In detail: Tech giants team up to thrive in Southeast Asia’s rapidly consolidating market

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(Hong Kong) – Southeast Asia is becoming a heated battleground for tech titans fighting for market share and new users.

As the major players transform into massive platforms connecting users to various services, the market is increasingly controlled by a few powerful players rushing to expand business ecosystems through mergers and acquisitions. The model looks a lot like a repeat of the Chinese tech sector, which is dominated by giants like Alibaba Group Holding Ltd. and Tencent Holdings Ltd. after years of fierce competition.

The proposed mega-merger of Jakarta-based ridesharing company Gojek and e-commerce newcomer Tokopedia PT in May to form the new GoTo company is the latest example of the consolidation of the tech industry in Southeast Asia. Both companies ranked in the top three in their industry. the to attach created Indonesia’s largest internet service platform, competing with Singapore-based Grab in an increasingly crowded market.

The region’s tech market is not short of promising industry leaders. Grab, the region’s largest carpool and food delivery unicorn, announced a map in April to sell shares in the United States to finance its rapid growth. The deal could value the company at $ 40 billion.

Another potential industry leader is SEA, a startup that started out with gaming and has seen explosive growth after a few years of dormancy. Today, SEA’s e-commerce business ranks first in Southeast Asia and maintains strong momentum to continue expanding.

The Internet services market in Southeast Asia has grown into an oligopoly in half the time than it took in China. The global trend of digitization and the Covid-19 pandemic have accelerated the growth and transformation of Southeast Asia’s internet economy.

GoTo, the new giant

Gojek and Tokopedia announced on May 17th their intention to merge into the new GoTo company. They called fusion the largest in the history of Indonesia and the history of the Asian Internet industry.

With the deal pending approval, GoTo did not disclose financial details. Bloomberg reported that the deal valued GoTo at $ 18 billion. After the merger, GoTo will seek listing in Indonesia and the United States with a market value of between $ 35 billion and $ 40 billion, according to Bloomberg.

Gojek started his business with motorcycle transport and then entered the food delivery industry. Tokopedia is Indonesia’s largest e-commerce platform. The two companies have very little overlap in their activities. The combined company operated in industries such as transportation, food delivery, e-commerce, entertainment and finance.

In 2020, Gojek and Tokopedia had a combined gross transaction value of over $ 22 billion, over 100 million monthly active users, over 2 million registered VTC drivers, and over 11 million business partners, contributing at 2% of Indonesia’s GDP. , according to GoTo.

According to a document submitted to Indonesian regulators, Gojek will own 58% of the new company and Tokopedia 42%. Japanese company SoftBank Group Corp. will become the largest indirect shareholder with 15.3% thanks to its stakes in Gojek and Tokopedia, followed by Alibaba with 12.6%.

Indonesia’s Trade Competition Monitoring Commission (KPPU) has said it will carefully review the merger.

“Although the activities of Gojek and Tokopedia do not overlap much, the Indonesian government does think of the entire Internet industry when performing antitrust reviews,” said Zhang Tiandan, director of operations for Asia. Southeast of the venture capital firm Gobi Partners. “The boundaries between the various Internet subsectors are blurred. ”

SEA, the rising star

“The merger of Gojek and Tokopedia is more of a defensive operation as the two companies must find ideal partners to survive in Southeast Asia’s rapidly changing and competitive internet market,” said Swarup Gupta, industrial director of The Economist Intelligence Unit.

Gojek has been competing with his big rival Grab for years. The two companies have become a “super app” offering a plethora of services. Grab hails from Malaysia and took over the Southeast Asian business of Uber, America’s leading rideshare company. He also eyed the Indonesian market.

Gojek has already sought to join forces with Grab. The negotiations dragged on but did not result in any agreement. The two companies have not disclosed the reasons for the breakdown in talks, but analysts said one of the reasons could be disputes over control of the combined company. There were also risks that Gojek and Grab would not be able to pass an antitrust review.

The companies face another strong competitor, Singapore’s gaming and e-commerce giant SEA.

