The five most valuable companies of today account for almost $2.4 trillion in market capitalization combined while only employing around half of the people that normally attend the New Year’s Eve celebration in New York City’s Times Square.

This number may not tell us much per se but when we think that the whole continent of Africa with a population of 1.2 billion people has a combined GDP of $2.2 trillion, (International Monetary Fund) we realize that there was never a time in recent history where so much wealth was generated by such a small number of people.

If we think of these tech giants in simpler terms, we have a company connecting people (Facebook), another one organizing the world’s data (Google), one that’s aspirational (Apple) and another that makes businesses more efficient (Microsoft).

Amazon, on the other hand, is set out to become the world’s marketplace.

And even to this day, they continue to hold true to its original mission statement, which we can consider as their “Box Two”, which is to be “earth’s most customer-centric company, where consumers can find anything they want to buy online and at the lowest price” (Amazon.com).

In its annual letter to shareholders, Jeff Bezos characterized Amazon as an “invention machine” which three main pillars or “Box One” are: Prime, their marketplace and AWS. Not only will Amazon Prime members account for 50% of American households this year but they also spend more than twice as much and order much more frequently than non-members.

Members not only get free and fast delivery but other benefits such as video streaming, which in the end results in higher conversion rates and retention. The company is allocating almost $6 billion on original content next year.

With more than 63 million members spending around $1,300 each year and a retention rate of more than 90% (Consumer Intelligence Report, 2016), numbers seem bright for Amazon. We also see that last year, Amazon alone was responsible for 51% of the growth in US ecommerce while expectations are set on the fact that total global sales are predicted to reach $28.3 trillion by 2018 with ecommerce accounting for 8.8% (eMarketer, 2014).

Lastly, when looking into Amazon cloud service, AWS, we find that they lead adoption rate with 57% and around $10 billion in revenue this year. Spending on public cloud Infrastructure as a Service (IaaS) hardware and software are also expected to reach $173 billion within the next ten years – the market growth potential is massive.

Amazon ‘Box Three’

The new global logistics paradigm

Not that long ago, only a handful of retailers offered free shipping. Now, everyone is forced to try and do so, hoping they won’t run out of oxygen before it happens. Amazon has changed the rules of the game for the retail industry with its tremendous access to cheap capital that allows them to make multi-billion dollars investments in their fulfillment infrastructure.

They have opened more than 180 fulfillment centers across the globe surpassing any other retailer and only last year, they opened 28 sorting centers, 59 delivery stations and more than 65 Prime Now and Fresh delivery hubs with the intention of delivering goods to consumers in less than 60 minutes.

Amazon also offers a platform called Fulfillment by Amazon (FBA), which is a way for third-party retailers to take advantage of Amazon shipping infrastructure. FBA saw its active users grow more than 50% last year while nearly 50% of total third-party units delivered was through this platform.

To this day, the Achilles heel for Amazon continues to be its shipping costs, which account for 11% of its overall sales and have increased each year to almost $12 billion in 2015. Shipping fees collected – mostly through Prime users – are only 50% of all shipping transportation costs making this situation unsustainable in the long-run.

Amazon needs to reduce its dependency on external providers and change the role it plays in the delivery of products.

The Seattle-based company has not sat quietly and recently made of series of moves to strengthen its logistics arm:

  • obtained a freight-forwarding license through one of its Chinese contractors that allows them to sell space in cargo ships potentially becoming a sort of travel agent for freights
  • leased 40 US cargo planes that could account for 20 to 30% of its cargo volume independently
  • started testing the usage of parcel-drone delivery under the “Prime Air” platform
  • utilizes more than 30,000 robots at its warehouses
  • started delivering packages under the “Amazon” brand with leased truck trailers.

Amazon has also recently focused on its “last mile” strategy, which is the final and normally most expensive part of a package’s trip to a customer’s front door.

Amazon started to team-up with delivery startups in Europe, mostly the UK, and introduced its own crowd sourcing delivery service called “Flex” that uses contract drivers to deliver its regular packages directly competing with FedEx, UPS and if thinking about future possible business models, with Uber.

Amazon has also filed a patent to use transient warehouses that would allow smaller vehicles to access items from places other than brick-and-mortar locations.

This is Amazon’s move into expanding across the supply chain by focusing on logistics components that were previously outsourced — first inbound logistics and then home delivery.

