This is Part 2 of an article by Jeffrey Towson about the aspects of Alibaba’s “new retail” strategy.

In Part 1, I discussed uni-marketing and how the view of new retail for merchants and brands is very different than the view for consumers. A quick summary:

  • For consumers, the view is great. They are going to get what they want, where they want it and when they want it. New retail is a purification of demand.
  • For Alibaba, the view is spectacular. Their huge online marketplace is going to be merged with parts of the physical marketplace. The number of users and the amount of activity on their platform is going to increase dramatically.
  • But the view for merchants, brands, and retailers is more confusing. New retail upends many of their businesses, strategies, customer relationships and maybe even their brands.

In this part, I take an asset and resource view of all this, which I think is a much easier way to understand it.

Point 1: Digital competition is a lot about key resources, which are usually intangible assets.

You can look at competition with various frameworks.

  • Michael Porter famously described five economic forces, which tend to play out over the longer term in more stable industries.
  • Columbia Business School Professor Bruce Greenwald argued that one force, competition, is actually far more important than the other four.
  • Warren Buffett focuses mostly on competitive advantages and their durability.
  • Wharton’s George Day writes about dynamic competition and the constant move and counter-move of many businesses.

I focus mostly on digital competition (note: China is the global epicenter for this). This is a lot about how new digital tools and data are changing the competitive dynamics of traditional industries. For example, retailers traditionally compete on fixed costs and fixed assets (lots of stores, get bigger than your competitor). But ecommerce has a different dynamic. There is a lot more focus on the degree of participation of consumers, merchants and other users.

It can get confusing. And a useful approach is just to take a resource and asset view. Stop looking at the economic forces and competitive advantages, and just look at the assets used to compete. One company has 10 factories and the other only 5. One company has a famous brand that everyone knows and the other is unknown outside of one region. In digital competition, this usually means comparing intangible assets like technology, IP, captured customers, business linkages, and data.

If you take an asset view of competition in ecommerce and new retail, I think there are three big things that jump out as particularly important in a marketplace platform. Note: Alibaba is a marketplace and a pure digital competitor. JD is more of a hybrid of a marketplace (enable transactions but don’t take inventory or be the seller of record) and a direct retailer (buy and sell the goods yourself). For marketplace platforms (like Alibaba and VIP.com), the resources that matter are:

  • Captured online consumers. Their number, time spent, money spent and their participation on the site. And your degree of capture.
  • Captured online merchants and brands. Their number, their percent of business on the site, the integration of their operations into the site and their marketing activity on the site.
  • Content creators. Although this can be done as another type of retail (like Amazon’s digital media) or as an audience-building platform (like Youku)
  • Data from ecommerce, entertainment, social media and other sources.

These assets (both the users and the degree of activity) on the platform enable virtually everything else.

  • You can add new services and products.
  • You can add new types of revenue streams (transaction fees, marketing services, operational services, gifting, advertising, etc.).
  • And hopefully, you can use these assets to build competitive barriers. Network effects are the most desired. But there are also data network effects, MSP advantages, softer data advantages and linked businesses.

I view Alibaba as a particularly powerful version of this with three interconnected platforms: a marketplace platform, an audience-building content platform, and a payment platform.

These core assets cost a certain amount of money to acquire (plus time and difficulty). It’s a useful way to look at a company. But it’s also important to remember that these asset costs are different from the value they can then create. Similarly, the cost of a factory is different that the market value of the products it creates. And the cost of a college degree is different than how much you will make from it.

If you take an asset view, the sequence for marketplace platforms is usually:

  • Get an initial critical mass of users, merchants and data. There is usually a chicken-and-egg problem to get started (to get the consumers you need merchants, but to get merchants you need consumers).
  • Grow the number of users and their activity, mostly by data and digital tools. In marketplaces, personalization and curation are two of the big guns for this. Ancillary moves into new products and services or into new geographies (cross-border ecommerce) also really work.
  • Try to protect the platform with network effects, linked businesses, softer advantages and assets that are difficult to replicate.

Point 2: How these assets change over time is really important.

