Rocket Internet First Mover In Indonesia

This article is more than 8 years old.

* Share to Facebook
* Share to Twitter
* Share to Linkedin

I have been skeptical about Rocket Internet’s claims for first-mover status in the online markets of emerging economies or the ease with which Rocket sites will conquer them. Shortly after Rocket’s IPO earlier this month, I looked at the competitive situation facing Jabong, Rocket’s apparel retailing site in India. I started with India because Jabong has direct rivals there, rivals backed byformidable investors. The discrepancies between hype and reality were obvious. The post shows that, contrary to Rocket CEO Oliver Samwer’s simple rule, India is a complex market with a lot of players; Jabong will need to buy traffic and cut prices for a long time before any profit margins surface.

Making site comparisons in any Southeast Asian country is more difficult–more like comparing apples and oranges. And/or durians. It’s safe to say that Rocket’s Lazada (general merchandise) and Zalora (apparel) online retail sites have strong positions in Southeast Asia as well as in Hong Kong. Compared to their regional competitors, Rocket sites have much bigger marketing budgets to pull visitor traffic. They have high consumer recognition too.

Nonetheless, Rocket’s sites aren’t the first movers in the region by any stretch. Brunei, Cambodia, Indonesia, Malaysia, Singapore, Thailand, Philippines and Vietnam all have well-established e-commerce sites, some more than 15 years old. Southeast Asian residents also spend a lot of time on Amazon, eBay, Alibaba and (in the case of Singaporeans) Britain’s ASOS, even though a purchase entails making an overseas order.

I’m generalizing about a diverse group of countries but … Southeast Asian e-commerce tends to be conducted in large eBay-style marketplaces, often with origins as online classifieds sites, where both individuals (C2C) and companies (B2C) sell directly to consumers. There are also many smaller local and regional retailers, so-called category sites, specializing in electronics/phones,jewelry/gems, women’s fashion, baby paraphernalia andcosmetics/personal care products. Some ofthemeven offer the freedeliveryandCOD services that Lazada and Zalora do.

Southeast Asia’s Crowded Online Marketplaces

Examples of big marketplaces are Berniaga, Bhinneka, Blibli and Tokopedia in Indonesia; Lelong in Malaysia; Rakuten Tarad in Thailand and Rakuten’s relatively new outposts in Indonesia, Malaysia and Singapore; Hallo Hallo Mall and Sari Sari Store in the Philippines; 123Mua and eBay affiliate Chodientu in Vietnam; and Khmer24 in Cambodia. OLX’s purely C2C marketplaces in Indonesia and the Philippines attract heavy traffic too and rank high nationally on Facebook. These rivals didn’t deter Rocket in the past year from launching its own C2C marketplace sites, called Lamido, in Indonesia, Malaysia, Philippines, and Vietnam (and looks like it’s about to do so, as Kaymu, in Cambodia.) Lazada and Zalora this year started allowing some outside merchants to set up shops on their sites too.

Someone looking for a good deal on, say, a phone, camera or athletic shoes probably doesn’t care whether she’s shopping on a marketplace or retailing site, especially with the advent in the region of payment systems such as PayPal-like facilities from banks and mobile wallets from phone companies.

But for company shareholders, the difference is huge: Online retailing sites have much greater revenue and profit potential. Marketplaces make money by charging for listing space and ads on their sites and sometimes by offering shipping and processing services. Successful retailing sites—once revenues exceed expenses—control the supply chain and generate their profits from percentage of the sales of the products they sell. Like every other Rocket site in Asia, Zalora, Lazada and Jabong aren’t profitable now but the potential is there–as long as Alibaba, Amazon, eBay continue to neglect the region. There are potential profits too in the private label clothing that the Zalora and Jabong sell alongside well-known brands like Levi’s, Mango and Nike.

Tokopedia Versus Lazada Versus Berniaga

Lazada Indonesia is an interesting site to examine since it issometimes dubbed”theAmazonof Indonesia.” (There are 250 million Indonesians, the economy has been growing at least 5% annually, and yet online probably makes up less than 1% of retail sales: Whyhaven’tAmazon and Alibaba made more of an effort here?).Many people may be surprised to learn that sprawling marketplace Berniaga, with branches all over Indonesia, actually pulls about 2 million more visits per month than Lazada, especially if they have heard Lazada’s claim to be “number 1 e-commerce player” in Indonesia as well as in Malaysia, Philippines, Thailand and Vietnam. About 70% of Berniaga’s traffic is organic: that is, about 45% of visitors arrive directly via the site’s domain name and another 25% from a search engine page, according to analytics firm SimilarWeb. For both Lazada and Zalora in Indonesia, about 60% of traffic has been organic. That’s better than the situation in India, though, where Jabong buys about 60% of its traffic.

Visitor traffic on popular Indonesian e-commerce sites Source: SimilarWeb

Comparing Lazada with Berniaga might not be fair because the latter’s C2C merchants outnumber the B2C ones three-to-one. Alexa considers Tokopedia more of a direct Lazada competitor. And Sequoia and Softbank just gave Tokopedia a $100 million vote of confidence. This will be an interesting race since Lazada has been handily beating Tokopedia in visitor traffic. Lazada’s monthly visits have been running around 9 million in the past few months, up from about 7 million in April, according to SimilarWeb’s data. During the same period, Tokopedia was pulling about 6 million visits per month, up from 4 million in April.

