RIDEHAILING and e-commerce have in the last two years galvanised South-east Asia’s Internet economy, which will reach US$50 billion in 2017 and potentially exceed US$200 billion by 2025, according to a new report by Google and Temasek.

The Google-Temasek e-Conomy SEA Spotlight 2017, released on Tuesday, found that all four sectors of the Internet economy experienced “solid growth” in 2017, with e-commerce and ridehailing booming the fastest at a compound annual growth rate (CAGR) of over 40 per cent from 2015.

The other sectors are online travel, which has a US$26.6-billion market size and an 18 per cent CAGR , and online media, which has a US$6.9-billion market size and a 36 per cent CAGR.

Rajan Anandan, vice-president and managing director for Google (South-east Asia and India), said: “These are very encouraging consumer trends. It suggests that growth is likely to continue in South-east Asia, which is becoming an interesting destination for global investors.”

E-commerce sales will hit US$10.9 billion in gross merchandise value (GMV) in 2017 – double the US$5.5 billion in 2015, and growing at a CAGR of 41 per cent. The acceleration in sales has been boosted by a surge in marketplaces (where small and medium enterprises sell to consumers on mobile-first platforms) and strong user engagement on such platforms.

Notably, South-east Asian mobile Internet users are among the most engaged globally – spending on average 140 minutes per month on South-east Asian e-commerce platforms, versus just 80 minutes on the top platform in the United States. The report did not name these platforms, but cited Lazada, Shopee and Tokopedia as leading players in South-east Asia.

Asked what is driving the growth in e-commerce, Alexis Lanternier, chief of Lazada Singapore, pointed to a demand for cheaper prices, wider choices and a hassle-free shopping experience. He told The Business Times: “It also stems from the rising popularity of online sales such as 11/11, Black Friday and 12/12.”

Ridehailing services will reach US$5.1 billion in GMV in 2017, more than double the US$2.5 billion in 2015. Over six million rides per day were booked on the region’s top ridehailing apps (Indonesian-based GO-Jek, Singapore-based Grab and San Francisco-based Uber) in the third quarter of 2017 alone, a more than four-fold increase since 2015.

The report said: “The acceleration of ridehailing services in South-east Asia reflects steep pent-up consumer demand, attractiveness for drivers as a viable job opportunity, and product innovation leading to improved user experience. Attractive fares have also fuelled growth, as ride prices are discounted up to 40-60 per cent.”

The report noted that ridehailing players are rapidly expanding to food delivery, courier services and digital payments. For instance, Grab has launched GrabFood (food delivery), GrabExpress (courier) and GrabPay (e-payments), while GO-Jek has GO-FOOD (food delivery), GO-SEND (courier) and GO-PAY (e-payments). Uber has rolled out UberEATS (food delivery) in Singapore and Bangkok.

“With the large and growing base of users and drivers on their platforms, ridehailing players are well positioned to become South-east Asia’s horizontal personal services leaders.”

South-east Asia’s Internet economy accounts for 2 per cent of the region’s gross domestic product in 2017 and is projected to reach 6 per cent by 2025, the report found.

South-east Asia’s Internet economy is growing at a CAGR of 27 per cent, outpacing the 20 per cent 10-year CAGR projected in Google and Temasek’s first joint report – titled Google-Temasek e-Conomy SEA – which was released in May last year.

This puts South-east Asia’s Internet economy “on a solid trajectory to exceed US$200 billion by 2025”, said Google and Temasek in their new report. Last year, both parties predicted that the region’s Internet economy will grow to US$200 billion by 2025.

There are seven Internet unicorns (companies valued at over US$1 billion in valuation) in South-east Asia, four of which have bases in Singapore: Grab, Lazada, gaming firm Razer and Internet firm Sea. The other three are based in Indonesia: GO-JEK, travel firm Traveloka and e-commerce firm Tokopedia.

Asked what role Singapore plays in South-east Asia’s Internet economy, Rohit Sipahimalani, Temasek’s joint head for portfolio strategy and risk group, and head for India, said that it is a hub for fundraising that offers a sound institutional framework. He told The Business Times: “People, including senior management talent, like to be based in Singapore.”

The shortage of homegrown tech talent remains the most pressing challenge for the growth of the South-east Asian Internet economy, going by the report. Other challenges include ease of funding, a developed e-payments ecosystem and logistics infrastructure, high-speed Internet access and a high level of consumer trust.

Source: http://www.businesstimes.com.sg/technology/se-asias-internet-economy-to-hit-us50b-in-2017