Multiply's South Africa-based investors, Myriad International Holdings (MIH)/Naspers, decided to end Multiply (both in Indonesia and Internationally), and focus on increasing its investment in online advertising business (Tokobagus in Indonesia and Sulit in The Philippines). This adds to the list of failed marketplaces in Indonesia following Rakuten and Plasa.

Multiply arrived in a unique way in Indonesia. After being acquired by MIH/Naspers in 2010, Multiply was set to explore the e-commerce business in Indonesia and The Philippines. Aside from moving its head office from Florida to Jakarta, Multiply has also shut down the social network service which was its core offering. MIH installed one of its own, Stefan Magdalinski, to replace co-founder and CEO Peter Pezaris, along with many other long-term Multiply staffers who had been with the company prior to the acquisition.

This sudden announcement isn't what the management wanted but had to be done after its largest investors decided to pay more attention to a seemingly more promising business. In the official release that we received, the main reason for the shut down was realizing that Multiply will not be a market leader in the online marketplace even with continuous funding. The conclusion that MIH has taken may well be considered early, especially after only six months of turning its head towards being a marketplace. MIH as an investor must have known the calculations and Multiply's finances for the long term.

At the moment Multiply isn't fielding further comments about the closure and is focusing on clearing out all of its business matters including taking care of its employees and merchants until the end of May.

What is the effect of Multiply's closure in the e-commerce ecosystem in Indonesia? The closure of Multiply, the splitting off of Rakuten-MNC, and the failure of Plasa (despite the backing of Telkom) shows that the business model that they chose may not have fit the shopping culture in Indonesia. A marketplace still needs a long way to become a leading choice in online shopping.

Comparing this to online classifieds such as Tokobagus and Berniaga which have been aggressively advertising on TV, a marketplace seems to be more complicated and less pleasant. Does this mean selling on Facebook and classified sites still considered more appealing? Could be. The classifieds section in Pos Kota newspaper was the benchmark in promoting items for sale, now online classifieds is providing the same impression. Maybe we're still some ways from expecting an Indonesian Amazon or ebay in the near future.

The next point of concern is of course to do with the ecosystem. Multiply is one of the founders of the Indonesia E-Commerce Association (IdEA), and Multiply's country manager is even the head of the group. Multiply's downfall does cause a concern for some. Internally e-commerce players will have to be more careful in their steps, even so far as to embrace consumers and merchants to ensure their well being in this challenging industry.

Externally local and foreign investors will be more aware that e-commerce business in Indonesia will require a large capital and a longer waiting list to deliver the expected profit. A deeper local knowledge is also something that will be even more important to understand how Indonesians spend their money. Even though the potential of e-commerce business is very large in Indonesia, consumers don't suddenly switch their shopping habit to the online marketplaces.

Multiply's fall as a martyr in the e-commerce development in Indonesia will be noted in history. Unfortunately we would have no idea what will happen to the e-commerce business in Indonesia in the next five to ten years. This may well push the industry to move towards a better future if the surviving players can learn from what happened but it also serves as a caution for those who dream of showering in gold in this sector that the dream may have to be revitalized lest they fall into the same pit.

Lazada and Zalora which are currently the e-commerce prima donnas in Indonesia must take a big lesson if they wish to turn their massive investment into something worthwhile.