For e-commerce players, one of the keys to success is to earn more profits than competitors and to expand faster than they do

The number of Southeast Asia’s digital consumers has grown 50 per cent in 2016 to a whopping 200 million, skyrocketing the valuation of the region’s internet economy to more than US$50 billion, according to research from Bain & Company. Central to fuelling this growth is the emerging e-commerce market in Indonesia – which has been dubbed as the next China.

Indonesia is one of the countries within the region that is witnessing hyper growth in its e-commerce industry. The e-commerce market is expected to be worth US$130 billion in 2020, with an annual growth of 50 per cent, according to Indonesia’s Information and Communications Technology Ministry. Just owning 0.01 per cent of that slice of the pie is enough to spur e-commerce newbies into action.

For e-commerce players, one of the keys to success is to earn more profits than competitors and to expand faster than they do. The recipe was laid out by China in the early-Alibaba days, where the main drivers of growth in the early Chinese e-commerce market were the rapid increase in mobile penetration rates, complimented by an exponential growth in smartphone users.

Also read: 3 lessons to learn from the shutdown of Indonesian e-commerce platform Cipika

Recipe for hyper-growth

Certainly, when speed is everything, business owners must scale rapidly, reaching out to as much of their target critical mass within the shortest period. Faced with a highly-fragmented and saturated market without the first-class infrastructure that the western hyper-growth e-commerce models were equipped with, there are certainly numerous obstacles that will slow companies down, particularly in their effort to monetise.

According to Bain & Company, 48 times the number of users are connected to their mobiles over traditional fixed broadbands in Indonesia. These numbers are propelled by changes in Indonesia’s infrastructure and smartphone markets; where smartphone users are growing between 30-50% every year. That growth rate is sustained by cheaper 4G smartphones and the development of Indonesia’s 4G network, as expressed by Lee Kang, the Vice Chairman of the Indonesian Cellular Phone Association (APSI).

Although Indonesia is flanked by a young populous and affluent economy, Indonesia’s growth in e-commerce appears to be taking a slower-than-expected pace. As much as the e-commerce giants such as Shopee and Tokopedia are establishing a strong foothold, others like Cipika, the e-commerce site owned by Indonesia’s second largest telco, Indosat Ooredo, have shut down completely. Reasons for the slower pace include a lack of proper industry training for local mobile marketers, and the fact that e-commerce businesses typically face a long road to profitability.

I’d like to map out two recommendations that can help Indonesia e-commerce fulfil its potential:

Monetising through data

The high-barriers to entry within an ad-revenue based business model comes with a relatively huge price tag for an uncertain expected return on investment. One of the biggest reasons why is because the market for content creation is highly-saturated with the market leaders of Facebook and Instagram dominating the social media landscape with deep pockets and their relentless push-marketing strategies. It is interesting to note that out of Facebook’s US$7.25 billion ad-revenue, 84 per cent of the pie stems from mobile advertising.

However, for the rest of us, we could look to e-commerce business models, best represented by the giant Tencent, which generates over 80 per cent of their revenue through Value-Added Services (mostly virtual goods) and e-commerce. Contrastingly, less than 10 per cent of their revenue comes from selling banner ads and search keywords.

Just like China, Indonesian markets have grown so fast that the transition from a conventional ad-driven business model to a commerce-driven business model was made rather instantly. Ad-space rentals are losing their lustre as many lean companies are looking for long-term growth through effective marketing campaigns to scale their business operations and levels of customer engagement, where splurging their funding on short-term stability solely through ad-revenues is certainly not a wise option.

Also read: We mapped out the e-commerce competition scene in Indonesia and found 5 interesting trends

According to GfK data, BBM had the highest reach of all Android smartphone apps in Indonesia, at 90 per centin January 2016. Many critics have opined about how Indonesia might be Blackberry’s last frontier, with Blackberry’s smartphone business taking a slump across the years. Some believe that Blackberry’s popularity stemmed from Indonesian consumers’ prioritisation of chat applications over any other applications, where others believe that it is due to the country’s inconsistent 3G and 4G signals.

When companies are bombarded with so many domestically-dependent environmental factors that are critical towards the profitability of their businesses, the situation might get a little uncomfortable. That is why many companies, especially startups looking for exponential growth, are choosing to invest in Big Data technologies to enhance their decision-making processes while providing insight and process optimization. Leveraging such technologies and support provides better vision and control towards dumping the projects that are losing money, and towards building upon projects that are helping realize their monetization goals.

A great example is Sale Stock, one of Indonesia’s mobile-first e-commerce players. It has relied on mobile attribution and marketing analytics to assist them in creating efficient performance marketing campaigns. Nearly two-third of all its mobile app installs resulted from these data-driven campaigns, and this allowed Sale Stock to successfully develop a competitive edge over their counterparts.

Invest in the workforce and talent

While many e-commerce giants have little issue with finding the right talent in the technology industry, Indonesia seems to be facing difficulties with it. With the sharp growth of mobile app usage, the demand for executives such as mobile marketers are at an all-time high.

However, the right mix of such talents that are needed to drive Indonesia’s e-commerce can be hard to find, which may be due in part to the less developed education infrastructure, in which the population suffers from a lack of relevant work experience. Without proper expertise in the workforce, it is taking a concerted effort by the successful e-commerce players in the market – like Mataharimall, Lazada (which is Singapore-based) and others to continue nurturing the ecosystem by training and retaining such talents in the workforce.

While Indonesia can depend on other countries to fill the current talent gap, in the long-term, it must invest in a more knowledge-based e-commerce industry, which will help the country leap developmental hurdles.

While Indonesia is often overlooked as a strong economic force, it presents many great opportunities as an emerging e-commerce powerhouse in Asia. With its high population and high mobile penetration rate, the only limit is its less developed internal infrastructure. There is so much more work companies and individuals can do to push the market to the next level. If and when they succeed, there will be large rewards to reap.

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