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Updated: Oct 16, 2019

In 2016, Google and Temasek launched a multi-year research program to delve into the internet economies of Southeast Asia. This year, with Bain & Company joining us as lead research partner, we continue tracking the growth of the internet economy in the region, expanding our vertical coverage to Digital Financial Services and diving deeper into e-Commerce, Media, Ride Hailing, and Travel.

Mobile internet transforming Southeast Asia

Just over a decade ago, almost four in five Southeast Asians had no internet connectivity and limited access to the internet. Today, Southeast Asians are the most engaged mobile internet users in the world. There are 360 million internet users in the region, and 90% of them connect to the internet primarily through their mobile phones.

These internet users communicate with their families, friends, and colleagues, and they entertain themselves, learn new skills, and become more productive. Increasingly, they buy products, trips, and food online. All this takes place millions of times every day across the region. A vision that was almost impossible to imagine is now daily routine

Southeast Asia’s internet economy hits $100 billion

Powered by these fundamental changes in consumer behavior, the internet economy continues to grow at an unprecedented pace. It has soared to $100 billion for the first time in 2019, more than tripling in size over the last four years. e-Commerce and Ride Hailing continue to beat the most optimistic of predictions. Online Media and Online Travel keep growing at a steady rate, with ample room to expand further. By 2025, the internet economy is expected to grow to $300 billion.

Fast and faster: dual-speed Southeast Asia

The internet economies in Malaysia, Thailand, Singapore, and the Philippines are growing by between 20% and 30% annually, with no signs of slowing down. This is a remarkable feat compared to other regions, but hardly the best showing in Southeast Asia. The two pacesetters in the region are Indonesia and Vietnam, which lead the pack with growth rates in excess of 40% a year.

Time is money: competing for user engagement

Companies are switching their focus from acquiring new customers to driving engagement. Their goal is to convince users to stay on their platforms for longer, in the belief that purchases will follow. Vying for user engagement, companies have expanded their scope across sectors, moving into new services, gamifying promotions and streaming enticing content. This has ignited more intense competition while providing users with more choices and lower prices.

Growth opportunities beyond metros

The growth of the internet economy has yet to spread evenly across Southeast Asia. Seven metropolitan areas that house just 15% of the region’s population still account for more than 50% of the internet economy. People living in these metro areas buy six times more online than those living elsewhere. The internet economy, however, has the potential to grow twice as fast in areas outside the big cities, bringing all Southeast Asians on board.

Digital financial services reach the inflection point

The adoption of digital payments has finally reached an inflection point and is expected to cross $1 trillion by 2025, accounting for almost 1 in every 2 dollars spent in the region. Other Digital Financial Services are still nascent but gaining traction. These technology-enabled business models are best positioned to give Southeast Asia’s underbanked population access to financial services. While new entrants and established players are competing and partnering to tackle this opportunity, supportive regulations will play a critical role.

Funding remains healthy despite global headwinds

More than $37 billion of capital has flowed into the internet economy over the last four years. While the majority has gone to e-Commerce and Ride Hailing Unicorns, investments in nearly 3,000 startups in the region remain sizable. A growing cadre of “Aspiring Unicorns” has emerged and is on the lookout for late-stage funding to scale further. Regional and global investors are geared up for this opportunity, ready to back companies for longer and with more resources.

Ecosystem challenges being resolved

Southeast Asia has made progress in overcoming the initial roadblocks in the internet economy. Internet access is now affordable for large segments of the population, and consumer trust in digital services has improved significantly. e-Commerce logistics, once a challenge, has turned into a business opportunity for both startups and established players. Digital Payments are rapidly spreading online and offline. But talent remains a pressing constraint despite all efforts by internet economy companies to “fill the gap”.

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