Southeast Asia's internet economy may exceed US$240b by 2025: report

E-commerce was the fastest growing sector in 2018 and is projected to reach US$100b in 2025.

Southeast Asia’s internet economy is on track to exceed US$240b by 2025 thanks to a large, growing and engaged internet user base in the region, according to Google and Temasek’s joint e-Conomy SEA 2018 report.

The research estimated that Southeast Asia’s internet economy has reached US$72b in gross merchandise value (GMV) in 2018 across online travel, e-commerce, online media and ride-hailing.

The GMV of the internet economy stands at 2.8% of Southeast Asia’s gross domestic product (GDP) in 2018 and is projected to exceed 8% by 2025, the report revealed.

“Growing at 37% from 2017, it has accelerated beyond the 32% compounded annual growth rate (CAGR) that we recorded between 2015 and 2018, therefore hitting an inflection point,” the firms stated in the report.

The report is a multi-year research project that aims to shed light on Southeast Asia’s internet company by covering four key sectors: online travels, online media such as gaming and subscription music, ride hailing in terms of transport and food delivery, and e-commerce. The research covers the six largest markets in Southeast Asia, namely Indonesia, Philippines, Malaysia, Singapore, Thailand and Vietnam.

Vietnam was found to be the most developed with its GMV of the internet economy making up 4% of the country’s GDP. Singapore, where the internet economy is 3.2% of its GDP, ranked second in Southeast Asia. Philippines was noted to be the country with room to grow as its internet company comprises only 1.6% of the nation’s GDP despite accounting for the second largest user base at 75m.

On the other hand, Indonesia’s internet economy was found to be the largest and fastest growing in the region with 150m users. It reached US$27b in 2018 and is poised to grow to US$100b by 2025.

Additionally, Indonesia is leading the way with e-commerce growth across Southeast Asia as it reached $12b in 2018, accounting for more than US$1 in every US$2 spent in the region, the report noted.

Overall, e-commerce was the fastest growing sector of the internet economy, reaching US$23b in 2018 and is projected to exceed US$100b by 2025 on the back of increased consumer trust across Southeast Asian internet users.

“Southeast Asian consumers increasingly rely on e-commerce to buy a wide range of products that are not available in stores, as a result of the relative underdevelopment of the modern retail channel outside of metro cities,” the firms stated.

Meanwhile, the online media segment exceeded US$11b in 2018, growing three times in three years since 2015 and making it the second-fastest growing sector in the internet economy after e-commerce, the research added.

Whilst a vast majority of consumers still favour free or advertising supported music and video platforms, internet users in the region have shown an increasing willingness to pay for exclusive content and uninterrupted experiences on platforms like Apple Music, Hooq, iFlix, Netflix and Spotify, the report explained.

“With the addition of the subscription music & video on demand segment, we project that online media will reach almost US$32b by 2025 - as much as the internet economy was worth in 2015,” firms noted.

Supported by the increasing availability of affordable smartphones and the roll out of faster and more reliable mobile telecommunication services, Southeast Asia’s internet user base continued to grow in 2018 and will continue to do so, the report stated.

Smartphones are the primary gateway to search information, social media and messaging applications, amongst other services, that contribute in improving the livelihood of vast segments of the population who don’t have access to the internet via desktop or laptop computers, the firms noted.

However, the report highlighted how key challenges still remain for the region with regards to internet infrastructure improvements, the ability for internet economy companies to attract the right talents, the development of logistics networks and the availability of venture capital investments to further fund and expand its potential.