Facts, figures, and opportunities in the Southeast Asian digital economy

Southeast Asia (SEA) has long been recognized as a global growth hub for internet services. From 260 million users in 2015, 100 million more joined in just the span of four years. These aren’t just your casual users, either. Four out of 10 countries who spent the most time online came from the region, not going below a daily average of eight hours.

As this engagement on the Internet continues to grow, so do the economic opportunities that it brings along. In this year alone, SEA’s Internet economy hit US$100 billion. By 2025, it’s projected to be worth $300 billion.

But what sectors are taking up the biggest space, and what kind of plays are they doing? More importantly, what opportunities can businesses seize now in order to grow? Google, along with Temasek and Bain & Company, delve deeper into SEA’s digital economy.

E-commerce and ride-hailing

Google’s report divides the digital economy across five sectors: e-commerce, ride-hailing, financial services, online media, and online travel. Of these, e-commerce is the largest and fastest-growing sector. It’s already worth around $38 billion this year with 49 million active users, but is estimated to balloon to $153 billion with 150 million active users by 2025.

There are several drivers for this incredible growth, one of which is the massively-popular online shopping festival. During the last Singles Day, Lazada received three million orders from SEA, all within the first hour. In the Philippines, a single shopper bought P1.2 million worth of products during this festival.

Other drivers include “shoppertainment” (from livestream concerts to in-app games with points exchangeable for vouchers) and increasing offerings of next-day delivery.

Another sector that’s been growing immensely is the $12.7 billion ride-hailing industry with its eight million active users. Food delivery services will play a huge role in this growth. While transport currently comprises the majority of revenue at $7.5 billion, food delivery will take up half of the projected $40 billion revenue in six years.

Among other factors, financial services and loyalty programs will further boost consumption. One current example is Grab, which has an e-wallet and rewards programs on the app.

Online media, online travel, and financial services

If there’s anything that the growth of the online media and online travel industries tells us, it’s that this generation’s consumers truly champion the entertainment and experience economies.

Online media, which is currently worth $14 billion, will be driven to $32 billion in six years by advertising, gaming, and video- and music-on-demand. Advertising alone will comprise $20 billion—$9 billion will come from online gaming, and the remainder from subscription video and music.

Meanwhile, flights, hotels, and vacation rentals will drive online travel’s $34 billion in 2019 to 2025’s $78 billion value. The biggest chunk will come from flights at $40 billion, followed by hotels at $36 billion and vacation rentals at $2 billion.

On the flip side, there’s a lot of opportunity in the growing financial services industry. Out of 400 million adult Southeast Asians, only 104 million are fully banked, meaning enjoying access to bank accounts, credit, investment, and insurance. In the Philippines, 44 out of 67 million are unbanked.

Businesses now have the opportunity to tap into a largely untouched market through different, steadily-growing entryways, namely digital remittances, digital lending, digital investments, and digital insurance. For instance, penetration rate for remittances will increase from 13% to 28% by 2025. Penetration rate for investments will grow from 3% to 11% within the same time frame.

With a lot of fintech startup players in the region servicing the low-income market, such as Indonesia’s FinAccel and the Philippines’ PearlPay, it’s also a great way for businesses to create positive change in a big way.

Challenges and opportunities

Huge as the current market may be, there’s still a lot of unexplored territory. Half of the aforementioned 260 million internet users have not yet participated in the digital economy. And while projected growth in the region’s metros—Greater Bangkok, Kuala Lumpur-Klang Valley, Singapore, Hanoi, Ho Chi Minh City, Metro Manila, and Jabodetabek—is high, growth in the outer areas is expected to double those rates.

On the business end, platforms are also exploring the “super app” approach. For instance, in 2015, ride-hailing apps only offered transport services, but now some have expanded to include food delivery, e-commerce, and financial services, among others. This helps propel consumer engagement, since they appreciate being able to do several tasks without having to switch between apps. 

However, the ecosystem is not without its challenges. Out of the six key challenges identified by the study, only funding, consumer trust, and internet access have progressed significantly since last year. Logistics and consumer adoption of digital payments have improved, but it’s a very long way to go for talent.

Fortunately, many companies are conducting digital upskilling efforts to address the gap. There’s also the “reverse diaspora” of Southeast Asians who studied or worked abroad return home both to give back to their countries and seize increasing business opportunities. Part of this is the expanding startup landscape, which has amassed $7 billion in investments across Seed, Series A, and Series B stages.

Clearly, SEA’s digital economy will only grow stronger from this point. Demand for its various services is increasing; continuous research and innovation are unearthing new possibilities for businesses. There’s a lot of room for new players to increase competition. The only question left is, where will your startup fit in this exciting landscape?