Alibaba is a crocodile in the Yangtze River, but we are the komodo in the seventeen-thousand-island archipelago.
—William Tanuwijaya, founder of Tokopedia
In 1985 my mother took me and my sister on our first trip to Asia, when I was fifteen years old. The most memorable part of the trip was a visit to one of Bangkok’s floating markets. To reach the market we rose at dawn and took a long-tail boat through a web of canals lined with homes on wooden stilts, temples, and shanties with corrugated metal roofs. The poverty of the city was evident as we floated past the poorest of the canal dwellers, who lived in makeshift homes beneath the bridges, bathing in, and cooking and drinking from, the river.
When we arrived at the floating market, we found a colorful collage of women in straw hats plying the narrow passages in wooden boats to sell fresh fruits and vegetables. Not yet overrun by tourists, the market remained largely as it had been for hundreds of years, a way to buy and sell fresh produce before the widespread use of refrigeration. The floating hawkers would congregate in the central floating market before rowing up and down the river to serve passing boats and the homes they encountered along the way. As a fifteen-year-old accustomed to shopping for groceries at the local Safeway, I was enthralled.
Today Bangkok’s floating markets exist almost entirely for the sake of tourists, and shoppers are more likely to find trinkets and knickknacks than papaya salad. But the markets do offer a window on how trade was carried out along the rivers and canals of Southeast Asia for hundreds of years. And life along these waterways and small islands helps explain the way e-commerce has evolved in the region, which can be summed up in two words—it’s fragmented.
The rivers and canals of mainland Southeast Asia, which includes Thailand, Vietnam, Cambodia, Myanmar, Laos, and Peninsular Malaysia, have served as important trading routes, moving crops from fertile plains to other parts. The Mekong, Chao Phraya, and Red rivers spread commerce, culture, and religion throughout the region while providing geographic barriers that allowed pockets of unique cultures to emerge and evolve.
The great rivers end in deltas that led to lowland settlements, which became commercial centers that later grew into today’s large cities. These cities became centers of trade for the region. The seas and oceans of maritime Southeast Asia, which includes Indonesia, East Malaysia, Singapore, and the Philippines, have served as important maritime trading routes connecting India and China. Trading and migration not only moved spices between regions but also brought Islam and Buddhism to Southeast Asia from India and the Arab world.
The sixteenth century ushered in an era of influence from European powers that viewed Southeast Asia as another region to divvy up in their global land grab. The Portuguese were first to arrive, taking up a base in the Moluccas, also called the Maluku Islands, an archipelago (part of Indonesia today). The Spanish came next, settling in the Philippines. During the next several hundred years, the Dutch would claim what is now Indonesia, and the French would plant their flag in Vietnam, Laos, and Cambodia. The British claimed Singapore, Malaysia, and Burma.1 But despite foreign influences, the unique identities within the region still exist with their cultural roots going back thousands of years.2
E-COMMERCE’S EVOLUTION IN THE REGION
Fast-forward to the twenty-first century, and this complicated history helps explain why e-commerce got off to such a slow start. With a population of 620 million, Southeast Asia certainly represents a huge opportunity. But Internet penetration was low, and the e-commerce infrastructure too inefficient to attract significant investment.
EBay, which opened its Singapore marketplace in 2001, was one of the first US e-commerce companies to establish a presence in the region. Given the country’s English-speaking population, large expat community, and mature retail infrastructure, it was a natural choice. Not surprisingly, eBay established a leadership position in the Singapore e-commerce market, as the city-state’s conditions were more of a mirror of the United States or Germany than of its neighbors in the region. Ebay’s next appearance in the region was eBay Malaysia and eBay Philippines in 2004, followed by debuts in Vietnam and Thailand in 2007. In many ways eBay has fared better in Southeast Asia than in other emerging markets, and many of its properties in the region survive today. The company has no doubt benefited from the size of the individual markets, which at first were too small to sustain large independent players, so having one platform that served all the markets proved to be an advantage. But as the markets have grown and matured, eBay’s decision not to localize its websites has become more of an issue, and over time it has moved toward serving as a platform that plugs local sellers into its global marketplace for cross-border trade rather than as a strong domestic player itself.
Some homegrown players tried to introduce e-commerce in the region outside Singapore, but what they offered was little more than classified ads that allowed sellers to list products while conducting transactions entirely offline. One example in Indonesia, Tokobagus, which was started in 2005, allowed sellers to post product photos and simple text descriptions that could include the seller’s phone number and email addresses. Interested buyers would simply contact the seller and negotiate payment and logistics offline. OLX, which is led by Naspers, the major investor in China’s Tencent, later bought Tokobagus.
Another company that took a crack at the Southeast Asian market is Rakuten, Japan’s leading marketplace operator, which provides a digital platform similar to Tmall. Starting in 2009, the company moved into the region aggressively, setting up shop in Thailand, Indonesia, Malaysia, and Singapore. But Rakuten struggled to adapt its Japanese business model and management style to the Southeast Asian markets. In 2016 Rakuten had announced it was shutting down its marketplaces in the region.
Significantly, one company that did not make aggressive moves to target Southeast Asia’s 600 million consumers is Amazon. The only good explanation for Amazon’s staying out of the market is the region’s fragmentation. The Amazon model relies on large scale and an efficient infrastructure, and perhaps Jeff Bezos was deterred by such a fragmented market for a business model that relies so heavily on scale and efficiency. But this is likely to change in the future as the market matures and Amazon sees more opportunity there.
ROCKET INTERNET: ATTACK OF THE CLONES
The first twenty years of e-commerce in Southeast Asia were small attempts and baby steps, but one company did finally enter the market in a big way in 2012—the ever-controversial Rocket Internet, the Berlin-based “clone factory” known for churning out e-commerce companies for emerging markets. Rocket, which has also been active in India, has come under a fair amount of controversy and criticism, but its efforts in Southeast Asia have been one of the company’s relative bright spots. Rocket started its operations in Indonesia, Malaysia, the Philippines, Thailand, and Vietnam in 2012, rolling out “mini-Amazons” throughout the region. The company raised more than $647 million, which it used to build large warehouses and develop logistics and last-mile delivery infrastructure. Alibaba Group acquired Rocket’s local company, Lazada, in 2016, providing some validation to Rocket, whose business model had been criticized as not sustainable. Rocket’s influence extends far beyond its efforts in Southeast Asia, and I discuss Rocket companies elsewhere in this book, specifically in the sections on Latin America and Africa. That was why I decided to hop a plane for Berlin and visit Rocket’s headquarters; I needed to better understand its vision and what it was learning from its efforts in emerging markets.