Once they have built a sustainable and efficient transportation network over the next 5 to 10 years, others will be able to use it and Amazon will market it accordingly, just like they did with their cloud computing business.

This way of doing business is explained by Freightos CEO Zvi Schreiber in Techcrunch as being part of the development process at Amazon. First, you identify some inefficiency and start developing a technological solution internally, then as you scale that solution and it becomes a platform, you can offer it as a paid service to third-parties.

Amazon has done this for things like product development and warehousing to payment systems.

Figure 1. Amazon’s vertical integration in the supply chain (Freightos, 2016)

In the following years, we are going to see a disruptive change in the current transportation business as Amazon will not only compete domestically but it will also become a global delivery company capable of moving goods directly from China to consumers in the US or Europe through its transportation network that ranges from cargo ships to drone deliverance.

Nowadays, ocean freight continues to be mostly a “paper-based” industry with room for technological improvement with consumers keen to have faster and cheaper access to a broader range of products from around the world and merchants eager to have a broader market.

This is what Amazon believes is a unique opportunity to enter both the $1 trillion market of cross-border online sales and tap into the $350 billion ocean freight industry.

Disrupting fashion

Although most of Amazon sales comes from either books or consumer electronics, there’s one category that has seen tremendous growth over the past few years: clothing.

Amazon has invested heavily in setting itself as a fashion destination for anyone looking to buy clothing online. Many designer brands have decided to be on the platform to take advantage of its huge consumer base, its excellent supply-chain management and the fact that Amazon has promised them full price on their listings.

Figure 2. US sales of apparel and accessories (Quartz, 2016)

On the other side, we see that all major department stores have witnessed their stocks fall last year as their long-term market outlook seems rather obscure with more people turning to Amazon for apparel.

Macy’s had to close 100 stores last year and it’s said that others like Nordstrom and Sears would have to cut down around 30% their stores in order to have the same level of sales per sq foot as pre-recession (2008) times.

Amazon has shifted its initial strategy about fashion to start offering more high-end designer names in its listings somewhat successfully with “accessible luxury” brands but most higher-end luxury labels still don’t want to be associated with what they consider to be a “simple marketplace” and diminish their brand equity.

Luxury is defined mostly as a customer experience that is difficult to replicate online and by no means in a template-ized format where their listings would be next to fast fashion or lower-end brands. But this could turn out to be a good opportunity for Amazon to acquire brick-and-mortar stores in exclusive locations -Macy’s for example – and build what could become an aspirational brand in the future, much like how Apple went from being a tech company to a luxury one.

Even when they are not officially on the platform, high-end luxury brands like Louis Vuitton also have products listed on Amazon. We can see that even when their products rank higher than other prestige brands, the bulk of their sales happened in the grey market through third-party sellers.

This phenomena involves mostly apparel and fragrances brands who can’t control the flow of counterfeits or legitimate discount listings.

Amazon keeps a close eye on the volume of these listings but only for partner brands, as is the case with Calvin Klein who after signing a partnership with Amazon went from having 7,824 SKU fragrances in 2014 to only 38 one year later.

This is the way that Amazon forces high-end brands to become partners and have an official store inside the marketplace.

Amazon’s move into the fashion industry does not only involve increasing brand equity by bringing higher-end brands into its platform but also positions them as a key player.

To do this, the company has launched its own private fashion label hiring executives from top luxury fashion companies and launching seven in-house brands.

They understand that branding is shifting towards the consumer and with its loyal and affluent Prime user base,they will surpass every department store out there and become the largest clothing retailer in the US by 2017.

Amazon entering our house

In a recent conference, NYU professor Scott Galloway stated that our previous understanding of how market capitalization is made in the tech industry has completely changed in the last few years. In the past, we would argue that value was dependent on the amount of users we had and how engaged they were and we could cite Twitter as a clear example of this with its vast (but declining) user base.

He argues that the algorithm for value is now based on how many “receptors” we have,

How much user data and user behaviour patterns we can collect and what we do with this data for the consumer in terms of intelligence.

Amazon had pioneered this idea long ago when they enabled shoppers to make informed purchases through user reviews while reinforcing search algorithms. This algorithm works by comparing historical and recent sales to determine a sales rank, which it then uses to support search placement.

