A few years ago, people were nothing but bullish about ecommerce in Indonesia. With a population of over 250 million and rapidly growing internet adoption, the archipelago bore a lot of opportunity for online shopping among many other emerging Asian markets. It was going to be the next China – or so they thought.
“But starting last year, most VCs and founders noticed that this market is not gonna be China – or as big as China. In four to five years, it’s only gonna be 2 percent of China,” stressed Tesong Kim, CEO of fashion flash sales estore VIP Plaza, during TIA Jakarta 2016’s Panel Without Fear.
Tesong, who led Japanese ecommerce giant Rakuten’s Indonesian operation prior to launching VIP Plaza, cited some numbers: Indonesia’s ecommerce market is worth US$4 billion today, while China’s is valued at US$600 billion. By 2020, he estimates that the market will grow to US$20 billion for Indonesia and US$1 trillion for China.
The high hopes for Indonesia drove investors to inject big money into the nation’s ecommerce players like MatahariMall, Tokopedia, Bukalapak, and Lazada, he said.
How to conquer a market: focus on market share or make money early on.
With enormous funding came the tough battle of acquiring users and scaling. Luring customers through deep discounts – burning loads of cash in the process – became the heart of the game.
“There are two major ways to enter and conquer a market. The first is to spread out as fast as you can and kill your competitor, build moats around your castle, fill it with as many crocodiles and fire pits as possible so anybody getting close to it won’t be able to pass through,” explained Sukan Makmuri, CTO of ecommerce and point-of-sale #startup Kudo, who sat on the panel with Tesong.
“The second way is to really bootstrap and make as much money as early as possible so no matter what happens – like a nuclear holocaust hitting the ecosystem – you will survive and thrive.”
In Indonesia, Sukan said most have opted for the first one.
The tide started to turn last year, however. “The worldwide funding situation went down and startups in Indonesia started to focus on profitability,” Tesong observed.
That meant a cut on their subsidies as well as marketing and ad budgets – which makes it more challenging for the industry.
Indonesian consumers are “extremely, extremely” price-sensitive, stressed Sukan. “Once you pull out subsidy, consumers immediately start looking the other way.”
This year saw back-to-back layoffs at Indonesian ecommerce firms as part of efforts to trim costs. Salestock and Berrybenka were among those that have had to adapt, while foreign players were struggling. Rocket Internet-born Zalora recorded hefty losses, while Japan’s Rakuten and Catcha Group’s Ensogo shut down their Southeast Asian marketplaces.
Players heavily backed by deep-pocketed investors, nevertheless, play the spending game.
While there’s increasing focus on profits, Tesong said subsidies “are gonna keep going in the next two to three years.”
“The top players of ecommerce still only have 10-15 percent of market share […] of that US$4 billion ecommerce market. Until that share goes up to 50 percent, subsidies will [continue] for sure. If you look at the Uber-Didi fight in China, the only way to stop subsidies is for the top player to get a market share of 50 percent.”
Like China, consolidation is bound to happen in Indonesia in the next few years, he added.
Make ‘em stick
Smaller players, on the other hand, must find a way to attract customers without throwing away so much money.
For Kudo, which Sukan admitted has no “unlimited pockets,” providing a platform where partners can sell at no cost was a way to make people stick with the service. The company offers an interesting way for middle-class Indonesians to shop online. It’s an app that uses agents – typically owners of small mom-and pop stores – to help customers pick items. Customers pay in cash and have someone they trust navigate the online shopping process on their behalf.
For VIP Plaza, the strategy was to create a habit among customers to come back to the site through timed sale offers. “Customers always come back to the website without us pushing them – it’s all organic,” Tesong claimed.
To create that kind of stickiness, Tesong urged startups to keep three things in mind: “First is product uniqueness. Second is logistics – can consumers get the product in three hours? Third is a point system – customers should have an incentive to come back.”
This is part of the coverage of TIA Jakarta 2016, our conference that took place on November 16 and 17.