At the crossroads of East and West, Berlin is a fitting place for the headquarters of Rocket. While Rocket is not a household name in the West, no e-commerce company has expanded more aggressively into emerging markets in recent years. Part incubator, part venture capitalist, part e-commerce empire, the controversial company became either a beacon of hope for Europe’s innovators or a lightning rod of criticism. One thing is for sure—its experience in operating more than a hundred companies in a far-flung empire stretching from Nigeria to Colombia to Argentina to Pakistan offers lessons for e-commerce operators in emerging markets.
The roots of Rocket go all the way back to the US Internet boom. It’s no surprise that, in that heady time, Europeans quickly adopted US e-commerce models. Oliver Samwer, Rocket’s founder, created the first example, an eBay clone called Alando, with his brothers, Marc and Alexander, and three college friends. The six founders sold it to eBay for $43 million just three months after it opened for business in 1999.3 That became a template for Rocket Internet, which Samwer and his brothers started eight years later.
Oliver Samwer was born the middle child in Cologne, Germany, in 1972. His parents were prominent lawyers; his father once represented Karl Carstens, who was later elected president of Germany. As teenagers, the brothers decided that one day they would start a company. Their mother reportedly did not like this risk-taking plan and encouraged them to pursue more stable careers, such as something in insurance.4
The brothers brushed aside her advice and pursued their interest in entrepreneurship. In 1998 all three were living in the San Francisco Bay Area and studying US start-ups. The result of Oliver’s efforts was a 167-page book called America’s Most Successful Startups: Lessons for Entrepreneurs, which he wrote with Max Finger. The highly detailed, analytical book offers a window on the approach he and his brothers would later take. The philosophy of Rocket, and the reason the company is so reviled in innovative circles, is captured by a line in the book: “To be a successful entrepreneur, you do not have to come up with your own ideas. You have to recognize great ideas when you see them.”5
To write the book Finger and Samwer interviewed seventy-five entrepreneurs and attempted to crack the code of entrepreneurship. Their final product covers everything from how to identify business opportunities to how to unveil a start-up, grow a business, and build a company culture. The book attempts to lay out a sort of science of building a company and is a surprisingly useful read for entrepreneurs. Its lessons include “Find a large market that is not well-understood” with opportunities that “have not been exploited by the dominant players because of institutional resistance.” The authors note that Bezos could start Amazon from scratch and beat Barnes & Noble because the latter was weighed down by its physical stores. “Even though you might be smaller than the incumbent, you have the advantage of starting over,” they advise. “Therefore you should look for an opportunity where the incumbent cannot move quickly enough.”6
The Samwer brothers recognized one such idea when, while they were interning at various tech companies in Silicon Valley, they saw how quickly people were taking to eBay in the United States. Thinking that its business model could work in Germany, the brothers tried to contact eBay to see if it would allow them to establish a German operation. When they received no response, they moved back to Germany and decided to set up their own German clone of eBay, which they called Alando.
They weren’t the only ones to focus on setting up an eBay-like business in Germany, but they moved quickly. And they had Oliver’s salesmanship on their side. The acquisition of Alando three months later proved to be a tremendous success for eBay. As Meg Whitman would write in her autobiography, eBay Germany “took off like an absolute rocket,” becoming eBay’s most important market outside the United States.7
The sale made the Samwer brothers Germany’s first Internet millionaires, but Oliver would later cite the early sale of Alando as one of his biggest mistakes, saying that they took a deal too early and could have held out for more money. However, the idea of cutting and pasting a US Internet model onto the German market clearly had legs. The brothers’ next venture was a ringtone company, Jamba! They sold the company, best known for creating the “crazy frog” ringtone, to Verisign for $273 million in 2004.
The Samwers’ next successful clone came during the Groupon craze. They cut and pasted the Groupon model onto Europe and called their clone MyCityDeal. In just a few months it led the daily-deal e-commerce sites in thirteen European countries. Groupon acquired MyCityDeal in 2010 for $170 million worth of Groupon shares.
After several successes the Samwer brothers believed they had developed expertise in identifying US companies whose business models they could transplant to other markets before the US companies began to look beyond their borders. If they could do this with three companies, the brothers concluded, why couldn’t they do it with hundreds? In 2007 they set up Rocket Internet, with the explicit goal of replicating the cut-and-paste model on a global scale.
Critics claim that Rocket is nothing more than a clone factory. But as Europe’s most successful Internet entrepreneurs, the Samwers have also been hailed as an inspiration for the European start-up community. Oliver Samwer even appeared on the cover of Wired magazine as the most influential person in European tech.
For the most part, Oliver Samwer has been media shy. But in the few public comments he has made, he has defended the company’s approach, telling Wired, “We are builders of companies, we are not innovators. Someone else is the architect, and we are the builders.”8
So what, then, is Rocket Internet?
Rocket is best described as a “venture builder.” The company scans the global market to identify proven business models, selects those it wants to focus on, and then quickly builds a virtual team within its corporate headquarters to ramp up and start the business. Each wall of the company’s offices sports a poster for a “100 day launch plan”; these set out a clear timeline and flowchart for each step from idea to market, covering everything from setting up the legal structure, hiring local staff, and deciding on the company’s graphic design to coding, buying keyword ads, and the initial publicity campaign. A business starts on the top floor of Rocket and works its way down; if successful, it “graduates” and moves into another office nearby as an independent company.
Rocket has grown to into a sprawling empire of companies with operations around the developing world, from Nigeria to Buenos Aires to Colombia to Pakistan. It went public just two weeks after Alibaba, a move timed to ride the surge of investor interest, as a public relations executive at the company acknowledged. Rocket’s companies range from taxi-hailing apps to fashion to general merchandise to food delivery services. In many cases Rocket serves countries that are big enough to be attractive but small enough to lack the start-up ecosystem of financiers, entrepreneurs, engineers, and managers that gives birth to a homegrown company. While an entrepreneur in Pakistan might take years to develop an idea, build a team, and attract venture capitalists, Rocket can quickly assemble a team and, with its relentless focus on being early, gain an early-mover advantage in a new market. Then, the theory goes, the company can be spun off or sold back to one of the giants it was modeled on.
Rocket’s most successful company to date is Zalando, a clone of Zappos. The company moved out of the Rocket corporate structure and had its own IPO in 2014. Notably, Zalando has succeeded largely in western Europe. By moving into emerging markets, Rocket has taken on entirely new frontiers.
