Macquarie’s annual conference in Jakarta on telecoms, technology, and ecommerce is one you shouldn’t miss. Last week, it brought together top decision makers in Indonesia’s digital economy.
Macquarie Group’s corporate advisory branch Macquarie Capital gained relevance in Asia’s tech industry through advising startups and tech companies on capital raising, IPOs, as well as mergers and acquisitions. It’s, for example, responsible for advising aCommerce and PropertyGuru on their recent fundraises.
Speakers at the event included Indonesia’s tech minister Rudiantara; executives of the three major telcos Telkom, Indosat, and XL; CEOs of retail giants; venture capitalists; and founders and CFOs of Indonesia’ most talked-about startups.
Here are two days of back-to-back panels, distilled into digestible insights.
1. A new ‘light touch’ approach to internet regulations
Indonesia produced its share of confusing headlines about internet policies. Suddenly it wants to regulate everything: ecommerce, transportation, foreign investments.
The new mantra is a “light touch approach” – allow change to happen and regulate where necessary.
While opaque announcements caused concern, it’s obvious the current administration sees the digital economy as a key factor defining Indonesia’s future. It’s willing to go great lengths to support its growth.
If you listen to tech minister Rudiantara or trade minister Thomas Lembong speak on the subject, you’ll hear their new mantra is a “light touch approach” – allow change to happen and regulate where necessary.
It may still take some time for the administration to adopt the new mantra, but Rudiantara demonstrated he walks the talk when he refused transportation minister Jonan’s request to block access to app-based transportation services Grab and Uber. The Macquarie event coincided with a day of massive street protests organized by the taxi industry.
Indonesia’s information and communications technology minister Rudiantara at a Tech in Asia event.
2. Retail’s inevitable shift to ecommerce is on the way
Similar to the changes in the transportation industry, a shift to ecommerce from offline retail is inevitable, Lippo Group director John Riady said. Consumers would eventually demand the higher convenience and product variety made possible by ecommerce.
Lippo Group was an early mover last year when it launched its ecommerce endeavor Matahari Mall. This year, most of the big traditional retailers in the archipelago are getting on board with ecommerce plans of their own. Luxury brand retailer Mitra Adiperkasa is one of them, launching Map Emall in February.
Lippo and Mitra Adiperkasa have taken different paths to achieving this shift to digital. Lippo’s strategy was to assemble a team of ecommerce professionals to start Matahari Mall from scratch as a separate corporation. Mitra Adiperkasa prefers to keep things close to home and manages its ecommerce site from within.
Both John Riady and Ravi Kumar, COO at Mitra Adiperkasa, agreed that logistics and payments are still challenges to overcome. Indonesian shoppers lack trust in online payments.
Facebook’s Head of ASEAN Kenneth Bishop offered advice on how to encourage customers to build trust: ecommerce applications should consider adding social features that let buyers ask questions before making a purchase.
Mitra Adiperkasa’s VP Sharma launches Map Emall.
3. A mobile world means engaging with customers around the clock
The challenges of creating online services for a mobile-first market cropped up often in the discussions. Large parts of Indonesia’s young generation are coming online for the first time with smartphones, and don’t have access to desktop computers.
Anthony Fung, the CEO of Zalora, and Fajrin Rasyid, CFO at Bukalapak, both observed that visits and transactions from mobile devices had overtaken those from desktop computers.
Along with the shift to mobile comes a shift to new shopping behaviours. Whereas most online shopping used to occur during work hours, that pattern is starting to fade. Potential customers can now be engaged throughout the day, and even late in the evening.
This requires brands to build even stronger emotional bonds with their customers. Zalora for example does this by focusing not only on selling products, but having a sense of fashion of its own. “If we want to be a fashion player, we need to be fashionable, know the trends, or even create them” said Anthony.
4. More Youtube stars and on-demand video portals
A more robust mobile infrastructure and Indonesia’s shift to 4G means streaming video on mobile devices is easier than ever.
Mobile phones are part of everyone’s lives.
This will likely lead to a digital video explosion this year. On one side that’s going to be user-generated content created by Indonesian millennials on platforms like YouTube, where social media stars like comedian Raditya Dika are already raking in millions of views on popular videos.
There will be an explosion of digital video content this year.
On the other are video streaming portals like iFlix, that offer quality international and regional video content for a subscription fee. iFlix will come to Indonesia in a tie-up with one of the local telcos, iFlix special advisor David Goldstein said at the Macquarie event.
It must have learned from US-based competitor Netflix’ mistakes. Netflix got blocked by Indonesia’s state telco Telkom and its mobile operator subsidiary Telkomsel after it launched here last month.
