Throughout 2020, the pandemic has had a devastating impact on humanity across the globe, but one positive outcome has been its impact on digitisation. The nascent startup ecosystem in Indonesia has not only survived 2020, but many businesses have actually thrived amidst this pandemic, as consumption via digital channels became more pervasive, serving everyday needs.
As a result, the pandemic has actually led to an acceleration of digital consumption as many new users have tried new digital services for the first time. With almost 200 million internet users in Indonesia, the recent e-Conomy Report 2020 by Google, Temasek, and Bain & Co, suggests that of a third of the digital services that consumers tried during the pandemic, more than 94% said they will continue to use those services into the future. That switch has pulled forward typical adoption curves, which is growing the addressable market size at a much faster rate. Many of these services are supplied by SMEs in Indonesia, who have historically been the backbone of GDP growth, so it’s been a huge opportunity for the ones who have digitized their businesses, capitalizing on this growth.
Indonesia is a key pillar in the SE Asia startup ecosystem because of its sheer size and economic power. It is home to a very large, young and heavily digitised population of over 260 million people, where 58% of the GDP is driven by household consumption. According to the Bain Temasek report, the Indonesian internet economy is currently valued at roughly US$44Bn, which is equivalent to roughly 4.5% of Indonesia’s total GDP.
Today, the Indonesian internet economy is larger than the next three markets in the region (Thailand, Vietnam and Philippines) combined and will continue to be so over the next five years.
While the pandemic will have a longer-term negative impact on most economies, it has certainly highlighted the importance of digital adoption, for both businesses and consumers, which only increases the opportunity which is available to startups and their ability to drive the economy of the future forward.
During the lockdowns, consumers in Indonesia decided to try online platforms for their daily needs including grocery, food delivery, entertainment, or even education. Of the US$44Bn internet economy in Indonesia, approximately 72%, or US$32Bn, is via ecommerce, which is already the largest in the region, contributing almost 50% of the total SE Asia ecommerce market. In Indonesia, this will only continue to grow as more consumption moves online, driven partially by growth from consumers in non-metro areas and more SMEs choosing to digitise their businesses, such as selling their goods online. In fact, according to the e-Conomy Report, there has been a 5x surge in online selling-related queries among suppliers in Indonesia in just this past one year.
Typically, as people come online for the first time, there is a lagging curve of trust and confidence curve, where the more they do the more confidence they build and their purchasing decisions become more sophisticated over time. It is an acceleration of this process which we are witnessing in Indonesia now, which has been supported by the growing acceptance of online payments, as well as an increase in digital services, like entertainment, edtech and healthtech.
While schools were shut down and hospitals busy with positive COVID-19 cases, the education and health sectors went through massive transformation as Ed-tech and Health-tech saw one of the highest growth, which has been estimated at 3x and 4x user adoption rates respectively in SE Asia. Indonesia has one of the lowest ratios of doctors and hospital beds per ‘000 population, so these sectors were already in urgent need of digital transformation. Increasingly more startups are being funded to help address this digital transformation and now there is a clearer path to customer adoption and monetisation of those platforms.
On the same note, given the increasing market size there is a greater ability for startups to reach a substantial level of scale and drive towards profitable growth, which ensures the sustainability of the ecosystem. Indonesia rose to prominence in the tech world by being the home to some of Asia’s most well known startups, like GoJek, Tokopedia, Traveloka, Bukalapak and Kredivo. As we look toward recovery from the pandemic, the focus has now shifted from a ‘growth at all costs’ mindset to instead focusing on a positive unit of economics, profitability, and sustainability. Often it takes a catalyst event to force teams to rethink their businesses, question strategies and find ways to be more efficient or adapt in ways that they wouldn’t have done during the normal course. I believe that is the case among the Indonesian startups as well.
At Jungle we continue to be principled on our ‘Build to Last’ investment philosophy and backing startups that are focused on building value over the long term. We constantly look for determined leaders who have the tenacity to build category leading businesses. We value founders with the ability and willingness to learn fast and adapt faster, to absorb information and act decisively. We think founders with these attributes have outperformed in the pandemic and will continue to drive innovation over the long term.