Alibaba is a virtual marketplace (so far). There are lots of supporting and complementary services (entertainment, payments, logistics / delivery, credit, etc.) but the core business remains connecting consumers with merchants and brands. And then making money from their transactions – and also from the marketing and other spending by merchants and brands on the platform. It’s a virtual shopping mall (Tmall) and a virtual trading bazaar (Taobao).

So what is the big difference between the intangible assets that create virtual marketplaces and the tangible assets that create real shopping malls? One of the most important differences is how these assets change of time.

If we were looking at a real shopping mall or bazaar, we would depreciate the PP&E over time. There would ongoing capex to maintain and maybe additional to grow. And in times of higher inflation, these assets can be a big problem as they really increase the cost structure. Plus there is also the real estate and land price aspects, which can be particularly important in downtown locations and in places like China.

But a marketplace made of intangible assets doesn’t necessarily decay over time. It certainly doesn’t straight-line depreciate. You may have to spend to keep it running (a type of maintenance capex, operating cost and customer retention cost) and for required upgrades – but the economic goodwill (not accounting goodwill, which is nonsense) should increase over time. And it doesn’t get hit by inflation (although labor costs can be a problem).

The same process can be true for other businesses that rely on intangible assets. Share of consumer mind (a Buffett term) is a big deal for Coca-Cola. Intellectual property and data / claims history can be important in technology and insurance. And so on.

But two differences I think about for intangible assets versus physical assets are:

  • Intangible assets can increase in real economic value over time – and often quite powerfully. This is good news.
  • Intangible assets are easier to replicate and often do not offer the types of competitive protection you get with physical assets. This is bad news (and why network effects and soft advantages can be critical).

Here’s how this can play out in marketplace platforms:

  • The more customers that come, the more valuable (and necessary) it is for merchants and brands to participate and compete with each other through marketing.
  • The more stores that arrive the more options consumers have and the richer their experience.
  • The more transactions and data from transactions, browsing and others sources (entertainment, etc) the more personalized and engaging the experience. This can enable more spending and engagement.
  • The more this ecosystem grows, the more difficult it is for a new competitor to replicate the entire ecosystem. The assets grow organically and become harder and harder to replicate.

Note: Parts of this can be described as a network effect. But it’s more about the degree of participation. Most MSPs do not have network effects and derive their value from their intangible assets.

Additionally, you get some competitive protection from an ability to cross-subsidize different parts of the platform (girls get free drinks at bars, men pay more). You can create complementary networks (Taobao helps Alipay and vice-versa). Yu can get linked businesses (Amazon’s cloud business subsidizes its logistics). And so on.

Question 1: How does “new retail” change a resource view of ecommerce?

This is the question I have been thinking about a lot. And a lot of this article is me thinking out loud.

But new retail is clearly a massive jump in the assets on the marketplace platform. And while all the talk is about physical retail, is Alibaba actually adding physical assets to their platform? I don’t think so. I think they are just leveraging in the intangibles of the tangible assets.

To me, new retail looks like it adds two big assets to the platform that Alibaba doesn’t have today. These are offline sales data and physical retailers, merchants and brands as users.

Take the “new retail” initiative in convenience stores. Alibaba is providing digital tools that transform mom-and-pop convenience stores in China. They plug in the tools and the stores gets three basic benefits.

  • Online customers can be driven into the stores from the local area (maybe). The merchant gets access to local online customers the same way an online merchant does. And they can market to them. Although in this case you are fighting for the customers in your neighborhood, not nationally. And you are fighting against other digitized local merchants, not every merchant in China.
  • They get digital tools that upgrade their payments, inventory, and supply chain. They get a bit of a store tech upgrade. Ideally, they get more efficient operations. Although adopting these tools also creates switching costs.
  • They get data that helps them choose their inventory for what people in that neighborhood actually want. This is hugely important and is part of Alibaba’s “uni-marketing” initiative.

And what does Alibaba get?

Well, the physical merchant just became as user in their marketplace platform. They add the transactions, the user and the data of the physical merchant without adding the physical assets. And they also probably got some new offline customers, but most everyone in China is already on Taobao.

So Alibaba is not going to own a lot of stores, such as Hema supermarkets or convenience stores. They are going to perfect the various business models and franchise out the system, the data and the technology tools. And for the hypermarkets, they will likely put that in a separate, associated and asset-heavy partner. And they will remain the data / tech partner for this, as they has done in logistics with Cainiao. The core marketplace, the engine of Alibaba, is going to remain tangible asset-lite and intangible asset-rich.

