UnicoMarketing: 10 trends that will shape Southeast Asian ecommerce in 2015

Moursalien is the head of corporate communications at aCommerce, a regional ecommerce service provider on a mission to break the logistics bottleneck of Southeast Asia.

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While solving ecommerce in Southeast Asia is not tantamount to transcending the space-time continuum, Cooper’s quote in the movie Interstellar gives us a moment’s pause when reflecting on the state of the region. “Our greatest accomplishments cannot be behind us, because our destiny lies above us.” Cheesy, but it holds water. Major strides were made in the past year, but the region is still only at the beginning of its online retail journey.

With US$249 million from Alibaba into SingPost, $100 million into Indonesia’s Tokopedia, and Lazada’s $250 million bid of confidence, Southeast Asia in the past year saw some of the largest injections of financial capital in the emerging markets.

“We are seeing more US$100 million deals in the last month in Southeast Asia than we have in all internet funding to date,” says Ardent Capital CEO Adrian Vanzyl.

But despite the influx, a few predictions failed to come to fruition. Mobile commerce, for example, did not explode as expected even after the promising results of the Line flash sales last January that saw items sell out online within minutes. A new sales channel was born for many Southeast Asians, but our business intelligence unit says that the rates of purchasing versus browsing through mobile were still largely skewed towards the latter. Singapore for aCommerce proved to be too saturated and not as lucrative as other markets, such as Indonesia and Thailand.

But the time for brushing off our knees and patting our backs is over. It’s time to look forward (or up). Here I present to you the top ecommerce predictions in Southeast Asia for 2015. The conclusions were gathered through a mix of primary sources (investor and executive interviews, as well as internal data) and secondary sources (articles and reports) from January 2014 to December 2014.

1. The year of M&As: consolidation will rise in the B2C ecommerce space

If 2014 saw unprecedented capital driven into the region, 2015 will be the year that startups begin to run out of their own steam or capacity to tap the mass organic growth potential in Southeast Asia. Why? Because business-to-consumer (B2C) retail, especially in archipelagos like Indonesia and Philippines, is capital intensive and margins are achieved through economies of scale. We expect these requirements to drive consolidation in the B2C space in 2015 and beyond. Secondly, with the continued influx of capital, B2C companies will be required to accelerate their growth by acquiring or merging with peers in the space. The B2C ecommerce space is still fragmented but early entrants such as Lazada are, thanks to deep pockets, pulling far ahead of the game and making competition for smaller players much harder.

Alliances will form. We witnessed the start of an ecommerce coalition in Thailand with companies such as Whatsnew, Wear You Want and MOXY among others teaming up to remain competitive. It’s only a matter of time before these partnerships consolidate. Another example: Lazada moved into fashion with their LZD white label brand. What stops them from joining forces with Zalora? Imagine the economies of scale and the savings by driving marketing to a single site and activating a single member base (disclosure: Lazada Thailand and Wear You Want is a client of aCommerce. The latter is a subsidiary of Ardent Capital).

“With so much cash floating in the market, bigger players will look to buy.” – Paul Srivorakul, Group CEO aCommerce and executive chairman at Ardent Capital

2. Digital agencies will adapt or go extinct

Digital marketing agencies have known for years that ecommerce is a booming market but will continue to struggle with developing ecommerce products and services for clients. Agencies lack the right incentive structures, culture, and talent to make this happen, as detailed in Sheji Ho’s 5 Reasons You Should Fire your Agency. Digital agencies will try to make up for this by moving down the value chain as WPP has been doing in China with acquisitions of Taobao Partner companies – agencies that manage and operate Taobao and Tmall stores for brands such as Nike and L’Oreal. aCommerce witnessed this first hand when Huawei selected its marketing division over more traditional agencies, or when Uber and Kiehl’s partnered with this ecommerce agency (disclosure: Kiehl’s is an end-to-end client of aCommerce). Note that acquiring standalone companies versus truly integrating them into your end-to-end value chain are two very different things.