Given Rocket’s acknowledged goal of succeeding through mimicry, perhaps some of the criticism it receives is deserved. But when I looked closely at its business model, it was clear to me that the company itself is actually quite ingenious, and—dare I say it?—innovative. In theory Rocket’s approach combines the most important aspects of the start-up phase. By providing a ready source of funding, it fulfills the function of angel investor and venture capitalist. By providing a place for companies to grow from concept to debut, it serves as an incubator and accelerator. And by connecting all its companies within a single family of businesses, it offers many of the benefits of a multinational company. In that sense, it was the first of its kind. And on paper it looks quite attractive to the investors who have already put in billions of dollars.
The question, then, is, how well does this model work in practice, especially in emerging markets? I visited Rocket’s headquarters in Berlin’s hip Mitte district. Housed in a former hotel, the company offices are surrounded by art galleries, falafel shops, fetish shops, and—when the city thaws out from a long, cold winter—beer gardens sandwiched between graffiti-covered buildings.
My first meeting was in 2015, with Andreas Winiarski, the head of public relations at the time. Andreas had essentially become the public face of the company, a surrogate for the senior management team, which was not particularly interested in speaking to writers. “Oliver doesn’t like to talk to the media, and it creates some challenges for us, especially as a public company,” Andreas told me.9
Andreas came to Rocket in 2012, after a private email Oliver had sent to staff was leaked to the media. In the email, the subject of which was “When is it time for blitzkrieg?,” he wrote, “I do not accept surprises. I want this planned confirmed [sic] by all three of you: you must sign it with your blood.… I will only do a plan that you 100 percent believe in and that is signed with blood.”
He continued: “There are only 3 areas in e-commerce to build billion dollar businesses: amazon, zappos and furniture. The only thing is that the time for the blitzkrieg must be chosen wisely, so each country tells me with blood when it is time. I am ready—any time!
“I am the most aggressive guy on Internet on the planet. I will die to win and I expect the same from you!”10
Blitzkrieg, if you’re not up on your World War II history, was Hitler’s description of his aggressive military strategy of taking a country by storm—literally, a lightning war. Borrowing a management philosophy from the Nazis didn’t sit well with the European press, and Oliver was roundly criticized for the email.
But it also provided a crucial insight to the approach of Oliver and his brothers: execute, execute, execute, with both speed and fastidious attention to detail. The focus on fast execution was no doubt a result of seeing how just a few months made all the difference for their businesses—after all, in three months’ time, they built $43 million in value for Alando.
I found Andreas to be surprisingly open, and the company agreed that as my research progressed, I would be able to interview someone in senior management. Six months later, on a follow-up visit to Berlin, I sat down with Rocket’s chief technology officer, Christian Hardenberg.
Christian, too, had joined Rocket in 2012. He trained in college as a programmer, had previously been a consultant, and spent some time at a start-up. So I asked what had attracted him to Rocket.
“The chaos, clearly the chaos. At that time we had this big e-commerce launch. We started e-commerce companies in a weekly rhythm, sometimes three countries in one week. We didn’t have PR. We didn’t have legal. We didn’t have anything you would expect from such a global company. As a programmer, I really like to structure,” he said, and working at Rocket was an opportunity to bring structure to chaos.
Being based in Berlin has been a big advantage in attracting talent. “Every interview people always say, ‘I heard good things about Berlin,’” Christian said. Within Europe, Berlin has become the place for creative types who want space and a low cost of living to be able to take risks—unlike rival tech centers in Europe, such as London, Stockholm, and Dublin, which are known for their expensive real estate and high costs of living. The fall of the Berlin Wall also meant the end of government-subsidized businesses, which drove industrial production out of the city and left large empty spaces that young people could convert into clubs, lofts, studios for artists, and offices for start-up companies.
Berlin’s proximity to eastern Europe has also been a great way to attract programmers. “We get a lot of people from eastern Europe. That’s our main source of [engineering] talent right now,” Christian said. “Moscow has great universities, but people don’t want to work there.”
In many ways Rocket is irresistible to anyone with an international mind-set, especially those in Berlin, which has few global companies. Christian said he has enjoyed this aspect of Rocket: “We are in more than a hundred countries now. Just before talking to you, I had a phone call with a guy in Singapore, and after this I’m talking to someone in Africa. I’m constantly jumping around the globe in my mind, and it’s really something you wouldn’t find in other places in Berlin.”11
The company is also attractive to employees who want a taste of the start-up life with fewer of the start-up risks. “You have the combination of corporate security … [and] the thrill of a start-up, and this combination is unique,” Christian said.
Many Berlin-based Rocket employees jump from location to location, doing a stint in Nigeria, followed by a job in Mexico City, and then rotating back to Berlin. Christian himself spent some time in Vietnam helping to build the tech team for the Southeast Asian operations of Lazada. He lived in Ho Chi Minh City and first brought in European engineers before developing a local team to do the work. Since then, Lazada’s operations in Vietnam have grown to hundreds of developers.
On its website at the time of my first visit, Rocket’s stated mission was “to be the largest Internet company outside the United States and China.” The main markets that Rocket first entered were those where the big players had no presence. “For Oli [Oliver], he has had this clear idea—e-commerce will change everybody’s life. This is a fact. And now is the time,” Christian said. “There is still so much wide space on the map, and he basically saw this as the biggest opportunity in his life to conquer this, get into these places where Amazon didn’t find time for yet.”
Rocket’s approach is all about execution, not innovation. “It’s speed. That’s what Rocket stands for. I once made this example with exit velocity. From astrophysics you have this certain velocity a rocket needs to get out of a gravity field. And this is somehow a minimum velocity you need to get off the floor. And I think for start-ups it’s a bit like that,” Christian said. “If you are too slow, others will just eat you and you’ll never get off the ground. So we use that as a principle to endow a bias for action. You get so used to it that you don’t even realize it anymore. The common denominator is speed. If someone is slow, it slows everyone down.”
His employees are used to this tilt toward execution. “They are comfortable with the process,” he said. “Once you kick off a company everyone knows what to do, more or less, and after three months we pretty predictably get a quite good quality start-up out there. And then we learn and then we use that data.”
It helps that Rocket has grown so many businesses. “We have all of these companies already waiting. In all countries we have shell companies we can just start tomorrow,” Christian said. “Sometimes, in some countries, it takes a long time just to get something registered, so we have the contracts and legal entities ready and know how to do business in Indonesia [for example] and what licenses you need.”
And if the data show that the business is not working, Rocket also doesn’t waste any time shutting it down. “We ask what does the data show us?… If the facts are negative, we close things down quickly.”
