For the past three years, sovereign wealth fund Temasek Holdings has been partnering with Google to publish an annual report on Southeast Asia’s digital economy.
This year, in their latest report, Google and Temasek continued to revise their growth projections for the future of the region’s digital economy. Based on the report, Southeast Asia’s online economy reached US$72 billion in value this year. By 2025, it is projected to triple to US$240 billion. This is 20 percent higher than what Google and Temasek had estimated in their first report in 2016.
3 Reasons Why SEA Internet Economy Is Booming
So, what are the reasons why Southeast Asia’s internet economy is booming? According to the report, there are three key reasons:
- Southeast Asians Are Mobile-First Consumers
The cost of accessing internet through smartphones has been falling together with the increasing availability of affordable smartphones in Southeast Asia. This has led to the growing base of internet users in Southeast Asia.
Right now, there are more than 350 million internet users across Indonesia, Malaysia, Philippines, Singapore, Thailand, and Vietnam. In contrast, there are only 272 million internet users in US.
But it is not just the sheer number of internet users that is driving the internet economy in Southeast Asia. These consumers are also connected to the internet primarily through their smartphones, making Southeast Asia one of the most mobile-centric regions globally. They are also the most engaged internet users in the world, with more than double the screen time compared to developed countries like UK and Japan.
- Access To Investments
The internet economy of Southeast Asia has experienced a dramatic surge in fundraising over the last four years. According to the report, startups in the region have been attracting serious attention from venture capital, private equity, and corporate investors. In 2015, investments in the region crossed the $1 billion mark for the first time. Since then, investments have been growing at an exponential pace.
Internet economy companies received more than four times that amount in 2016 and 2018 is on track to be a record year for investment funding. The amount of investment funding raised in 1H18 is almost equivalent to the whole of 2017 and the report noted that Southeast Asia is progressing ahead of schedule towards the goal of attracting $40-$50 billion worth of investments that Google estimated would be required to build the internet economy by 2025.
- Key Ecosystem Challenges Being Solved
In the 2017 edition, Google noted that six challenges were the keys to unlocking the full potential of Southeast Asia’s internet economy: Internet infrastructure, consumer trust in internet services, talent pool, a developed logistics network, digital payment solution and the availability of venture capital investments to fund disruptive ideas.
Based on the current outlook, Southeast Asia is poised to overcome all six of those key challenges. The only minor roadblock is the low usage of digital payment due to the fragmented market. However, with many start-ups offering loyalty programs and rewards schemes to drive user growth, adoption of digital payments could soon become mainstream.
Investors Takeaway: Look Out For SEA Internet Economy
With the booming internet economy, Southeast Asian companies are on the verge of a new era of economic growth. Despite the recent pullback in the valuation of internet economy companies, the long-term outlook of internet companies is still highly optimistic.
Investors should be keeping an eye on companies that are building their businesses on the internet economy where there are abundant opportunities for growth.