e-Conomy SEA Report 2019: Powering Southeast Asia’s $100 Billion Internet Economy

Today, Google, Temasek and new partner, Bain & Company released its e-Conomy Southeast Asia report for 2019, highlighting the most significant industry trends observed in 2019 and analysing the current and future potential of the Southeast Asian Internet economy across its six largest markets (Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam). 

The report shows that the region’s Internet economy has hit a new milestone, reaching $100 billion for the first time this year, a 39 percent increase from $72 billion last year. The Internet economies in Malaysia, the Philippines, Singapore, and Thailand are growing between 20 and 30 percent annually, but the two pacesetters in the region are Indonesia and Vietnam, with growth rates in excess of 40 percent a year.

This surge across SEA is attributed to the influx of new online users in the region — about 100 million more compared to four years ago. This growing market of customers has incentivized businesses in the region, from established ‘unicorns’ to small-medium enterprises, to adopt and leverage digital tools to expand rapidly.    

As the world’s most engaged Internet users, Southeast Asia is shaping technology trends in its own way. When it comes to services like Ride Hailing and Food Delivery, the region is rapidly growing and the momentum is only going to continue as a new generation comes of age and people outside big cities come online. By 2025, the regional Internet economy will have tripled to $300 billion.

Here are some key insights from this year’s report.

Internet businesses have hit new heights

Southeast Asia’s Internet sectors are booming, and this is indicative of the fundamental changes in the way people shop, eat and get around. e-Commerce is the biggest and fastest-growing sector. More than 150 million Southeast Asians are now buying what they need online, and the sector is valued at $35 billion today compared with just $5 billion in 2015—and on track to hit $150 billion by 2025. 

RideHailing is surging, with 40 million people ordering transport, food and other services on demand, as compared with just 8 million in 2015.  

Time is money: competing for user engagement

As the ecosystem matures, Internet economy companies are switching their focus from acquiring new customers to driving higher engagement with existing users. To do so, they are offering a variety of products and expanding into new services including gamified promotions, enticing streaming content, live news and more. Consumers are benefiting from these trends, as they have access to more choices and lower prices.

Opportunity is spreading beyond the big cities

Up until now, seven metropolitan areas have made up more than half of Southeast Asia’s Internet economy despite accounting for just 15% of the total population. Between now and 2025, the Internet economy is set to grow twice as fast outside Metros as inside them. This growth will support new jobs and opportunities, increase the need for investments to expand Internet access in less served areas, and drive inclusion of the entire Southeast Asian population into the Internet economy.

Digital Financial Services reach an inflection point with increasing access as a priority

Technology has made Financial Services more accessible to users in the region, and it is projected to expand further to reach out to 100 million Southeast Asians with limited access to financial services today. Digital Payments is set to grow from $600 billion in 2019 to more than $1 trillion by 2025, accounting for almost one in every two dollars spent in the region.

Funding remains healthy despite global headwinds

In 2019, global economic growth has slowed, with the outlook remaining cloudy. But even as global tech funding takes a hit, Southeast Asia has remained a bright spot. Funding flows into the region continued to grow at a healthy pace, from the high base of a record-breaking 2018. The first six months of 2019 saw Internet firms raise $7.6 billion,about 7% more than in the same period in 2018. A growing cadre of “aspiring unicorns” has emerged and they are on the lookout for late-stage funding to scale further.

Ecosystem challenges are being resolved

Experts shared that Southeast Asia has made progress in overcoming the initial challenges of the Internet economy by making Internet access more affordable and strengthening consumers’ trust in digital services. However, talent constraints remain a pressing concern, as companies look for skilled workers to take on the influx of new roles created in the digital economy

Stephanie Davis, Managing Director, Google SEA, said, “Southeast Asia has an incredibly exciting digital economy, as consumers are turning to digital to complete millions of tasks daily, resulting in unprecedented growth. However, there’s more to be done to realize digital’s incredible potential. Whether it’s providing support for small businesses to grow, teaching Southeast Asians digital skills, expanding Internet access to more people or advocating for smart policy and regulation, we’re looking forward to helping bring the benefits of technology to millions more people across this dynamic region.”