Bear in mind that traffic can be generated by (costly) advertising and doesn’t mean visitors are particularly interested in looking, buying or returning. A Lazada Indonesia visitor typically spends nine minutes on the site and looks at 7.3 pages—not bad at all and much longer than the typical three-minute Jabong visitor in India. But the Tokopedia visitor typically spends 15 minutes and looks at 12 pages. For both sites, about 30% of visitors depart after looking at one page. That’s a lot better bounce rate than Jabong’s, where 67% leave after one page.

Tokopedia has been doing better than Lazada at attracting organic traffic, however: more than 80% of its traffic is organic versus Lazada’s 60%. Moreover, a whopping 40% of Lazada’s traffic was “paid search” while only 17% of Tokopedia’s traffic was. For both sites, “paid search” meant traffic generated by ads on Google search pages. Lazada is also generating almost 4% of visits from expensive display ads while less than 1% of Tokopedia’s visits were generated that way.

Does Facebook Even Matter?

The role of “social networks” in generating traffic is intriguing as well since Rocket’s spiels always emphasize the size of emerging markets and their Facebook numbers while skimping on information about individual site’s revenues and competitors. Facebook is emphasized as well by Sweden’s Investment Kinnevik, Rocket’s longtime investing partner and thus a co-owner of Lazada, Zalora, Jabong and many other sites throughout the world.

Rocket’s IPO prospectus noted that it has companies active in “Facebook’s top ten user cities.” Two of them are Bangkok and Jakarta. The prospectus also tells us that Zalora sites collectively have “approximately 5.3 million [Facebook] followers” and Lazada sites total 7.5 million. But neither Zalora nor Lazada nor Tokopedia ranks among Facebook’s top ten brands in Indonesia; OLX and Berniaga do. Do Facebook fans and translate into visitors and customers anyway?

From March to August this year, only about 5% of Zalora’s and Lazada’s Indonesian traffic was generated by social networks, virtually all from Facebook, according to SimilarWeb’s data. The same was true for Berniaga’s traffic and for about 2% of Tokopedia’s. Is 5% significant? I suppose it depends on how much is being spent to generate those visitors to Lazada and Zalora. Indonesian Facebook traffic does highlight the differences in Asia, though. The share of visitors to Jabong and its rival Indian retailers generated by Facebook is negligible. Yet if I were starting a company or website in Myanmar today, I’d pour efforts into Facebook because, as even a few days in the country will show you, Facebook is the first (often only) stop for Burmese internet users. Burmese companies set up Facebook pages with sales points before setting setting up a regular

Expect More Alibaba

I’m not suggesting that Lazada’s performance in Indonesia necessarily resembles that of Rocket retail sites in other Southeast Asian countries. Apples and durians, after all. A quick-and-dirty look shows that Zalora is doing very well in Singapore and Malaysia, with traffic far exceeding any other popular apparel sites, both international (e.g., ASOS) and local (e.g., LoveBonito.com).

In Thailand, Lazada this past summer displaced long-ranking Rakuten Tarad as the second-most trafficked shopping site in the country. Homegrown retailing site Weloveshopping.com continues to reign as number one. It typically pulls 200, ,000 monthly visits while neither Rakuten Tarad nor Lazada has yet broken the 200,000 mark.

Lazada, Zalora, Tokopedia and Weloveshopping might not even be the ultimate winners. While Rakuten doesn’t appear to have made a sufficient marketing push in its newish marketplaces in Indonesia, Malaysia, and Singapore, it still has money to spare, having recently announced plansto expand rapidlyin Germany.

Surely following its spectacular $25 billion IPO last month, Alibaba will soon become much more visible in Southeast Asia. Seems to me that Singapore, Malaysia, Indonesia and Thailand will be higher priorities than India or the United States, which I have seen batted about. First of all, there are the ready Chinese markets of Singapore and Malaysia and the cultural affinities in nearby countries. Like eBay and Amazon, Alibaba pulls substantial traffic in individual countries without trying very hard. Merchants in the Southeast Asia now use Alibaba, as with eBay, to sell products overseas. Last but not least, we’re already flooded with made-in-China products, pirated and otherwise.

Update October 31: And not many Indonesian lookers are actually buying online. I kept thinking about that when I wrote the post, but decided to stick to the facts at hand. As the Wall Street Journal points out, credit card and debit card penetration are low and most people don’t trust the security of sites yet. Online shopping accounts for less than 0.1% of all retail sales in Indonesia! Meanwhile, Alibaba has been quietly testing the Indonesian waters.

Update November 16: And now Naspers-backed OLX and 701Search-backed Berniaga are joining forces in Indonesia under the OLX brand. The repercussions will also be felt in Philippines, Thailand and Bangladesh. (701Search is a joint venture of Singapore’s SPH, Norway’s Telenor and Sweden’s Schibsted Media. OLX Thailand is the Sanook portal’s recently renamed C2C branch.)