Rocket’s core businesses started with the goal of creating mini-Amazons throughout the emerging world, except for China. Rocket’s general merchandise businesses target Africa through Jumia, Latin America through Linio, and (before its sale to Alibaba) through Lazada it targeted Southeast Asia. To build these the company set up a proprietary online shop system, based on Amazon, and licensed it to all the Rocket e-commerce companies doing business in those regions. This is one of the main arguments in favor of Rocket’s model: it has the scale necessary to apply universal platforms in a variety of markets.
But over time Rocket has learned that some aspects need to be customized and that the one-size-fits-all approach simply doesn’t work. “They [Rocket’s businesses] all used the same system,” Christian said. “But it was soon clear these companies could not be successful with a tech team in Berlin with an eight hours’ time zone shift and completely disconnected from their local markets.”
Rocket decided to decentralize its engineering. It flew engineers from the local companies into Berlin, trained them on Rocket’s software, and then “handed everything over to them and, step by step, pushed them into independence,” he said. “At that point we allowed them to take what we built as a starting point and take it from there. If you would have tried to keep everything on one platform, we would have slowed down everyone.” This helped the local businesses to accommodate the unique needs of each market, such as digital goods or providing pickup stations in local villages. In some areas the local platforms could initiate “try on delivery” for clothes, so that customers could simply try a shirt on at home before paying the courier. “I think that is key to success, that you can innovate on your own,” Christian said. “Of course, it’s inefficient—every company needs their own tech team—but I think it’s good to accept this inefficiency [in exchange] for speed.”
As the companies began to localize, Rocket realized that it was important to move from a retail-led model to a marketplace. “It was a [matter of] learning along the way that retail-only is not going to work,” he said. “The margins were not good enough, and there is a lot of gray-market competition, so [a marketplace] was smarter.” Christian conceded that Rocket was “a bit late, but then [made] a quite radical move to move from retail to marketplace, but I’m proud that it worked out.” But he believes it may have been a necessary step in Rocket’s evolution: “I think we were right because you need first a certain size to be attractive to vendors as a marketplace.”12
Over time the company went from modeling its retail operations after Amazon to modeling them after Alibaba. “We were all focused on building Amazons, and then one day we shifted, and everything was, ‘We are building Alibabas,’” one of Rocket’s senior managers told me.
The companies are allowed to separate from the mother ship over time, find their own investors, and stand on their own. They even develop their own corporate cultures. Christian explained: “I would say the relationship to our companies changes over time. It’s a bit like childhood. In the beginning, [the companies] are like a little baby, and you need to do everything and nurture them because they are helpless. And then they grow up and have their own ideas like a teenager and basically push back on Rocket, typically a bit, and say, ‘We can do things better on our own.’ And later, beyond that, they see the advantages of the parents and ask for help when it makes sense.”
From a strategic perspective, Rocket’s approach to localization was a pleasant surprise. The story of US e-commerce companies’ failure in China was very much about trying to use a one-size-fits-all global approach for their platforms. But the one place Rocket’s philosophy did not seem to apply was top management. Almost universally, Rocket’s local companies are headed by nonlocals.
I asked Christian whether this is a weakness. He acknowledged that he wonders whether these companies should be headed by local managers who know the country and have a network. “We are coming a bit from outside into these countries, into Nigeria from Paris,” he said. “Typically it’s [a] European at the top [of the company]. But also we are very selective [with] these people, and they typically have [had] a career at McKinsey and have some execution skills or experience that are not so available locally. I think it’s also a cultural thing. In the end, these top management people are quite similar in their [makeup], and that also helps. All [are] young, ambitious, coming more from a consulting background … Maybe if you would have some very different cultures, some Indians and Chinese and everyone speaking their own language, it would be more difficult to make this very transparent cohesive group.”
So what is working for Rocket Internet like? In talking with managers other than those provided by the company’s PR team, I was surprised to find a fair amount of cynicism about the company. Stock options are not extended as incentives to most employees, and this creates resentment.
Being a Rocket employee in Berlin requires a fairly thick skin in an industry that prizes innovation over execution. Outside Rocket, many Berliners also are cynical about the company; one senior manager told me: “I was looking for an apartment in Berlin, and it came down to me and one other person. When the landlord found out I worked at Rocket, they … gave it to the other person.” Within Berlin’s gritty culture, some regard the company’s business model as having much flash but little substance, and this employee’s would-be landlord didn’t want a tenant who might soon be out of a job.
It was not difficult to find former employees who had bad experiences at Rocket. To be sure, some simply could not keep up with the hard-driving, results-driven approach that Rocket maintains. But the negative reports seem to go beyond that.
A former head of one of Rocket’s Latin American ventures told me that a common complaint is that the company lacks any coherent company culture. Often, co-CEOs run the companies, and this can lead to confusion and lack of organization. People didn’t seem to understand what the goals were and what their place in the organization was. While this can be true of any start-up, the lack of discussion about values sometimes means that there is no unifying purpose for some employees.
Employees and former employees are not the only ones voicing grievances about Rocket. By the summer of 2016 investors also were beginning to lose patience. Rocket’s life as a public company has been fraught with ups and downs, starting with its stock dropping 13 percent below its offering price on the first day of trading in Frankfurt. After briefly rising to a peak of EUR56.6 per share, the company fell to nearly EUR15 per share by the spring of 2017. Along the way, it began to generate headlines such as “Rocket Falls Back to Earth.”13
Yet Rocket’s model got a major validation when the Alibaba Group acquired Lazada for $1 billion in 2016, hoping it would give Alibaba an early start in the Southeast Asian markets served by Lazada. From Rocket’s perspective, it was a page straight out of the Alando and MyCityDeal playbook, only this time the buyer didn’t come from the United States but from China.
The Lazada deal was a bright spot, but other parts of the company have struggled to reach profitability, and the Rocket mother ship has shown signs of a deteriorating balance sheet. I think one reason that Rocket is struggling is that it has not found its soul. In its quest to execute, Rocket has not given its employees a unifying purpose beyond execution itself. I asked Christian about this, wondering aloud whether Rocket has an idealistic “change the world” motivation. He immediately shook his head and dismissed this idea. He said he thinks Rocket and Silicon Valley “have different roles in the world. Silicon Valley is the place for innovators, for world changers. We need those people.… They are our heroes.… But I think here we are a bit more the engineers who sweat all the details and say, ‘Vision aside, what’s the problem at hand?’ And maybe that’s also why Rocket fits a bit better [in] Germany, because in the end adapting Amazon to India or Indonesia is not so much a vision problem but more like many little things, like how do I do payment, logistics, sourcing, and so on?”
