Google report: Southeast Asia’s digital economy to triple to $240 billion by 2025

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Google and Singapore sovereign fund Temasek today published the latest edition of their annual report on Southeast Asia’s digital economy.

 

For the third year in a row, Google and Temasek have revised up their growth projections for the future of region’s digital economy. This is partly because they’ve included new sectors in the four verticals they examine, including on-demand food delivery in the “ride-hailing” vertical, vacation rental bookings in “online travel,” and on-demand music and video streaming in “online media.” The in-depth data by country and by sector is available here, but here’s a quick summary:

 

• Southeast Asia’s online economy reached US$72 billion in value this year, and is projected to triple to US$240 billion by 2025 – 20 percent higher than the US$200 billion Google and Temasek had estimated in their first report two years ago.
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• The gross merchandise volume (GMV) of Southeast Asia’s online economy accounts for 2.8 percent of the region’s economy – more than twice as much as in 2015. GMV is projected to reach 8 percent of regional GDP by 2025. For comparison, GMV accounted for 6.5 percent of GDP in the US in 2016.
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• Broken down, GMV adds most to Vietnam, making up 4 percent of the country’s economy. In second place is Singapore, where GMV equals 3.2 percent of gross domestic product (GDP), followed by Indonesia, with GMV at 2.9 percent of GDP.

 

• The first half of 2018 saw US$9.1 billion in funding – including venture capital, private equity, and public market investment – pumped into Southeast Asia’s tech companies, compared to US$9.4 billion for the whole of 2017. This means that the region’s tech scene is well on track for a record-breaking year for investment. Southeast Asian tech enterprises have raised a total of about US$24 billion since 2015.
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• However, US$16 billion – or two-thirds – of that capital has gone to just nine companies: Bukalapak, Go-Jek, Grab, Lazada, Razer, Sea, Traveloka, Tokopedia, and VNG.

 

The chart below gives a breakdown of each vertical’s contribution to the region’s online economy, as well as their compound annual growth rate (CAGR) over the past three years, and projected CAGR from 2015 to 2025.

 

 

Looking at developments within the studied verticals, the report found that:

• Ecommerce has been “the most dynamic sector” of Southeast Asia’s online economy over the past three years, having grown over 4x since 2015.
• Three companies – Lazada, Shopee, and Tokopedia – account for much of that expansion, having grown 7x collectively over the same period thanks to “offering tens of millions of products, world-class mobile user experiences, frequent consumer promotions, and far-reaching logistics networks,” the report says.
• Indonesia’s ecommerce market leads Southeast Asia, accounting for US$1 in every US$2 spent online in the region and hitting US$12 billion in value.
• The online media vertical is now worth over US$11 billion, with US$7 billion of that coming from online advertising. Much of this has been driven by “digital marketing investments on platforms like app stores, news sites, search engines, social media, and video streaming,” while companies in ecommerce, entertainment, gaming, and ride-hailing “have started to generate advertising revenue streams from the user engagement on their properties.”
• Online travel is “the largest and most established” of the four verticals, reaching US$30 billion in gross bookings value (GBV) this year and heading towards US$78 billion GBV by 2025.
• An estimated 41 percent of all travel-related bookings in Southeast Asia this year have been made online. That’s up from 34 percent in 2015 – a rise attributed to improved user experience and heightened consumer trust in online platforms.
• Ride-hailing GMV – which now includes on-demand food delivery – is at almost US$8 billion, and is expected to more than triple by 2025. With 35 million active users and 8 million rides booked each day, the ride-hailing vertical has grown 4x since 2015.
• Only 20 percent of Southeast Asians regularly use ride-hailing services, indicating there is still “huge headroom for further growth” in the vertical.

Changing ecosystem

In their original 2016 report, Google and Temasek identified six key pain points that Southeast Asia would need to address to fulfill its online potential by 2025. These were:

• Improved internet infrastructure to provide reliable and affordable internet access for more users
• Increased consumer trust in online marketplaces and transactions
• Better access to talent for tech companies
• Improved logistics network
• Wider adoption of digital payments solutions
• Greater availability of venture capital

 

According to this year’s report, significant progress has been made in each of these areas, but challenges remain.

Internet infrastructure

The report states that as of June, there were over 350 million internet users across the region’s six largest economies – Indonesia, Malaysia, Singapore, Thailand, Vietnam, and the Philippines, known collectively as the “ASEAN 6.” This represents an increase of 90 million since 2015.

 

More than 90 percent of Southeast Asians internet users primarily access the net using their smartphones, underlining the importance of mobile to tech companies operating in the region.

 

Faster 4G mobile networks now serve over 50 percent of the population in ASEAN 6 countries – Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam. Access has also become more affordable, with the average cost of 1 gigabyte of data having halved in relation to average individual income (gross national income, or GNI) over the past four years.

 

 

Consumer trust

Active user numbers across all four analyzed verticals – ride-hailing, ecommerce, online media, and online travel – have shot up over the past four years, indicating increased consumer trust in online services.

 

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