Based on the user recent purchases and what product listings they visited, Amazon shows a customized home page relative to each person and while they provide users with the most information than anyone else about a product, they also ensure consumers that they are selling it at the lowest possible price.

While BestBuy and Walmart change their prices about 50,000 times each month, Amazon does it 2,500,000 times each day reinforcing the idea to Prime users that they don’t have to go anywhere else to buy something online.

Almost 20 years ago, the world of ecommerce was shaken when Amazon filed a patent for a “one-click” payment system that allowed customers to avoid the hassle of entering their personal information each time they make a purchase. This patent covered a business method with such a broad definition that created an initial technological lead by Amazon for many years.

With the recent introduction of the “Dash” button, Amazon now offers these “one-click” purchases within the household as a way for consumers to effortlessly order goods for their everyday lives but have no desire to spend time purchasing it, such as cleaning detergent, for example.

This was a bold move by Amazon to lure consumers away from brick-and-mortar stores and also learn even more about their users purchase history.

At the same time, it came at almost no cost for them because 150 brands were each sponsoring their own version of the “Dash”. But it doesn’t stop there, as Amazon launched a device called the Echo that uses cloud-based AI Alexa to perform tasks that range from answering queries about the weather to controlling smart home devices and making purchases.

Alexa has recently been opened up to external developers and more skills are introduced each week by the community – over 3,000 as of now. With sales reaching 3MM units this year, even other tech giants like Google had to come up with their own version of the Echo (using “conversational actions” instead of skills), to not miss the opportunity of entering ‘our’ house.

Conclusion

Not many companies have a broader “Box Three” than Amazon does at the moment. It has the ambition to disrupt not only the retail and fashion industries but also global logistics and content-on-demand to name a few.

Amazon is already the undisputed leader in ecommerce and cloud infrastructure (“Box One”) and have an affluent and loyal Prime user base.

My prediction is that Amazon will continue to secure this user base by spending more each year on generating original content for its users. The budget for next year ranks 3rd worldwide only after ESPN and Netflix.

It will also add more special perks such as “Prime Day” and finally continue providing an ever faster and cheaper service for consumers.

As Jeff Bezos said in a recent conference, “I don’t think anyone will ever want to spend more in shipping and have longer delivery times”. These users belong mostly to upper-middle class households that have yet to shift most of the purchases they do from offline to online.

Amazon wants to capitalize on that by offering a seamless experience to users through Dash and Echo for everyday item replenishment and through Amazon Fresh and Pantry for grocery delivery.

Amazon will surely open brick-and-mortar stores that will serve as warehouses and offer curated items with a 5-star user rating along with user reviews similarly to what they currently do in its Seattle bookstore or the recently opened cashier-less convenience store they call “Amazon Go”.

Amazon Go serves as proof that vertical integration is key to this kind of disruption as no other company would have ever pulled something like that off through corporate partnership.

As only 3 to 5% of the shopping we do is actually enjoyable and we prefer to do it in brick-and-mortar stores, Amazon understands that to capture the mid-high end market, they need to transform its brand into an aspirational one. For that, they need to provide a disruptive shopping experience inside its stores and make a name for themselves in the fashion industry.

Finally, through all this user generated data, Amazon machine learning algorithms will learn our purchasing behavior over time and eventually be able to “predict” what our purchases will be, only asking for confirmation before ordering the groceries for the week.

That way, most of today’s purchases, both offline and online, will happen through Amazon thus increasing the current Prime user yearly expenditure from $1,300 to $10,000 pushing market capitalization to a trillion dollars.

By Nicolas Metallo, the original article can be found here. Editing by ecommerceIQ

Here’s what you should know today.

1. Amazon Wins Battle to Buy Souq.com

Terms of the agreement were not disclosed in a joint statement from Amazon and Souq.com. Amazon trumped an offer from Emaar Malls PJSC, the operator of the world’s biggest shopping center, which bid $800 million for Souq.com.

Souq.com was valued at $1 billion in its last funding round.

Amazon has been making moves beyond its home country as of late, with talks of entering Australia, and most recently, a delayed entry into Singapore.

Read the rest of the story here.

Interested in reading more about Amazon? Check out eIQ’s insights on whether the ecommerce giant is really making a move into Southeast Asia here.

 

2. China’s Tencent has bought a 5% stake in Tesla

Tencent, maker of the popular WeChat messaging app, has taken a 5% stake in Tesla for nearly $2 billion.

