The last couple of years have seen an incredible transformation in the digital landscape in Southeast Asia.
Out of the 589 million people living in SEA, we now have 440 million internet users, a whopping 75%. What’s more, four out of every five internet users are digital customers – which means they make at least 1 purchase online. Consumers have adopted a new way of life, and we believe this change is irreversible.
In a survey conducted by Google, greater than 50% of the respondents in SEA mentioned that they would continue using digital services as it has now become part of their daily routine.
With the increase in users, the region has seen a corresponding increase in GMV as well. The ecommerce industry alone recorded a GMV of $120 billion in 2021, up 62% in just one year. By 2025, this number is expected to grow by an additional 18% to reach $234 billion.
To put this in context, India’s E-retail market stands at $38 billion GMV today, a third of SEA’s. The entire gamut of digital services, including food, grocery and travel purchases is set to grow by 3x to $1 trillion by 2030.
When we look at investments, e-commerce and digital financial services continue to attract the lion’s share of VC outflows in SEA. However, within e-commerce, we’re seeing a shift away from the traditional marketplace model.
Investors believe that the next wave of growth is going to come from ‘informal e-commerce’, or the land beyond traditional retail platforms.
Insta- gratification
As consumers continue to come online, we’re seeing a rapid change in the way businesses are engaging with them.
The online world has now become a competitive space, with multiple apps vying for our screen time. Traditionally, consumers intending to purchase online would open dedicated apps like Shopee or Lazada.
Social commerce goes a step further, by enabling purchases within social media platforms itself, without having to google and look up the product on dedicated marketplace platforms. In the last year alone, we’ve seen a 5x increase in funding in this space, with a number of early stage rounds closed.
A number of these start-ups are intended to enable digital first sellers to seamlessly sell on multiple social platforms.
For instance, Upmesh has gained traction as a one stop platform for sellers, with tools to list, sell, promote, manage inventory and track orders received through Facebook and Instagram.
Creator led Content for Commerce
Businesses are slowly moving from merchant generated sales content to influencer generated content. When making a purchase, consumers aren’t just buying into the product – they’re also looking for an experience that’s centered on discovery, connection and entertainment.
Take Zalora’s Z-live campaigns, for example. Within a week after launch, nearly 10% of Zalora’s customers were already spending time watching influencer-made content on the app.
Their highly engaging live-streams, featuring a careful curation of hosts, brands and content have set the standard for Southeast Asia’s live commerce industry.
While a merchant typically uses videos to go through their sales catalogue one by one, an influencer’s livestream is more like a TV-show.
TikTok’s entry into this space has also been well received. TikTok has partnered with Shopify, the leading platform for creating online stores, to allow merchants to tag products in organic TikTok posts.
With several GenZ cosmetic and jewelry brands such as Juno, Manly Brands, and Kylie Cosmetics already on the platform, sales have begun to take off. The user experience has been kept very simple – businesses can tag their products right below the post, which takes users to the merchant’s online storefront for checkout.
A viral hashtag, #TikTokMadeMeBuyIt has registered over 8.8 billion views since they started the pilot a few months ago.
An increase in social commerce has led to a corresponding increase in Direct-to-Consumer brands in SEA. From a viability standpoint, D2C brands have a prima facie advantage – low-cost promotions, coupled with savings by cutting out middlemen in the supply chain can increase gross margins substantially.
However, with competition increasing fiercely, customer acquisition costs have begun to increase, with brands competing with each other to capture consumer interest online. Some players are driving retention by driving traffic to captive online communities where people can review, discuss and engage with new brands.
Take Sociolla for example, a leading D2C Indonesian beauty and personal care site. Soco, their incredibly successful community platform, lets users create their own beauty circles where they can discuss their unique experiences with beauty products.
Yet, not all is well in the world of informal e-commerce.
As brands commit increasing sums of money on creating new ‘informal’ shopping experiences, they rely on loyalty and repeat purchases to make the business viable. Flashy influencer led campaigns help drive purchase, but also sets high expectations in the eyes of consumers.
With a world full of options today, consumers who get frustrated by friction and inconvenience in the shopping experience are likely to abandon their loyalty for the brand entirely. Consumers’ biggest pain points are with the post-purchase experience – expensive shipping costs, unclear return/exchange policies, and poor customer service.
Influencer campaigns lead to a surge in purchases, which stresses the supply chain and results in delays in fulfillment. What’s more, given it’s ubiquitous nature and ease of accessibility, social commerce is prone to fraud.
To succeed in this space, brands and social sellers need to build loyalty and create a friction-free shopping experience.