I also asked him about the criticism that Rocket lacks an innovative spirit.
“I personally find it a bit ridiculous, as I think if you would open a pizza place on the corner, no one would ever come to the idea and say, ‘You just cloned the pizza business next door!’ It’s just that’s how competition works all over the world.… I think competition should allow for more [than one person] doing e-commerce in the world,” he responded. “Of course, if we jump on very early ideas, I can understand that it feels wrong that … we just wait until the risk goes down … [and] there’s some proof of success and then get in, but I think it’s prudent. It’s not our money we are spending. It’s the investors’. It’s basically our story to investors that we look for the proven business models, not the completely unproven ones. That’s a different business. If you take a higher risk, you have a different return.”
So what will happen to Rocket?
“I hope it works out.… At least from the outside it looks like such a smart combination of taking proven business models—put the smart people on it—but also have this repeatable approach to things.” And Oliver is “an amazing salesperson. I’ve seen him with investors.” But “I don’t want to sound like we know” what the recipe for success is, Christian said. “Not all of these companies are profitable yet, but I think so far almost every one we started is growing nicely.”
Will Rocket Internet achieve exit velocity? Or will it fall to Earth? It’s a bit early to say, but whatever the outcome, it will be especially instructive for others looking to enter the market.
As the interview ended, Christian told me, “My main fear is for our German car industry. That’s really what Germany relies on still. There are so many jobs in cars—it’s like half of the Germany economy.” He cited Tesla’s electric cars as a threat to the German car industry.14
As I walked away, I couldn’t help but feel that his final comments summed up the very argument against Rocket’s approach. Perhaps he missed the irony, but the future of Germany—like its car industry—relies on its ability to innovate rather than copy. It made me think that Rocket may be an interesting company. It may even prove to be a very successful company for its investors and employees. But Berlin—and European tech—needs a better role model.
THE KOMODO IN THE JUNGLE
I first met William Tanuwijaya, founder of Tokopedia, in 2013 and was immediately impressed. I was in Jakarta to show my film, Crocodile in the Yangtze, and received an invitation to give a private screening for him and his team. William is bright and passionate about his company, and while he didn’t have international polish or a Harvard degree, I recognized in him a spirit I saw from the most successful Internet entrepreneurs. A couple of years later, when his company raised $100 million from Softbank and was hailed as a local champion, I wasn’t surprised.
I caught up with William again in the spring of 2016 at a tech conference in Tokyo. A lot had changed since our first meeting. There were reports his company had raised an additional $147 million. Through its investments and growth, Tokopedia could reasonably claim to be the highest-valued marketplace operator in Indonesia.
Despite all his success to date, Tokopedia’s founder remains humble. “I’m an entrepreneur by accident. An entrepreneur by necessity,” he explained to the audience at the Tokyo conference. His father had encouraged him to leave their home island in Indonesia to pursue an education. So William traveled four days and three nights to get to Jakarta, where he studied computer science at a local university. After his father fell ill, William needed to find a job to support himself, so he became an Internet café operator, working there for three years while pursuing his degree. Although the work was taxing, he describes it as a “blessing in disguise,” because the Internet in Indonesia was expensive at the time. He had free access and “fell in love with the Internet,” he told me.
He graduated from university in 2003 and dreamed of working at a big company like Google, but he worked in other industries because the US Internet giants did not have much of a presence in Indonesia. In 2007 he decided to seize the opportunity to start his own e-commerce company. Inspired by eBay in the United States, Rakuten in Japan, and Alibaba in China, he “realized that if I can build the first online marketplace in Indonesia, I can solve this trust issue, connecting strangers from seventeen thousand islands to meet online and facilitate transactions online.”15
He went to the CEO of his company at the time and pitched the idea of the marketplace, but the CEO was skeptical, asking, “William, can you tell me one person in Indonesia who has become wealthy and successful from doing an Internet business?”
“We didn’t have a role model in Indonesia,” William explained. “There was no Steve Jobs or Mark Zuckerberg of Indonesia. No Jack Ma of Indonesia. So, lacking of role models, the potential investors cannot see how they will get their money back.”
Potential investors were also concerned about competition from international players. “They told me that Indonesia is a large potential market, the fourth-most-populous country in the world, with [a] 250 million population. ‘If you prove to the world that you need a Tokopedia or a marketplace, then all of the global giants will enter the market. You are not reinventing the wheel. EBay, Alibaba, Rakuten may enter the market, and how would you compete with them?’ I didn’t know how to answer these questions at the time.
“People also asked about my background—which family do you come from?” In a country where family status and reputation are important for business, this proved to be a challenge. “I come from a very humble family,” William said. “Investors would ask, ‘Which university did you graduate from?’ If I [had] graduated from an Ivy League university, I would have [had] a better chance against the Internet giants. But, no, I graduated from an Internet café. And they will ask me if I ever studied business before, and I had to tell them no.”
But it was one investor’s comments that spurred him to action: “William, you are still young—don’t dream too high, don’t waste your youth. You are thinking all of this story about the American dream, the Silicon Valley dream. But Indonesia is not Silicon Valley. And all of these successful founders were born special and you were not.” The discouraging words made him doubly determined. “That became a moment that changed my life,” William said.
“For me, Tokopedia is an underdog story,” he said. “And as an underdog, you need good colleagues. We were lucky because we had colleagues to believe in ourselves when no one believed in us. We had colleagues who helped us realize that the past is something you cannot change.… But you can still save your own future. We realized we should not give up. If we can create this platform, Tokopedia, then we will help millions of people, the next generation, [and] they will be able to start their online businesses.
“Another quality an underdog needs to have is perseverance. A lot of people ask why I have so many investors from Japan. I don’t speak English well. Global investors could not understand my English. But I didn’t give up. Thankfully, Japanese investors understand the pain of trying to speak English and have more patience, so they took the time to listen to and understand my vision.
“I spent two days [at] my university trying to get people to join my company but could not attract people. I realized I needed to work harder and change my style. I am a very quiet, introverted, and shy person. But I realized that if I never speak in public to tell my story about my dream and my vision, then no one will understand it. [Even] today, it’s still a struggle for me to speak in a public space. But I understand that I need to do that. So through that perseverance, we grew our team. We started with the launch with two people. Today we already employ five hundred people from around the world. And now we receive twenty-four thousand applications from around the world and can only hire twenty people. I remember [that] the founding father of our nation, President Sukarno, once said that you need to dream as high as the sky, because if you fall, you fall amongst the stars. And for me it is a simple and beautiful saying.”