It comes months ahead of Tesla’s biggest ever test as Elon Musk’s electric automaker prepares to ramp up production far beyond its current tiny output for the $35,000 Model 3.

Tencent is perhaps the most prolific investor and acquirer among China’s multiple tech titans. It has stakes in Snap, Kik, and ride hailing app Didi

Read the rest of the story here.

 

3. Recommended Reading: Alibaba gets serious in Southeast Asia in preparation for battle with Amazon

Two smaller, but important developments this week show Alibaba is executing on a plan to build out a strong presence in Southeast Asia.

  • Ma partnered up with the Malaysian government to launch a series of initiatives aimed at easing red tape and barriers around cross border ecommerce, a sector that is poised for growth. Alibaba also launched a hub in Malaysia, a physical location to handle inbound and outbound deliveries, and other aspects of the initiative
  • Ma bridged Taobao with Lazada through a new feature that debuted in Singapore this past week. Lazada Singapore is boosting its existing catalog with the addition of 400,000 listings that have been selected from Taobao, called “the Taobao collection”.

Viewed separately, the Malaysia project and Taobao Selection are interesting developments, but occurring in the same week, they reveal much of the blueprint that Alibaba is building for domination in Southeast Asia.

Read the rest of the story here.

Interested in reading more about Jack Ma’s plans for Southeast Asia? Read here for eIQ’s analysis on Alibaba’s Trojan Horse strategy for the region.

Credit cards. Not a thing in emerging Southeast Asia.

Fintech is quickly becoming the next big thing in Southeast Asia. According to recent data from Tech in Asia, the number of venture capital deals in fintech has outpaced ecommerce for the last two quarters – something that hasn’t gone unnoticed by the big players.

Alibaba is on a mission to bring in Alipay and Ant Financial into Southeast Asia through its $1 billion Lazada acquisition. Indonesia’s Go-Jek recently launched Go-Pay and Grab is said to be raising a massive $1.5 billion round to fuel its nascent payment platform.

Despite an increasing influx of money into the payments ecosystem in Southeast Asia, cash-on-delivery (COD) remains the most popular payment method in emerging Southeast Asian markets. Aggregated data shared by aCommerce indicates that the share of COD orders has increased over the last 12 months.

Of course, the data is limited to the orders processed by the regional ecommerce enabler and skewed by individual client preferences, but given their size and reach, offers a good representation of the market.

What then could explain the increase in COD share in markets like Indonesia, Thailand and the Philippines? One hypothesis could be that as ecommerce continues to gain widespread adoption, new users are the late majority and laggards. These groups are less likely to have access to credit cards and some won’t even have bank accounts. This means COD will still be essential for continued ecommerce growth in emerging Southeast Asia.

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Here’s what you should know today.

1. DHL ecommerce helping Singaporean retailers reach the US market

Singaporean businesses ranging from pure online retailers, ‘brick and mortar’ retailers, manufacturers or ecommerce giants are set to benefit from new international shipping platform launched by DHL which sends parcels to the US within 4-6 days. The platform is called ‘Parcel International Direct US’.

Cross-border ecommerce is projected to grow at a rate of 25% annually between 2015 and 2020.

Read the rest of the story here.

 

2. Singapore fintech startup OOjiBO raises $3.6m

Singapore-based fintech startup OOjiBO has raised $3.6 million in a pre-series A round led by Centurion Private Equity.

The mobile payments platform plans to use its investment to launch into Indonesia and Thailand.

It will also begin cross-border remittance within countries where OOJiBO has a presence. Currently, OOjiBO is only available in Myanmar (but based in Singapore).

The app offers a full suite of services from p2p transfers, retail payments, interest bearing accounts to ecommerce payments and more.

Read the rest of the story here

 

3. Alibaba to generate 30% of jobs in China’s digital economy

By 2035, the “Alibaba economy” could generate about 30% of all the jobs available in China’s digital economy, according to a new report published by management advisory firm Boston Consulting Group.

If Alibaba-generated employment has the same share of China’s digital economy in 2035 as in 2015, the platform will create 112 million jobs.

If Alibaba’s emerging businesses, play a strong future role as well, we can expect another 10 million jobs by 2035

The report looked at the larger impact that technology would have on employment and talent over the coming two decades, estimating that China’s digital economy would make up 48% of the country’s total economy in 2035, accounting for $16 trillion in spending.