Video streaming is a sensitive issue in Indonesia for two reasons – first, content provided by on-demand portals will have to undergo the scrutiny of the local censorship body, and second, it eats up a lot of bandwidth, which is a challenge for the telcos.
Regional players who understand Indonesia’s cultural sensitivities and partner with telcos could have the upper hand in the archipelago – that’s clearly the path Malaysia’s iFlix intends to take.
5. Southeast Asia grows closer through startup mergers and acquisitions
Tech startups growing into regional enterprises in Southeast Asia is an ongoing trend.
Adrian Vanzyl, co-founder and CEO of Thailand-based Ardent Capital just went through a major merger with one of Ardent’s portfolio companies, Moxy. The women-focused ecommerce portal merged with Indonesia’s Bilna, forming Orami.
“Mergers and acquisitions are a really good way to expand into markets with speed and efficiency,” Adrian said.
After an initial phase of bringing together the teams and creating a new company culture, an effective merger or acquisition can be cost saving compared with trying to conquer a new market alone. “You’re in a new league of traction numbers and you can talk to a new league of investors,” Adrian explained, which is why he’s confident that we’ll see more merger and acquisitions in Southeast Asia’s tech sector this year.
Moxy and Bilna rebrand as Orami after a completing one of the biggest ecommerce mergers Southeast Asia has seen so far.
6. Profitability can wait
The potential in Indonesia’s digital economy is so good that startups should focus on growth and brand building, not immediate profitability.
Startups should focus on growth and brand building, not immediate profitability.
Most of the players in Indonesia’s startup ecosystem, whether big ecommerce companies like Matahari Mall or on-demand services like Go-Jek, are not profitable yet.
But that’s not the issue, John Riady said. “Focus on long-term value, not immediate profitability, make sure you can withstand trends and fluctuations,” he suggested.
What’s necessary is a clear path toward profitability. Bukalapak’s Fajrin Rasyid said ideally, a startup should be able to switch between a profitability mode and growth mode at will. However, the panel agreed, there are also market forces at play which may force a startup to spend more to stay in the race.
7. Waiting for a breakthrough in online payments
What’s needed to catapult Indonesia’s digital economy to the next level is an online payments system that is widely accepted, works smoothly on mobile devices, and makes it easy and safe for customers to pay for things online.
So far, there’s no such solution. Online payments are fragmented and complicated, which leads to many customers abandoning transactions.
“Ecommerce payment methods have changed little in the past year,” said Chris Eyles from Fusion Payments who moderated the fintech panel at the Macquarie Event. “Over 50 percent of ecommerce transactions are still paid for via asynchronous offline payments such as cash on delivery and bank transfers which is limiting ecommerce growth and costing online retailers a lot of lost orders,” he added.
Payments are best done offline in Indonesia.
One problem is that banks are still on the fence about their strategy in dealing with online transactions, which is holding back the entire ecosystem.
Indonesian banks, for now, seem to prefer mobile wallet systems, but it has led to a situation where each bank offers its own ewallet version.
Telcos also each have their own ewallets, but are planning closer collaboration in the future, which could possibly lead to the merger of the wallets of the three major telcos – a silver lining in Indonesia’s siloed payments landscape.
Chris also observed that Indonesia’s fintech ecosystem lacks funding. “Why has Indonesia yet to see any major investments in the fintech space despite hundreds of millions being invested in the local ecommerce industry?” he asked.
It could be due to unclear regulations, the dominance of banks, economic uncertainty, or a lack of suitable companies to invest in – most likely a mixture of all four factors.
What became obvious is that Indonesia needs a breakthrough in online payments for its digital economy to make a leap. If there’s no local solution, it could fall into the hands of a global player to fill that gap.
8. Investors continue to find value in Indonesia’s tech sector but are getting pickier
Anupam Garg, who leads Macquarie Capital’s telcos, media, and technology investments advisory in Asia, observed that the investing community still shows a great deal of optimism on the Indonesian technology space, despite there now being a higher focus on unit economics when assessing the value of individual businesses.
“We expect tech fundraising to continue to thrive in Indonesia with some potential pickup in M&A activities,” he said.
The general outlook was optimistic on a panel with VCs from some of the most active funds in Southeast Asia. The advice was to pick investments wisely, and to avoid certain verticals..
Steven Venada form CyberAgent Ventures said that there already are three big winners in the ecommerce space: classified, retailers, marketplace. He doesn’t see many more opportunities for startups in this space, “unless you can outgrow them by 10x,” he warned.
Better chances, according to him, are now in different verticals and niche markets.
Stefan Jung from Venturra Capital explained his own caution about investing in fintech. “Should I wait until the regulation in this space becomes more clear?” he asked. “But then maybe I’m too late. Fintech is one of the most outstanding opportunities on a global level.”