E-commerce in Indonesia seems to have finally hit a turning point. The Internet came to Indonesia in 1995 but was considered a luxury product, and it did not become affordable for a long time. Because Indonesia is spread out over thousands of islands, connecting Indonesians to the Internet meant bringing cable across seas before third- and fourth-generation smartphones became available. So, in its early years, the Internet was available only in the big cities and had low adoption.
William describes the early wave of e-commerce as classified ad platforms such as Tokobagus, “basically like Craigslist in the US.” Classifieds took off because logistics and payment for goods were an issue, not to mention lack of trust between buyers and sellers. Some wealthy Indonesian families tried to start Internet divisions of their conglomerates, using an Amazon model, but it was too early and the market proved too small. Aside from the electronics retailer Bhinneka, which persisted in its efforts for years, few companies were able to make a go of e-commerce.
But by 2016 William’s efforts had produced results. The company counted half a million small merchants who were using Tokopedia and shipping fifteen million products per month. “That’s fifteen million ‘trusts’ already created per month,” William said.
E-commerce is beginning to revolutionize Indonesia’s retail sector. The small plantation town where William grew up had no mall, and consumers would drive three hours to the island’s capital to shop. Small mom-and-pop stores back home provided daily necessities, but the city offered greater variety in categories such as electronics and at prices as much as 50 percent lower than in the smaller towns.
So what is the potential of e-commerce in Indonesia? William points to figures that say small and medium-sized enterprises contribute as much as 58 percent of Indonesia’s GDP. They are not online yet and e-commerce in Indonesia is still less than 1 percent of total retail. But Indonesia is a nation of entrepreneurs, and William expects e-commerce there to develop much as it did in China.16
He also sees similar characteristics in the behavior of buyers and sellers in Indonesia and China. Before Tokopedia went online, e-commerce platforms made too little provision for social interaction. “That’s why people were doing e-commerce on social media like Facebook and Instagram,” William explained.
Does that mean Facebook has an opportunity to participate in e-commerce in the region? And could Facebook challenge the leading marketplaces?
“Small businesses owners have very limited time,” he said. “So when they don’t have business, they are very happy to start selling on social media. But when they start to get ten orders per day, a hundred orders per day [the merchants] have to go back and forth with a lot of comments and answering questions. There is a lot of wasted time on social media. Our merchants used to sell on social media, but now they understand that commerce is not only about social, it’s about efficiency as well. It’s about building a business. Reputations on social media can be faked [more easily] when people [encourage] fake friends to ‘like’ their products or companies. The social networks are already a challenge to the classified platforms. But you need time to create a network effect by building out the details, like how to track a package through the logistics.”
Given the geographic challenges in Indonesia, logistics tend to be localized, so Tokopedia’s approach is to work with all the logistics providers. Buyers and sellers choose the providers who are strong in their local area. Tokopedia’s website is integrated with the providers’ so customers can look online to see where their purchase is in the system.
In William’s view e-commerce in Indonesia will benefit from strong tailwinds from the government, which has created a relatively favorable regulatory environment. “The president and ministry in Indonesia is progressive,” William explained. “The first time I visited the US was together with the Indonesian delegation. They have a vision of becoming a leading digital economy in Southeast Asia.”
In fact, the president is so progressive that he invited William’s rival, Jack Ma, to serve as an adviser to Indonesia on e-commerce. So how does William plan to fend off Alibaba and its Lazada offensive? “We were very inspired by Alibaba, and now it is so lucky for us that we can compete with the best in the world in our playground. This will push us to provide the best quality and services to our customer,” he said. “You start small, you have this benchmark and idol that inspires you, and today we are head to head with them. Alibaba is the crocodile in the Yangtze. We are the komodo in the seventeen-thousand-island archipelago. We are lucky … that ‘work until your idols become your rivals’ happened to us.”17
SOUTHEAST ASIAN E-COMMERCE TODAY
The numbers that have long hinted at the potential of the region are finally beginning to add up. Indonesia alone has more than 250 million inhabitants. The Philippines has 102 million; Vietnam, 95 million; Thailand, 68 million; and Malaysia, 30 million.18
With the rapid adoption of the mobile phone, Southeast Asia’s large population is increasingly online. As data speeds increase and prices come down, an increasing number of Southeast Asians have an e-commerce shopping infrastructure at their fingertips.
But Southeast Asia has more than a large total population. The region has a growing middle class with solid spending power. China was able to build a healthy online retail ecosystem with a per capita GDP of $8,028 by 2015. Singapore is the outlier, with a per capita GDP of $52,889. Malaysia is next at $9,768 per capita, followed by Thailand at $5,815 and Indonesia at $3,347.19 Yet the actual consumer purchasing power of the middle class across the region is higher than these numbers suggest because GDP per capita is weighed down by low rural incomes.
Another important factor for e-commerce is that Southeast Asia’s populations are young and optimistic. More than 67 percent of residents in Southeast Asia are under the age of 35, with the region leading the world in optimism globally in 2015, according to Nielsen.20 This optimism translates into greater consumer confidence to purchase the latest products.
All these factors create fertile ground for e-commerce. To gain a better understanding of the market on a macro level, I spoke with Sheji Ho, chief marketing officer at aCommerce, the largest e-commerce solution provider in Southeast Asia. The company works with brands, retailers, and marketplace providers to help companies set up online shops, market to consumers, and fulfill deliveries across the region. With nine fulfillment centers, 1,300 staffers, and $40 million in venture capital, aCommerce provides a sort of one-stop shop that helps offline sellers go online in Southeast Asia. Like the publicly traded Baozun in China, aCommerce has tied its fate to selling cyber picks and shovels to others participating in the gold rush.
An outspoken commentator in the region, Ho has both an in-the-trenches view from working with many of the major players as well as a bird’s-eye view of trends in all markets. He has worked in China, and he helped me to link several key trends. Let me share several observations based on our discussions.
COMPARISONS WITH CHINA
Given the geographic and cultural proximity of Southeast Asia and China, you might expect that Southeast Asia’s e-commerce would resemble China’s more than perhaps any other region’s. Sheji estimates that based on Internet penetration alone, e-commerce in Southeast Asia is eight years behind China. However, because e-commerce is coming of age later in Southeast Asia than it did in China, it will come of age faster. The result, Ho argued, is that e-commerce in Southeast Asia is really only about five years behind China. This is largely because of the structural similarities in the markets, including
• weak offline retail infrastructure, especially outside first-tier cities
• surging domestic consumption spurred by growth in GDP per capita
• major capital investments in Southeast Asian e-commerce businesses
• young and digitally savvy consumers
• high import duties and taxes that keep cross-border e-commerce to a minimum
• hypercompetitive e-commerce players that will drive media interest and growth in the sector
Ho is quick to point out some of the differences between Southeast Asia and China:
• Southeast Asia is more of a mobile-first/mobile-only market than China.