“One of the main motivations behind the listing of Grab and the merger of GoTo is in fact the success of SEA,” said Julien Mialaret, operational partner of European venture capital fund Eurazeo.

SEA was founded by Chinese Li Xiaodong. The company was originally Tencent’s local gaming agent and received an investment from Tencent in 2013. In 2015, Li founded two subsidiaries, the Shopee e-commerce platform and the SeaMoney internet financial platform.

SEA ranks just behind Tokopedia in the Indonesian market. SEA sold shares in the United States in 2017, becoming the first Southeast Asian unicorn to land in the capital market.

In 2020, the company’s total revenue more than doubled compared to 2019, fueled by growing demand amid pandemic containment. Shopee’s revenue grew 160% and its gross merchandise volume jumped 101% from 2019. Momentum continued in the first quarter of 2021. SEA’s total revenue increased by 147% year-over-year and e-commerce revenue is up 250% from 2020.

Next frontier

The market expects consolidation in Southeast Asia to continue. Following the merger of Gojek and Tokopedia, the three giants have extended their dominance in the region’s internet market and will continue to compete with each other.

Businesses have also turned their attention to online finance, which could become their core business. Grab, GoTo, and SEA all have financial platforms, covering multiple areas such as credit, insurance, and investing. Payment platforms are at the heart of the three companies.

Gupta said that while these payment platforms are not yet profitable, the three companies will all bet on this in the short term as payment platforms will create huge databases to help internet giants predict qualifications. user credit.

Southeast Asia is the fastest growing region in the world for mobile wallets, according to London-based fintech company Boku Inc. The number of used mobile wallets will increase by 311% from 2020 to nearly 440 million by 2025 in Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam, reflecting an e-commerce boom.

Gojek operates a payment platform, GoPay, while Tokopedia indirectly holds an Indonesian e-wallet service provider license through an investment in the third-party payment platform OVO. Indonesian banking regulations limit each company to a single e-wallet license, so GoTo cannot control GoPay and OVO at the same time. Tokopedia is looking for a third party ready to take over. Grab, another major shareholder in OVO, could take over Tokopedia shares, analysts said.

Grab’s financial business transaction volume significantly exceeded that of its car delivery and food delivery businesses. According to IPO documents released by Grab, the value of transaction payments from the company’s financial activities reached $ 8.9 billion in 2020, more than double on average in each of the past three years. Grab’s transaction payment volume is expected to reach $ 19.1 billion in 2023.

SeaMoney, SEA’s internet financial platform, had a mobile payment volume of over $ 7.8 billion in 2020, with over 23.2 million users in the fourth quarter of 2020.

The business model of Southeast Asian internet financial platforms mimics that of Ant Group Co. Ltd., which owns China’s largest digital payment platform, Alipay. However, the recent Chinese government crackdown on Ant Group has raised concern in the Indonesian government. The government can introduce policies to protect the banking sector and the real economy and prevent the internet financial platform from getting too big.

Capturing market share in various regions is also important for Internet giants in Southeast Asia. A GoTo spokesperson told Caixin the group will continue to be deeply involved in Indonesia’s huge digital economy and expand into other regions.

SEA’s subsidiary, Shopee, not only entered six countries in Southeast Asia, but also expanded its activities to other emerging markets such as Mexico and Brazil.

Grab, which is more focused on the Southeast Asian market, maintains a relatively high market share in various core businesses. Grab represents 72% of the gross volume of transported goods, 50% of the gross volume of food delivery goods and 23% of the volume of e-wallet payment transactions.

Zhang said Indonesia still has huge market potential, but the markets in top-tier cities are already saturated. The success or failure of businesses depends on what can win over second- and third-tier cities where mobile internet infrastructure is underdeveloped. The expansion of GoTo to other countries is much less successful than that of Grab and SEA.

“In Southeast Asia, localization is the key to expanding into different markets,” Zhang said. “If the team and strategy are not localized, a business may not be successful, even with strong financial backing. “

Contact the editors Han Wei ([email protected]) and Bob Simison([email protected])

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