Now imagine they roll this out to 100,000 convenience stores in China? How many of those stores can be moved onto their ecosystem in this way? And then supermarkets? And then department stores? With a resource view, the size of the “new retail” opportunity is massive

Question 2: Who will own the customers in “new retail”?

This strikes me as a big question. Merchants are on Taobao and Tmall because they have to be. That’s where the customers are. They may also have their own branded website but they are also on Taobao and Tmall. And they can drive their customers to their stores and their own websites from here to a certain degree. But if they leave the Alibaba ecosystem customer retention is a problem. Famous companies like Zara and Apple have their own brands and customers. But most small merchants do not have this type of loyalty.

So this raises a question for new retail: if a physical merchant unplugs from the platform, do they take their customers with them? Or do those customers start getting directed to a different convenience store down the street? Who owns the customer in new retail?

WRITTEN BY: Jeffrey Towson

Ever since Netflix made the pivot from a DVD mail-order business to streaming video-on-demand (SVOD), it’s been besieged by the likes of Hulu, Amazon Prime Video, and free-to-stream sites like Pluto.tv that have tried to play catch up.

They realized the future of video streaming was primarily via on-demand.

Part of the reason is the shift of consumption patterns towards the internet. Millennials have brought the cord-cutting phenomenon to the mainstream and they’re no longer interested in 24/7 cable television but would rather stream sports, movies, and shows on their own devices.

Asia Pacific is viewed as a laggard to this dynamic. The proliferation of cheap, pirated DVDs plugged the problem of access to the latest Western movies and TV shows. But the web changed everything: as more households came online, Asian consumers warmed to the idea of watching content directly on their phones.

The dawn of a new era?

The benefits of SVOD are undeniable. There’s a far richer user interface and experience than linear television. Streaming devices also aren’t clunky and fixed to a certain place like a television is and with Asian consumers flocking to smartphones, the opportunity to sidestep television directly is very real.

According to App Annie, the time APAC consumers spent consuming video on their phones grew by 300% between 2015 and 2017. This ferocious rate of growth was double the global average in the same time period.

Asians are consuming a lot of video. Source: App Annie

While impossible to quantify the effect of this systemic shift on the Asian pirated DVD market, it’s fair to say that purchasing DVD players is going out of vogue, especially with younger consumers.

A rapid surge of wireless high-speed broadband networks and mobile data connections mean users have a wider library of content to choose from, and more channels from which to acquire it i.e. YouTube, torrents, and streaming services like Netflix, iFlix, HOOQ, ViKi, Viu, & others.

The SVOD market was valued at US$51.6 billion in 2016 and projected to grow by an annual rate of 8.93% until 2022, eventually settling at US$86.1 billion.

North America will occupy the largest market share, but the majority of growth will be driven by Asia Pacific.

Goes to show why players like Netflix & iFlix are doubling down on their efforts to win over the Asian consumer.

The race for dominance is on

For its part, iFlix, which has raised $300 million and counts companies like UK’s Sky Television as investors, explains that the very reason for its existence is to switch consumers over from pirated DVDs to licensed content.

Comparisons to Netflix are inevitable, but the Kuala Lumpur-headquartered startup has tried to downplay this impression.

CEO Mark Britt told TechCrunch that the two streaming companies don’t share the same target audience.

iFlix, with its price point of about US$3/month caters to the mass market, while Netflix, which is significantly more expensive at about US$10/month is trying to capture the “global elite”, he affirmed.

The Malay company, which now operates in 25 countries across Asia, the Middle East, and Africa, relies on local teams to lock in licensing deals and enhanced payment options via partnerships with telcos & banks.

That’s radically different than Netflix, which allows anyone around the world to sign up (excluding China, North Korea, & Syria) provided they have a functional credit card. This factor alone precludes the overwhelming majority of consumers in Southeast Asia (excluding Singapore).

Most Indonesians, Filipinos, Thais, and Malaysians don’t possess credit cards and this situation won’t change drastically in the near future.

