13 Mar An Overview of Indonesia’s Internet Market and What’s to Come
Indonesia is arguably the most important internet market in Southeast Asia as a result of its sheer size, emerging middle class, and digitally savvy population.
The annual global digital ecosystem report by We Are Social says Indonesia has 132.7 million internet users, which points to a penetration rate of 50% of the population. 130 million of these use some form of social media, showing how plugged in Indonesians are when it comes to documenting their lives online or using platforms like YouTube to consume content.
Source: We Are Social
With half of the Indonesian population still offline, there’s massive potential for ecommerce ventures, smartphone manufacturers, as well as brands building products to appeal to millennials in the country.
Other countries in Southeast Asia – Malaysia, Singapore, Thailand, and the Philippines for example – may have higher internet penetration rates but their smaller populations can’t compete with Indonesia in terms of volume.
It’s these numbers that have forced investors to take notice.
A study by Google and AT Kearney indicated that venture capital activity in Indonesia has grown 68X in the past five years, driven mainly by growing interest in ecommerce and ridesharing.
Total VC activity in the first eight months of 2017 was recorded at US$3 billion – more than double the number for the entirety of 2016, which was US$1.4 billion.
The same study predicted the volume of investments in Indonesia will continue to grow in the foreseeable future because VC investment as a percentage of GDP in Indonesia is actually lower than its Southeast Asian counterparts.
Source: Google / AT Kearney
What are Indonesians doing on the web?
Indonesian residents love the internet. 79% of survey respondents in the We Are Social report said they logged on to the web at least once a day. The average daily time spent online was almost 9 hours with approximately 5 hours dedicated to social media and streaming music.
The majority of web traffic in Indonesia comes from mobile phones, facilitated by the availability of cheap smartphones to the Indonesian population coming online for the first time; sidestepping desktops and PCs directly.
Access to mobile has also caused excitement around fintech as only 36% of Indonesians possess bank accounts and only 3% have credit cards. If e-wallet platforms get it right, there are 125 million mobile internet users waiting for easy banking.
Indonesians are also increasingly using the internet to embark on their product buying journeys. 45% of Indonesian netizens search online for a product or service to buy with a similar number landing on an online store and 40% make ecommerce transactions at least once a month.
Fashion & beauty categories attract the highest amount of spend online, almost double that of electronics despite having a lower basket size than consumer appliances like mobile phones, cameras, and wearable gizmos.
It was estimated that Indonesians spent close to US$10.3 billion online in 2017.
Dizzying statistics aside, the Indonesian market still has plenty of space to grow.
Expect heightened competition in the years to come as incumbents jostle for space and keep raising large war chests to outmuscle opponents. VCs, especially with an entrenched position in the market, can’t afford to back down now – there’s too much skin in the game for them to consider any hasty exits.
Recent developments already demonstrate how investors are taking a long-term view of the market. Alibaba injected over a billion dollars in local ecommerce marketplace Tokopedia last year. JD.com, Alibaba’s direct rival in China, has opened fulfillment ccenters across Indonesia with a view to keep expanding. And homegrown unicorn Go-Jek is rapidly transforming into a Wechat-esque ‘super app’ with users able to do everything from hail motorbikes to get their plumbing fixed, and pay for it via e-wallet.