Rohit Sipahimalani, Joint Head, Investment Group, Temasek said, “Mobile technology is changing the way Southeast Asians work and live; providing them with greater access to new opportunities and markets. This trend is creating attractive investible opportunities in Southeast Asia’s Internet economy. These opportunities tap on structural trends that are being driven by transformational technologies and changing consumption patterns. Together with businesses, governments and communities, we are committed to helping  create a better, smarter, and more sustainable Southeast Asia.”

“Southeast Asia’s digital financial services are growing rapidly, with digital payments already at an inflection point and expected to exceed $1 trillion in gross transaction value by 2025,” said Florian Hoppe, Partner and Leader of Asia Pacific Digital Practice for Bain & Company. “Digital financial services offers the biggest opportunity for serving the underbanked, nearly 100 million adults in the region with limited access to financial services currently, by lowering costs and bridging gaps in data availability. This segment will be the main battleground for most players, with consumer technology platforms well-positioned to serve their needs given their large and engaged user base.

e-Conomy SEA Report 2019 Numbers at a Glance 

Stats for Southeast Asia 

• There are 360 million Internet users in the region and 90% of them connect to the Internet primarily through their mobile phones 
• The Southeast Asian Internet economy is set to hit $100B by the end of 2019 and is on track to hit $300B in 2025, $60B more than previously estimated. 
• $38B in e-Commerce, making it the largest sector in 2019 and jumping seven times from just $5.5B in 2015. The sector is on track to exceed $150 billion by 2025. e-Commerce has now become a regular shopping experience, with over 5 million orders submitted on an average day. 
• $12.7B in Ride-Hailing, with booming Food Delivery services, making it the region’s second-best performer and quadrupling from $3B in 2015. The sector’s 2025 potential exceeds $40B. 
• $14.2B in Online Media (Advertising, Gaming, Subscription Music and Video on Demand), with an estimated 100 million new Internet users who have come online between 2015 and 2019. 
• $34.4B in Online Travel, up from $19.4 billion in 2015. According to Google Trends, queries for selected budget hotel brands are soaring in 2019, growing more than nine times compared to 2015. 
• Digital Payments are expected to cross $1 trillion by 2025, becoming the form of payment for nearly one in two dollars spent in the region. Within Digital Payments, E-Wallets accounted for just over $22 billion in 2019, and are likely to grow more than fivefold to exceed $114 billion by 2025. 
• Digital Lending is on track to build a $110 billion loan book by 2025 and will be the largest volume contributor, spearheaded by innovations in consumer and SMB lending. 
• The first six months of 2019 saw Internet firms raise $7.6 billion, almost 7 percent more than in the same period in 2018. e-Commerce and Ride-Hailing continued to dominate the funding scene in Southeast Asia, attracting two out of every three dollars raised since 2016. 
• Deal are getting larger – the average deal size at the Seed stage has almost doubled from $500,000 from 2016 to $800,000 in 2019. Similarly, the average deal size at the Series A stage has doubled from $2 million in 2016 to $4 million in 2019. 

Malaysia-Specific insights 

• Malaysia had 26 million internet users in 2019 and the country’s Internet economy is expected to hit $11 billion in 2019, up from $6 billion in 2015. It is projected to more than double to reach $26 billion by 2025. 
• (GMV in Malaysia from 2015, 2019, and 2025) 
• The Malaysian internet economy has continued to grow steadily. E-commerce and Online Media, led by regional and global players, has kept growing over 30%, while Online Travel saw a 12% growth worth $5 billion thanks to budget airlines and hotels. 
• Investments in Malaysia has slowed down back to 2017 levels from the 2018 record, with only $140 million raised in H1 2019. More late-stage funding is needed in order to facilitate the rise of of Malaysian unicorns.