Netflix understands this bottleneck towards acquiring new users. During a visit to Singapore in 2016, CEO Reed Hastings told journalists that they need to start offering more payment options in markets where there’s low credit card density.

It’s been almost two years since that visit without significant developments.

Netflix did partner with Lazada to offer six months of free streaming with every Live Up membership – opening itself to an affluent population and more points of entry into ASEAN as Live Up is introduced in other markets.

But so far the streaming giant hasn’t adopted any hyperlocal strategies for each specific country.

It certainly doesn’t seem like it’s preventing the company from continuing to scale into unchartered territory. Only last month, it was officially valued at US$100 billion after declaring that it added over 6 million new subscribers in Q4 2017, reaching 117.58 million subscribers globally.

While iFlix doesn’t publicly reveal its total subscriber base, but chairman Patrick Grove told Hollywood Reporter that they expected to breach the 5 million mark in 2017.

So iFlix has a more hyper-localized strategy, is focused on mass-market consumers, and offers a number of flexible payment options. On the other hand, Netflix is relatively expensive, needs a fast and stable internet connection, but offers better content, HD quality video, and popular original programming.

Which streaming provider is winning over consumers in Southeast Asia?

Our survey results

ecommerceIQ initiated an online survey with majority of respondents from the Philippines and Indonesia. For full transparency, overall sample size was small, but the insights generated are fairly discerning.

Let’s repeat the prior assumptions that we outlined. Senior executives at iFlix believe their product is skewed towards the mass market and tailor-made for viewing on mobile devices with slower internet speeds.

This is why iFlix allows users to download content on their phones in order to view it later. It also deliberately keeps prices low to reach an audience that may not be able to afford Netflix.

Netflix is slowly starting to build local teams, and by extension, is incorporating a local strategy, but it’s still isn’t as laser focused on Southeast Asia as some of its peers.

42.4% of survey respondents said Netflix is their go-to video streaming platform of choice. A similar number chose YouTube. iFlix was actually tied with Viu (which is focused on providing Asian content such as Korean TV and anime) – with 6.2% each.

Let’s put these numbers in context. The Philippines actually has some of the slowest internet speeds in Asia Pacific.

Both countries have low rates of credit card penetration. There were 8 million people who had credit cards in Indonesia, which translates into just 3.2% of the population. The Philippines actually follows the same trend when judged in percentage terms; 3 million credit card holders in 2015, representing roughly 3% of the population.

No credit card? No problem. Source: Informedmag

Despite structural bottlenecks, the data seems to show that Southeast Asian consumers will find a way to pay for the service if they truly desire it.

iFlix has partnerships with local telcos and banks; users can opt to pay from prepaid mobile phone balance and bundle data deals from their provider.

But only 3% of survey respondents actually said they would like to see more payment options and no one indicated that the reason for choosing a provider in the first place was because of ease of making a payment.

It gets more interesting.

Only 9.1% of respondents said a cheap price point was the reason to opt for the platform in the first place. That makes iFlix’s value proposition a relatively weak factor in winning over the Asian consumer.

The ability to download content to watch later ranked as the highest priority for them, followed closely by access to a large range of Western entertainment, original productions, and an excellent user experience.

12.1% said they opted for their video streaming platform of choice because of its range of local television shows and movies, putting it at 5th priority overall.

The insights slightly negate messages from senior executives at iFlix. CEO and co-founder of iFlix Mark Britt told Variety last year that “almost every assumption about subscription video-on-demand that is based on Western metaphors has failed in developing markets […] we are learning those lessons quicker than others.”

But is that view correct? Our findings seem to indicate that streaming media consumption in Asia isn’t a whole lot different than Western habits.

Research from eMarketer in 2017 said iFlix trailed Viu in Indonesia. The same report said iFlix was marginally ahead of Netflix, but the results could have been skewed because Netflix was blocked for a long time prior to the publishing of the study.

Source: eMarketer

eMarketer also quoted AIP Corporation and said that 39% of Filipinos with an internet subscription had signed up for iFlix, but the corresponding figure for Netflix was much higher, at 60%.

What’s the takeaway?

Southeast Asian consumers might be price conscious but they’re willing to pay a premium for services that add value to their lives. The Netflix brand is known for a vast library of content. The recommendation engine is intuitive and strives to understand a user’s preferences.