“Without a change in their core DNA, agencies will continue to chase the ecommerce unicorn, and lose their business to ecommerce-focused agencies like ourselves.” – Sheji Ho, Group CMO of aCommerce

3. The marketplace space will get overcrowded

Inspired by Alibaba’s blockbuster US$25 billion IPO, companies across the entire value chain will be looking to build their own marketplaces. In addition to incumbents Lazada and Rakuten, we will see telcos, media companies, banks, as well as B2C retailers entering the game. According to Lazada CEO Max Bittner, 70 percent of Lazada’s goods are already coming from third-party sellers. These companies are looking for additional ways to generate value from their user base beyond the usual value-added services (VAS). Additional influx of capital, most notably Softbank’s recent US$100 million investment into Tokopedia, will result in hyper-competition in this already crowded space.

“As the marketplace model heats up, brands need to be able to take an omni-channel, customer-centric approach towards retail by making sure their products are available across all these platforms. Investing in the technology or partners to seamlessly distribute products will be a core differentiator for brand success in 2015.” – Srivorakul

4. Cross-border ecommerce will accelerate with AEC

Several big trends will help accelerate cross-border ecommerce in 2015.

The ASEAN Economic Community (AEC) will open borders and stimulate trade and commerce across Southeast Asia through better logistics capabilities.

Companies like Amazon and London-based ASOS already count Southeast Asian countries like Singapore, Thailand, and Indonesia as their fastest growing markets in Asia. For example, Amazon-owned Shopbop recently did a cross-border Black Friday/Cyber Monday campaign in partnership with Line and aCommerce. AEC will be a force-multiplier for this trend.

As China stabilizes, Chinese companies such as Alibaba and JD are increasingly looking at Southeast Asia for growth.

“Fresh from their IPOs with their deep pockets also comes pressure to grow faster. Expanding to other markets is one way to do this rather than duking it out in cutthroat China.” – Srivorakul

5. Demographic evolution: foreign entrepreneurs will flood the market

After China and India, Southeast Asia is probably the hottest market in Asia right now to work in for ecommerce and tech talent. From the early days of backpackers and English teachers to the recent wave of Rocket Internet expats, we’re starting to see a growing organic influx of talent attracted by the booming ecommerce market. Over the last year we’re receiving a lot more organic interest in working in Southeast Asia, whereas in the past we had to actively recruit foreigners. This trend will only continue in 2015 as Europe continues to struggle and full economic recovery in the US remains a few years out. This capital inflow will address capacity gaps in the local market while also raising the talent and output bar, like many Rocket Internet graduates have done in the past few years either in their own ventures or as a part of others.

6. The Uber-ization of logistics and everything else

Uber is like a marketplace. It is crowdsourcing – connecting buyers and sellers together. The only difference is that Uber is an app and 2015 will be the year that Uber and GrabTaxi will seriously move into doing deliveries.

Amazon is already testing deliveries via Uber. Uber also recently partnered with Kiehl’s and aCommerce to distribute Kiehl’s products to Uber riders in Bangkok. In the Philippines, Uber joined forces with LBC Express, Philippines’ largest cargo and logistics firm, to deliver Christmas presents on-demand. Competition in this space will heat up with GrabTaxi’s recent US$250 million round from Softbank as well as Uber’s $2.7 billion (yes – billion) war chest.

In addition, Uber will receive US$600 million from China’s Baidu to drive its Asia expansion. All this funding will inevitably increase competition in the core business of ridesharing and will accelerate innovation in other areas such as logistics and deliveries. With an under-developed logistics infrastructure across most of Southeast Asia, companies like Uber and GrabTaxi will be much better positioned to create value via deliveries in this region than in their more developed home markets like the US or Malaysia.