Read the rest of the story here.

[C]: Cynthia Luo, ecommerceIQ

[D]: Deric Loh, Mobifor

Transcript

[C]Welcome to ecommerceIQ’s podcast channel!

For those unfamiliar with us, we are Southeast Asia’s first market research portal dedicated to ecommerce – data, insights, important headlines, we’re focused on educating professionals in one of the world’s fastest growing industries.

A big thank you to our network consisting of DHL, Lazada, pwc, DBS, eBay and more.

Today we’re trying something different, having an open conversation about online retail and the challenges that ecommerce professionals are all trying to tackle.

Joining me today is Derich Loh of Mobifor, he is our first guest and I’ll let him begin with a quick introduction.

[D]: Hi Cynthia, thanks for the invite. I’m Deric, currently running Mobifor, a platform for designers to make their own ecommerce store. Glad to be here.

[C]: Thanks for being here. You’ve been in the industry for over ten years and I’m sure you’ve been watching this explosion of digital growth in Southeast Asia, can you share with me a few things you’ve witnessed?

[D]: Sure, it’s been quite some time. I can remember from the very early days, early 90’s, 2000’s, there wasn’t a lot of what we have today: hosting and ecommerce platforms to even what aCommerce is offering in the market today. It has evolved quite a lot. 

But people are starting to say hey, the ecommerce wave is coming on top, how do I ride it? 

I would say there’s still a lot of very conservative mindsets, especially for medium and large sized businesses. So in terms of change in management, how will it happen to become fully digital? How can front end retailers make use of data to ensure customer orders can be fulfilled all the way down to logistics? 

There are many areas to explore and improve. What do you think of the trends with clients?

[C]: Going digital means different things to businesses because it’s still so new in Southeast Asia. When businesses think of ecommerce, either big or small, they think “oh, I’ll launch a website and begin selling super quick and easy with all these templates that exist.”

But a lot of the times, they don’t stop and think about things like security and that’s a huge component because we’re collecting sensitive information from shoppers and they need to know that they’re protected

Are there any recurring misconceptions you find yourself having to explain to them over and over again? 

[D]: From a broader sense, the first question is “what is the goal of ecommerce or online?” Could it be a new platform for them to test out a new product launch? 

Or how can a retailer make it easier for customers leads? Can anyone open up the mobile to do research and purchase? There needs to be support from top management to decide how ecommerce will impact the company. 

How do you overcome the change in management issue or revenue cannibalization especially for people who have been in the industry for 10, 20 years?

They’re scared of online taking away their revenue instead of how everyone can work in the team in a similar direction. 

And going back to the security part, there’s quite a few issues that are overlooked such as taking credit card information in the final step of the purchasing funnel and the customer finds out the site isn’t very secure.

There’s no green bar or “SSL” certificate so if your company doesn’t have it, the customer could be saying “hey, your site isn’t secure, I won’t give you details.”

You got your customers all the way through to check out and then they drop off.

In terms of security, since last year, there’s an increasing number of hack attempts using WordPress loopholes to post malicious content or negative SEO.

For example, you’re selling fake products and making use of intrusions in other sites to post spam links to increase your own search rankings or cause a competitor site to shut down.

A lot of site technical administrators actually aren’t aware their site has been compromised so the first step would be to see if they have a firewall enabled to prevent the intrusion coming in.

Cloudfare recently had an intrusion in data, even the bigger boys like Uber are using their service, so now their sensitive data is going into the market. It’s important to have security measures in place to protect the brand name you’ve spent all this time building for many years.

[C]: I know we discussed this the last time we spoke, you told me that some hackers actually defaced over 1.5 million WordPress sites through a security flaw and this is something that can be easily prevented with an update of Wordpress.

According to Wappalyzer, WooCommerce, which is the shopping component of Wordpress, occupies 32% of the ecommerce market.

It’s [Wordpress] a popular content management system that a lot of businesses use because it’s very easy to teach and to work with but there are other popular tech platforms like Magento, Opencart and Shopify – what are a few effective measures companies, either big or small, can do to protect their own data and customer details?

[D]: I think the very first step is to assess whether they are PCI compliant to ensure data is secure and encrypted. You want to have an SSL certificate

What are some processes to identify fraud orders? What are the patterns?

