The Rise of Indonesia's Tech Scene
It is an exciting time for Asia at this moment in time. Asia is facing the highest Internet growth ever in recent years due to the higher penetration of mobile, tablet ownership and infrastructure in the Asian region.
This growth will also affect the high growth of digital Internet users and digital business players in the region. The digital business that provides content and e-commerce is facing a challenge to catch up with the exploding market.
Especially in Southeast Asia, where Indonesia is the largest market, the region has become the attention of the world due to its steady positive economic growth while the rest of the world has taken a beating with their sluggish economy.
The critical mass
Indonesia, as the fifth populous country in the world with a total population of close to 260 million people, has a young population with 50 percent below the age of 27 years old, which is a productive age and ready to be a consumptive market especially in the positive growth market.
Indonesia’s digital business, like other businesses, has experienced the transformation and is going through a maturing phase. The digital business in Indonesia gained momentum back in 1997 to 2001, which shared the same excitement with the Internet situation in the US. This was the time where startup companies did their IPOs and got invested by foreign companies.
When the dotcom crash happened in the US, Indonesia’s startup companies faced the same problem with America’s startup situation where the users were not massive enough, infrastructure had just begun, connection was not fast enough, founder and investors were clueless, and the ecosystem just laid the foundation for the digital business in overall. The strongest players survived and the weak were forced to close down.
The second rise of startups
The second transformation began in 2007 and is still going on today. This period is where some of the local companies who survived the 2001 dotcom crash have begun showing their leadership as top companies in Indonesia’s digital business, such as Detik.com and Kaskus.us. There are also new players entering the space and sharing similar success stories as their predecessors. Some of these startups are Kompas.com, Kapanlagi.com, Okezone.com and Lintasberita.com, which recently changed its name to Lintas.me.
Indonesia’s digital Internet ecosystem has now improved significantly because of the growth of infrastructure and the growth of ownership of personal computers, mobile phones, and tablets that create a massive market with total of 61 million digital internet users. Also along the year, the price of being connected has become more affordable for many people.
Startup companies have also been growing significantly. Several success stories has stimulated the appetite for young entrepreneurs and founders to come together and build their dream startup companies. In 2009, Yahoo bought a local company that caught the attention of the world. This continued with the local venture capital firm, GDP Ventures collaborating with MCM group to create Merah Putih Incubator, which invested in several hot local players such as Mindtalk.com, Dailysocial.net, infokost.net, Krazymarket.com, Lintas.me and Kincir.com.
Kaskus.us, the Number One local community and classified board in Indonesia collaborated with MCM group for their brand revamp. They also received investment from GDP Ventures in the early 2011. GDP Ventures also created a new e-commerce site called Blibli.com that has become one of the strong players in the Indonesia e-commerce area.
GDP Ventures’ movement into the digital business has inspired other local players to join the digital Internet business scene. Detik.com has been invested by Para Group, a group of local entrepreneurs that focuses on media. Kompas Gramedia Group, the largest publishing and print media company, created an investment division to help bring their media into the digital space. More venture capital firms, incubators and accelerators have popped up in the scene, with ‘old money’ or foreign funds, to take a stake in Indonesia’s digital startup scene.
The worry of a second dotcom crash is always on the minds of the investors. Indonesia’s digital market will face some challenges ahead. A market filled with a lot of startups can have both good and bad things happening to it.
There are a lot of startup companies that don’t know the business game due to inexperienced founders. They don’t have the ability to endure until the market matures, unable to differentiate themselves from their competitors and cater to the needs of consumers. There will be a lot of startup companies that will close down because of their inability to survive in the next few years. However, some startups in Indonesia have shown the ability to shine since they started and are growing steadily, such as Tiket.com, Tokopedia and Lintas.me.
Indonesian players at this moment are focused on building the ecosystem for e-commerce, travel, news and niche content, payment systems and community platforms.
Like e-commerce industries in other countries, the local player is doing better than the foreign player due to the understanding of the market behaviours and the consumer interests and spending and buying habits. However, right now the e-commerce ecosystem in Indonesia has not matured yet. It will take about another four years for them to be adopted by many users and to be a well capitalised market. The reason is the market does not fully have consumers’ trust in buying via online and still uses the old transaction method for purchases. The market is still dominated by classifieds such as Kaskus.us and Tokobagus.com, the biggest players in the local e-commerce space.
There are several foreign players such as SK Telecom, GREE, Recruit, eBay, Tencent, Google, Yahoo!, Netprice that have put their investments through local company to gain some market share in the e-commerce space by setting up a local office or a joint venture to bring their technologies and brands into local market. This has resulted in services such as Zalora, Tokobagus, Multiply, Rakuten, Tokopedia, Bukalapak, and many more.
The other industries in digital business that should be noted are the mobile applications and games industry. They have recently emerged but have yet to created a significant impact at this moment due to it being a new market, lack of talent, payment issues and the fact that 80 percent of mobile device owners in Indonesia are still using feature phones.
Indonesia’s digital market is growing. Many investors are flowing into Indonesia digital scene. The infrastructure needed will gain in momentum by giving free wifi access to the public either from government or private entities to stimulate Indonesia to be more connected. However, a word of advice, both startups and investors have to carefully select their future partners to successfully penetrate Indonesia’s digital market. Indonesia’s digital ecosystem is on the brink of realising its tremendous potential, but it will need some time for it to mature, which will be in the next three to five years.