“They already have the infrastructure and technology so if there is not enough riding demand, they can fill up their time by doing deliveries, especially during off hours when less people are traveling, like during office hours. Right now Uber, GrabTaxi, and Easy Taxi are all vying for same customer. At some point they will need to grow the pie.” – Peter Kopitz, Group COO of aCommerce

7. Mobile commerce still crippled by poor UX

2014 proved the potential and scratched the surface of mobile as a shopping channel in Southeast Asia, driven largely by messaging app Line. Line dabbled in mobile commerce with initiatives such as a Line flash sale in partnership with aCommerce. The Japan-based company also recently launched its mobile consumer-to-consumer (C2C) marketplace called Line Shop. With the recent launch of Line Pay and other mobile payments entering the market, mobile conversion rates will rise. Yet we predict that mobile commerce is still a couple years away from overtaking desktop.

In February when we released our mobile commerce case study, we found that mobile’s prime use was browsing. 89 percent of Line users browsed on mobile but only 56 percent of all transactions in Thailand actually bought. 10 months later while reviewing our client data, the projection of mobile remains miniscule. For a major client of ours, mobile transactions run steady at 10 percent of total transactions in the last 30 days, despite having a fully-functioning mobile responsive site.

Earlier this year, journalist Jon Russell said in response to the mobile commerce craze: “It […] challenges the belief that mobile commerce is already ahead of ecommerce. That’s something that could well happen in the future, as smartphone uptake continues to grow, but it isn’t the reality right now.” The main reason for this is that the user experience on mobile is not optimized yet for shopping and as retailers find their footing in ecommerce this coming year they will not jump straight into app development.

aCommerce has seen firsthand that many of our brands are choosing ecommerce through desktop online storefronts and mobile responsive sites over developing an expensive app. But while desktop may still be dominant over mobile, companies are urged to take a long-term, strategic view and to start investing in mobile right now, whether it’s mobile responsive websites or mobile apps. There is much opportunity for growth here.

“Southeast Asia is a mobile-first market and in order to be competitive we need a mobile-only strategy.” – potential investor looking into Southeast Asia, December 2014.

8. B2B ecommerce will be the new black

Long overshadowed by the sexier B2C ecommerce, B2B will take off in 2015. Investors and companies will start sobering up and realize that B2C, while still very hot, is also characterized by hyper-competition and razor-thin margins, especially in emerging markets where most of the bestselling products are low-margin consumer electronics and mobile phones. B2B won’t help you impress the ladies but it will help pay the bills.

In China for example, everyone talks about Tmall and JD and the growing B2C space but hardly anyone talks about B2B, which still accounts for over 75 percent of total ecommerce gross merchandise value (GMV) in China, with small and medium enterprises (SMEs) B2B accounting for two-thirds of that share. And it’s not just emerging markets that are focused on B2B. Amazon boss Jeff Bezos is making a huge investment US$8 trillion investment into AmazonSupply, Amazon’s B2B arm targeting the unsexy but hugely lucrative wholesale and distribution market.

“Our B2C ecommerce clients are constantly asking us for B2B online shops. We see this as a huge opportunity.” – Srivorakul

9. COD will remain necessary to win SEA

Cash-on-delivery (COD) alleviates two of the biggest concerns of online shoppers in Southeast Asia, namely product and payment fraud. Most consumers are still afraid of providing their credit card or debit card information online, as well as not receiving their purchase. Many consumers also don’t have access to credit cards and cash remains their only payment option. This, in combination with the difficulties of handling bank and ATM transfers, over-the-counter, and Paypal, results in high cancellation and dropout rates, make COD the most viable choice. About 70 percent of online orders in most countries in Southeast Asia are COD. Cancellation rates for over the counter, bank, and ATM transfers are between 50 to 70 percent compared to five to eight percent for COD.

“In order to win Southeast Asia’s ecommerce sphere, companies need to invest in cash on delivery, no matter how difficult. Just as same day delivery was Jeff Bezos’ challenge at Amazon, we see COD as a new standard of service required for our market.” – Srivorakul