  • Customers are using multiple usernames but similar addresses.
  • Customers using a different name but same email and different credit card. 

Let’s say volume is 100 to 1,000, it’s still small and you can handle orders but if it’s 10,000 or 100,000, you need a fraud management team to identify patterns and stop fraud orders going through platform.  

If there are too many at the end of the day, you’ll be getting charge back from banks and losing trust factor because they’ll know you’re not doing a proper job. What do you think or have witnessed with clients?

[C]: Well, for me [aCommerce], speaking to brands, big or small, they offload all of it onto their ecommerce service provider right? 

If you work with an ecommerce specialist, they assume we take care of everything and we do but it’s funny because I actually bought an airline ticket online. CheapOAir actually has a full fraud protection team but the process is so tiresome – I put credit card details into the system, they send me an email and call the number provided and then check with your bank and then email you again to ensure that this credit card is yours and not a fake.

They couldn’t connect with my international number and I called them back and explained my situation separately to seven different agents and each agent.

Fraud management needs to be there especially if you’re dealing with like you said larger order volumes or if you’re paying a lot of money you need to ensure that a customer feels they’re safe but at same time, if the process itself is too tiresomeI would have cancelled the entire order and moved on to someone else.

It’s important to get that balance right so if you’re going to implement fraud management, it needs to be seamless. Yes, that’s almost impossible but at least a process that’s not going to the deter the customer from thinking your brand isn’t that…great. I probably won’t be buying from them again and I hope my credit card details are safe with them. 

[D]: You want to have a process but not too much of a process.

[C]: Exactly, they were also asking for my credit card details over the phone so all of that was... a little bit sketchy as I would say. And they told me, oh, don’t worry, we have a privacy policy on our website and a quick Google search showed me that some people had a lot of problems with them.

They are a legitimate company but people were complaining how long everything took. Definitely need a balance. 

[D]: I agree, more brands should look into what is the proper compliance, especially in the early stage. Working with service provider and finance guy to know what is going on. Stores should know orders, fraud orders

A lot of communications internally and externally and with partners too to make it a better experience.

[C]: This is something that all companies should really keep in mind. I know that a lot of them are just thinking launch the site and forget about security, which is especially important because Southeast Asians are not very trusting in the first place of any sort of institution or they don’t want their details to be out there on the internet.

It’s something that we definitely can look forward to, I hope there will be more awareness about these fraud prevention tools.

[C]: Thank you so much for sharing Deric. All the tools you mentioned are below this transcript. I look forward to having you join me next time to tackle another topic. If you have any comments or issues you’d like us to cover, drop it into a comments section. 

#EcomAsiaChat

Tools URL links mentioned:

https://sucuri.net/
https://www.wordfence.com
https://www.sitelock.com/
https://www.pcisecuritystandards.org/pci_security/
http://www.accertify.com
https://www.maxmind.com/
http://www.the41.com/
http://www.kount.com/
https://signifyd.com/
https://www.cloudflare.com/
http://www.stripe.com/
https://www.pcisecuritystandards.org/get_involved/participating_organizations?category=Processor&region=&alphaFilter=#filterForm
http://www.cio.com/article/2384809/e-commerce/15-ways-to-protect-your-ecommerce-site-from-hacking-and-fraud.html

The Philippines often comes second by various factors when compared to its peers in Southeast Asia. It’s the second most populous country in the region after Indonesia with 103 million civilians. It’s also the second poorest country after Vietnam and currently has the second smallest ecommerce market at $0.5 billion.

Google & Temasek predicted a rosy future for the Philippines’ ecommerce market to become bigger than that of Singapore, Vietnam and Malaysia by 2025 at $9.7 billion.

However, there are several signs indicating online retail has a long way to go before it picks up in the country:

  • Low ecommerce spending
  • Lack of local ecommerce players
  • Slow internet

Can the Philippines’ ecommerce actually reach its predicted potential? We take a deeper look at some of the reasons why it will be challenging.

First, the good things

The Philippines population is projected to increase by 13% to 116 million by 2025, presenting a bigger market for businesses to sell their products.

Beneficial for ecommerce growth is also the 10 million Filipinos living and working overseas.

Around 3.5 million of them work and live in the US, which has advanced their online shopping behaviour and paved the way for innovative cross-border logistics businesses offering deliveries from the US to the Philippines.