• China had a head start in logistics infrastructure because of the government’s predilection for a top-down, planned economy.
• The massive distribution power of Alibaba encouraged China’s rapid transition from COD to Alipay as the preferred payment method.
• Southeast Asia is more competitive because it is an open market, one much easier for foreign companies to enter than China’s.21
All these observations but one ring true to me. While I do think that e-commerce in Southeast Asia will benefit from maturing more quickly than it did in China, the fragmented nature of its markets also holds it back. And the lack of a solid logistics infrastructure means that it will take longer for e-commerce to take off in Southeast Asian than it did in China.
So I think it’s optimistic to say that Southeast Asia lags China by only five years. But whether it takes five, eight, or ten years, e-commerce will be a big market in Southeast Asia.
SOCIAL MEDIA
One of the first things I noticed in Southeast Asia was that entrepreneurs were using Instagram and Facebook to set up online shops. Ho explained that e-commerce users in China had basically jerry-rigged their own version of Taobao. “One third of Thailand e-commerce is estimated to originate on social platforms,” he explained. “This is unique to Southeast Asia and is happening throughout the region, with the only exceptions being Singapore and Malaysia.” The data back it up—ecommerceIQ surveyed online shoppers in Thailand and found that 48 percent had purchased something through Facebook, Instagram, or the chat app Line in the previous three months. In fact, the number of people shopping on Instagram, Line, and Facebook exceeded the number of people shopping on the largest e-commerce platform, Lazada.22
Ho walked me through the process of buying through social media. Small sellers post products, such as fashion and clothing items, on Instagram and Facebook pages and build a following. Shoppers browse the product images until they find something they like. They then connect with the seller by using their preferred messaging app, Japanese messenger app Line, to ask questions, discuss the items for sale and haggle on price. Once they agree to a sale and the terms, the seller provides bank account information so the buyer can wire payment. The buyer sends the seller a photo of the receipt to confirm it was wired. Once the buyer receives the product, the seller typically sends a note of thanks.23
Although this process seemed new, it was also familiar. The online users were using the features of different apps to achieve the same result achieved on Taobao. Taobao sellers were allowed to set up highly personal profiles and blogs, express their own personalities, write blog posts, and build followers. Buyers could judge the credibility of sellers based on their number of followers, connections, reviews, and communication style. Although Facebook and Instagram were not designed for e-commerce, they did roughly the same thing, allowing users to build their online reputations through their social networks. By seeing how many friends and followers a potential seller had on Facebook, buyers in Thailand could decide whether this person was trustworthy. Buyers could further evaluate the seller according to the quality of product images and selection of products.
Taobao had allowed buyers to send real-time messages to sellers to initiate live exchanges on their mobile phones, and buyers and sellers in Southeast Asia similarly wanted to connect in real time, to get to know each other better before doing business. This allowed buyers to ask questions and get answers, and also helped buyers and sellers build trust in the process.
So what explains this similarity? Why, in the absence of a Taobao in Southeast Asia, have users basically cobbled together their own? I would argue that the cultural similarities in how Chinese and their Southeast Asian counterparts do business in the offline world carry over to the online world. This suggests that e-commerce players have a huge opportunity to step in and fill the gaping hole in the Southeast Asian market. Alibaba or Tencent could open a more Taobao-like marketplace in the region to serve domestic markets. And Facebook, Instagram, and Line should be looking at moving into e-commerce in Southeast Asia. Whereas regulatory restrictions in China have prevented these foreign companies from putting down roots there, Southeast Asia represents as unique opportunity for them. It’s not surprising that Facebook has first offered a payments mechanism and its “Facebook shop” feature in Southeast Asia. Line has started its own Line stores and Line shop. But these companies will have to do more than take baby steps—they will have to go all in or face the prospect of losing out to more focused marketplaces as the market matures.
NO DOMINANT PLAYER
Southeast Asia’s cultural and geographic fragmentation is reflected in the market today. Lazada is the only company with strong market shares across the region, and even its penetration is only about 20 percent. The rest of the market is divided into tiny slivers. Even in relatively mature Singapore, twelve different platforms have fairly evenly divided 90 percent of the market.24
This tells us a few things about the Southeast Asian market. First, the market reflects the region’s fragmentation. Second, the market demonstrates that it is still in its early stages, with the ultimate winners yet to be determined. Finally, because investors are stuffing cash in the pockets of all players at the same time and at about the same rate, no one competitor can take the lion’s share of the market, as Alibaba did in Southeast Asia.
A MOBILE-FIRST MARKET
To understand just how much the mobile phone is reshaping e-commerce, consider Thailand, where the average user has 1.4 cell phones. As Sheji Ho pointed out, the mobile phone penetration rate in Thailand already exceeds that of developed countries like the United States and China, making Southeast Asia the only true “mobile-first” region. Key factors in the growth of mobile have been increasing data speeds and lower prices. Less than one year after third-generation phones entered the market, mobile penetration in Thailand passed that in the United States and in China. This is helping extend the Internet beyond the cities, as 85 percent of mobile commerce penetration in Thailand is outside the cities, and 79 percent in Indonesia is outside the cities.25
Another important factor is that Southeast Asians are using mobile phones as a gateway to shopping.
Southeast Asians initially used mobile phones to research and learn about products. Lazada reported that by April 2014, more than 50 percent of its traffic was already coming from mobile only as mobile users were increasingly beginning to move from research to purchases. Southeast Asians also prefer cell phones with larger screen sizes, which is giving brands an important opportunity to take their branding beyond a simple list of products.26
E-COMMERCE INVESTMENT IN SOUTHEAST ASIA
Just before the Alibaba IPO in 2014, global investors began to up the ante in Southeast Asia. A landmark investment was the $100 million that Softbank, the early Alibaba investor, put into Tokopedia. Not long afterward, traditional retail operator Mahatari Mall announced that it was investing $500 million in creating a digital marketplace (although it later declared that it still had to raise some of this money from investors). Indeed, after years of remaining relatively low, the amount of venture capital coming into Southeast Asian e-commerce reached $603 million in 2015, making it the industry sector that received the most venture capital in the region that year.27 The competition, media attention, and advertising e-commerce is receiving will undoubtedly drive the adoption of e-commerce in the region.
