Consumers sheltered at home to avoid Covid-19 in the past year have helped propelled the Internet economy to new heights.
Fresh research has shown that not only has the pandemic accelerated e-commerce spending, it has made buying and selling online a lasting behaviour for consumers.
The latest e-Conomy Southeast Asia (SEA) report out today shows that e-commerce in the region is projected to reach US$360 billion by 2025, an upward revision from last year’s US$300 billion forecast.
By the end of this year, sales of e-commerce including gadgets, beauty products, groceries and electronics could exceed US$120 billion, with the potential to reach US$234 billion by 2025, according to the report put together by Google, Temasek and Bain and Company.
This will be a strong lead-up to Southeast Asia becoming a US$1 trillion digital economy by 2030.
It will also enter a “digital decade” where online services will flourish as millions more consumers get onto the Internet, relying on it for more services from buying groceries to playing games, according to the report’s authors.
In its sixth edition this year, the report sheds light on the Internet economy in the region, covering Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam.
It dives into trends across five leading sectors ‒ e-commerce, online media, transport & food, online travel and digital financial services
Fuelling the strong growth is the region’s growing Internet population. There are now 440 million Internet users, 60 million of whom were added since the start of the pandemic.
That consumers sheltered at home during the lockdown, relied on the Internet to buy essentials such as food and groceries, undoubtedly helped in the explosion of online services.
The food delivery sector is a bright spot, growing 33 per cent year-on-year to reach US$12 billion. It has now become the most penetrated digital service, with 71 per cent of all internet users ordering meals online at least once.
Internet usage has also deepened, with users making purchases in four more digital services than they did before the pandemic, said Stephanie Davis, vice-president for Google Southeast Asia.
Usage frequency and spend have mostly increased, especially in basic essentials like groceries and food delivery showing striking surges. Spend on online grocery for example went up by 60 per cent.
Not only are consumers making Internet purchases a way of life, merchants too have adopted digital technologies which allowed them to grow.
The digital merchants relied on digital platforms like Lazada and Shopee to sell goods and services, used online financial services to facilitate transactions and digitalised their backend operations, said the report, which covered 3,000 Asian small and medium businesses in six countries to provide for the first time a perspective from digital merchants.
Going online was beneficial with one in three digital merchants believing that they could not have survived Covid-19 if not for digital platforms.
They also benefitted from the digital e-commerce platforms’ simplicity of navigation, ease of transaction, large customer base and their trusted brand, all of which attracted potential customers.
However, challenges remained, especially profitability. One in three cited that digital platforms could be too expensive to adopt.
The good news is that digital payments have facilitated business with nine in 10 digital merchants now accepting this payment mode.
These merchants also have a growing appetite for supply chain financing, hence there is immense room for growth in digital lending especially in the buy-now-pay-later option.
In Singapore, the Internet economy is expected to grow by 35 per cent from US$11 billion in 2020 to US$15 billion, and with the potential to reach $27 billion in 2025. E-commerce, which grew 106 per cent year-on-year, is leading this charge.
Overall, Singapore has the highest proportion of digital consumers. Its digital merchants are also more inclined to deepen usage of digital services.
In the region, the Internet economies of the six markets are growing at double digits. Indonesia’s Internet economy – the biggest in the region – is projected to grow by 49 per cent from 2020 to hit US$70 billion this year with the potential to reach US$146 billion by 2025.
In the Philippines, its Internet economy is the fastest growing in Southeast Asia. It will reach US$17 billion this year, up 93 per cent from 2020. In 2025, its Internet economy can potentially expand to reach US$40 billion.
Looking ahead, Florian Hoppe, partner and head of digital practice at Bain and Company, points out e-commerce as the growth driver.
However, there is muted growth in online travel, adding that as borders gradually open, a travel resurgence could occur by 2024 at the latest.
Online groceries is a sector to watch, he said. Historically, the sector is unpenetrated, with only about one to two per cent of market share. As logistics and supply chain improves, consumer preference to buy fresh online may go up, he added.