Overseas workers have also facilitated the birth of many digital payments businesses in the country as they send remittances home to their family.

Filipino overseas workers sent home $29.7 billion in 2015.

These money transfers have made the Philippines the top third remittance-receiving country in the world after India and China and spurted the growth of fintech startups providing transfer services, such as Ayannah, Coins.ph, BloomSolutions, using blockchain technology to serve the unbanked.

The innovative payments and logistics solutions work in favor for ecommerce development as online companies are dependent on the ease of payments and the efficiency of logistics networks for speedy delivery to attract customers.

As a result, Lazada, the Southeast Asia’s marketplace for everything, ranks as the 7th most visited website in the Philippines.

No money, no honey?

Despite the mentioned factors, ecommerce has not yet picked up as quickly in the Philippines as it has elsewhere in Southeast Asia. Although 30 million people reported shopping online in 2016, the Philippines has the lowest average annual retail ecommerce spending per person.  

A Filipino spent on average $33 shopping online in 2016.

Even the Vietnamese, who are the poorest of Southeast Asian nations spent 67% more per person shopping online and Malaysians with two times less online shoppers spent twice as much as Filipinos in 2016.

According to Statista, people shopping online in the Philippines are expected to increase by 42% to 48.8 million in the next five years and the average annual spend on ecommerce per person will reach only $48 in 2021.

For comparison, the Vietnamese are expected to spend on average $96 and Malaysians – $129 in 2021.

Where are the local players?

Low online spending per person is not inspiring local businesses to invest in ecommerce  as seen by presence of a few local ecommerce players.

The Philippines is a market where Southeast Asia’s darling Lazada is dominating ecommerce with around 40 million monthly visits.

Local ecommerce players, be it marketplaces or vertical webstores, are not even close to Lazada in terms of number of visitors.

And overall, the competition is rather thin in any category but more brands are working to capture the growing ecommerce potential.

There are a few first movers that are choosing a full ecommerce strategy such as local telecommunications service provider Globe Telecom and retail brand Bench, or global brands Payless ShoeSource and Adidas, and performing quite well. It’s also common for traditional brick-and-mortar retailers such as SM Store to open a shop-in-shop on Lazada to test the ecommerce waters first before investing in a brand.com strategy.

Slow and slower

Filipinos are connected to and browsing the second slowest internet connection in the Asia Pacific region. While a speedy internet doesn’t guarantee strong ecommerce behavior, it does impact a good user experience. Who would be willing to browse for a new phone or a pair of shoes if it takes ages to load pictures and product descriptions?

On top of this, the country ranks lowest among its Southeast Asian neighbors in terms of ease of doing business because of slow and complex procedures of starting a business, enforcing contracts and protecting minority investors, which doesn’t help to boost online trade either.

So how to reach its golden potential?

While the large population, familiarity with cross-border deliveries and digital payments offers a great foundation for ecommerce growth, projections of its future market growth greatly vary.

Statista projects the Philippines ecommerce will reach only $2.345 billion in 2021 making the country the smallest of markets in Southeast Asia, while Google and Temasek expect the market to be $9.7 billion by 2025.

The difference will depend on the number of first-movers that kick off the snowball effect.

Recently Ayala Group, one of the largest conglomerates in the country, acquired a 49% stake in online fashion retailer Zalora Philippines. The group hopes its footprint in banking, real estate and telecommunications will generate synergies throughout the ecommerce value chain.

If the takeover proves successful, it could inspire others to follow and contribute to ecommerce growth.

To increase ecommerce growth in the country, there are several things needed to be done. Some of the issues are up to the Philippines government, such as increasing the internet speed by breaking the existing telecommunications market duopoly and opening it up to competition or easing the company registration process.

There are few things businesses themselves can also do to add to the growth:

  1. Invest in market education to explain how ecommerce works and provides convenience
  2. Training workshops for small and medium sized sellers, as well as larger traditional players can nudge more businesses to explore different channels for sales
  3. Improving security of their sites and adding secure payment methods to build trust   between businesses and consumers concerned about fraud
  4. Attract more customers online by selling ‘lifestyle’ services, insurance, etc.

The collaborative effort in the entire ecosystem between brands, retailers, service providers, logistics players, marketing agencies, consumers, etc. will help take the Philippines ecommerce market to the billions.

By: Aija Krutaine