PAYMENT: A CHALLENGE
Southeast Asia lacks both physical retail infrastructure and payment options. Large sections of Southeast Asia’s population have no bank and/or lack credit cards. Only about 36 percent of Indonesia’s population older than eighteen has a bank account, and the same is true for 31 percent of both Filipinos and Vietnamese. This contrasts with China, where about 79 percent of the population older than eighteen has a bank account (a huge help in fueling the growth of Alipay, which relied on bank accounts for customers to fund their accounts). In addition, credit card penetration is low in Southeast Asia, from about 8 percent to 18 percent in the largest markets. One of the latter is Vietnam, where a mere 3.5 percent of the population has a credit card.28
While some would see the lack of credit cards and bank accounts as a major barrier, I see a major opportunity. COD has become the key method for paying for online purchases. But as I explained earlier, COD is likely to fall out of favor when online payment systems grow and establish a critical mass. So online payment systems in Southeast Asia are likely to morph into Internet-based financial institutions, which will disrupt the banks in the region, forcing them to either fully embrace e-commerce or struggle. But this will be more than just a disruptive force—it will be a creative one, too, providing a way for entrepreneurs and small businesses to receive credit.
LOGISTICS: ANOTHER CHALLENGE
As Sheji Ho contends, the growth of e-commerce in Southeast Asia is highly dependent on logistics and payments. Right now, only Singapore ranks highly on the World Bank Logistics Performance Index (LPI), between Germany and the United States. But serving a tiny city-state of one island and serving countries made up of thousands of islands is an entirely different matter. No wonder Indonesia and the Philippines rank below even India on the LPI.29 This helps explain why companies such as Lazada and aCommerce have built their own fleets to complete deliveries.
TRENDS AND PREDICTIONS
So how will e-commerce in Southeast Asia evolve?
Brand stores will have a better chance of growing
China almost skipped the development of online brand stores, such as Nike.com and Apple.com in the United States. Alibaba’s head start was simply too big: it had established itself as a de facto storefront for shoppers, which led brands to simply open stores on Tmall and, later, Jingdong Mall.
But the fragmented nature of the market in Southeast Asia means that no one player has become the dominant player, creating an opening for brands to build stand-alone online storefronts. Brands might integrate with Line to allow staff to chat with shoppers. They also could build up a following, establish trust on Facebook, and accept payments through Facebook’s payment system or LINE Pay. Building their own online stores would mean brands would have to run their online stores, including logistics and operations, but they would not have to pay commissions to a marketplace operator. The brands would have more control but also more responsibility.
The option for brands to build their own online stores also has important implications for search engines. In China search engines did not, and still do not, play a significant role in e-commerce. Government policy essentially forced Google out of the country. Taobao and Tmall blocked Baidu from crawling them. So customers started their shopping on Taobao and Tmall, rather than on search engines, which had been so important in the West. But Google could benefit in Southeast Asia from brand sites that buy keyword ads on Google’s search engine rather than on Tmall.
Alibaba will seek to create China-like ecoystems in the region
Alibaba’s acquisition of Lazada initially surprised me. Alibaba had long believed in local entrepreneurs’ serving local markets, instead of having McKinsey and Harvard Business School grads parachute in from Europe to run local markets. An Alibaba-Lazada alliance seemed like a cultural mismatch.
But Alibaba may have calculated that gaining a foothold across the region was worth suffering through a cultural mismatch while it nudged Lazada from an Amazon-like marketplace to an Alibaba-like marketplace. According to Sheji Ho, no other e-commerce player is in Alibaba’s position to build out the ecosystem, and it is already doing that through investments in several regional companies.
Alibaba will certainly not go unchallenged. And as e-commerce becomes more established, players in the region will expand into other related industries to try to create as many ways to interest customers as possible, particularly as online payment becomes important. The companies will grow, form more partnerships, and e-commerce players and cab-hailing apps, online entertainment, and specialized online retailers are likely to merge and acquire each other. The consolidation of the market will play out differently in each market and will depend on the strength of Alibaba-Lazada’s local competitors.
E-commerce growth will spill over to online finance and fintech, disrupting the banks
With so many customers in Southeast Asia who don’t use banks, one of the major opportunities will be e-commerce’s growth into financial technology. The reliance on COD and the paucity of bank accounts and credit cards mean that the fight to establish a leadership position in online payment will be fierce, because the leader in e-commerce payments will be in a great position to move into financial technology. Online banking and financial technology are likely to become incredibly important to e-commerce companies.
Cross-border trade into Southeast Asia will increase, spurring conflicts
Protectionist regulations and restrictions have largely kept cross-border e-commerce from taking root in Southeast Asia, with the exception of Singapore. But with more Southeast Asian shoppers going online, a large amount of cross-border activity into and out of the region is all but inevitable, as Southeast Asia’s growing middle class searches for branded products not available in the region as well as inexpensive imports from China. Southeast Asian countries will have to balance their interest in protecting local retailers and in accelerating e-commerce. Brands will be lining up to get into the Southeast Asian market. Alibaba has already begun to connect its Chinese sellers with Southeast Asian buyers as well as to try to convert Tmall Global sellers into Lazada Global sellers, opening the doors to 600 million additional customers.
However, cross-border trade within the Association of Southeast Asian Nations (ASEAN) will represent another set of challenges and opportunities. The online ecosystems of Thailand will compete with those of Indonesia and the Philippines. If countries are too protectionist, they may hamper the growth of their own ecosystem, putting themselves at a disadvantage relative to other countries in the region.
O2O and Omnichannel commerce will take root much earlier in Southeast Asia
Southeast Asian retailers have had the benefit of watching the China experience, so they know that e-commerce soon will challenge them. That means they are much more likely to embrace online to offline (O2O) early as a way to drive foot traffic to their bricks-and-mortar malls. This is already happening: the Siam Paragon shopping mall in Bangkok is Instagram users’ most popular place from which to post pictures. Savvy retailers will make O2O an important part of their operations, embracing e-commerce rather than viewing it as a threat.
Indonesia will become the major battlefield for e-commerce in the region
Indonesia will perhaps be the best laboratory for new ideas in e-commerce in the region. Its large population is attracting the lion’s share of investment in e-commerce, and its battle for e-commerce primacy is the most intense. The battle to watch: Softbank-backed Tokopedia versus Alibaba’s Lazada. A future merger of these two rivals would not be surprising because their business models are complementary.