The results are also consistent with our analysis of the ride hailing space in Indonesia where consumers don’t simply opt for the cheapest player – they are willing to pay for a comfortable, safe ride, and an enhanced user experience.

The Netflix marketing and product teams have also invested considerable time and resources to build an aspirational brand through social proof, and storytelling.

Its original series such as ‘House of Cards’, ‘Stranger Things’, ‘Orange is the New Black, & ‘Master of None’ command far higher viewership figures than any other SVOD providers. The term ‘Netflix and Chill’ is almost household parlance now.

When consumers sign up for Netflix they gain social validation: they can share updates on Facebook, tell their friends, and be able to participate in discussions about latest episodes. Sure, iFlix is cheaper but can it engender the same kind of excitement?

One of the most attractive points of listing your brand’s products on Lazada is the ability to take part in its multitude of campaigns, accessed by thousands of customers.

Such campaigns aren’t limited in size and scope: they range from huge events like its heavily marketed Online Festival, which include 11.11 and 12.12, to smaller weekly campaigns such as the current ‘Fall In Love’ event for Valentines Day.

Not only does Southeast Asia’s largest ecommerce platform promote campaigns via large banner adverts on its main landing page, it drives traffic via paid acquisition channels and email marketing.

BrandIQ

Valentine’s Day campaigns this week include ‘Valentine Day Sale’ with Unilever in Indonesia, ‘Lazada Delivers Love’ in Philippines, and ‘Fall In Love’ in Thailand

For brands, such visibility is critical; Southeast Asian consumers increasingly use online marketplaces to begin their product journey, bypassing even search engines.

ecommerceIQ

A study by ecommerceIQ found that 57% of Indonesians start their product search on marketplaces.

Lazada promises significant internet traffic during its biggest campaigns – the 11.11 sales event attracted 10 million site visits in the first 24 hours and garnered 10 times the sales volume when compared to non campaign days.

While traffic is definitely attractive to brands, an analysis of campaign promotions by data analytics platform BrandIQ found that companies have limited control over the visibility of their products during such events.

Provided brand managers meet Lazada’s conditions of discount percentage and relevant categories, they can pitch as many SKUs as they like for campaigns such as ‘Flash Sales’ and ‘Daily Deals’. However, this only accounts for a small percentage of the ‘shelf space’ available on the Lazada campaign page with the majority of product placement within the campaign categories out of the brand manager’s control.

BrandIQ

The ‘Flash Sales’ portion of campaigns are among the few ways to boost sales of brand’s products.

Marketplace and Brand relationship

Brands shouldn’t take a hands-off role after agreeing to participate in a particular campaign. BrandIQ discovered that the maximum mileage garnered from these campaigns lean more towards promoting Lazada’s own inventory and not the brand’s official shop-in-shop (Amazon, anyone?).

Lazada holds inventory of major products, and sells it via a retail model. These campaigns offer a window for Lazada to boost sales of its own inventory.

How? BrandIQ deep dived into a current category campaign, ‘IT on Sale‘, running from February 6-9 on Lazada Thailand. The sale advertises ‘up to 70% off’ electronic category products.

BrandIQ

BrandIQ

Both the ‘Recommended Items’ and ‘Mobiles on Sale’ portions of the ‘IT on Sale’ campaign lists Lazada’s own retail SKUs over brand’s Shop in Shop SKUs.

The data indicated that the products listed under ‘Recommended Items’ were sold by Lazada. This is also the case in the sub-category ‘Mobiles on Sale’ portion – for example, all listed SKUs are sold directly by Lazada, rather than the Samsung or Huawei official stores.

Directly under ‘Recommended Items’ is another portion of the landing page titled ‘Top Brands on Sale’.

BrandIQ

Clicking on the brand’s logo takes customers to the brand’s official store, but where is the user directed after clicking the individual SKUs shown to the right of the brand logo?

BrandIQ

BrandIQ ascertained that 13 out of the 20 products listed were those sold directly by Lazada itself, rather than the official store.

This is despite the fact that official shop-in-shops offer the same product; it’s a conscious decision by Lazada to sell its own retail SKU over the brands.

Brands should pay close attention to the evolving nature of marketplaces and look to them as a way to jump into ecommerce, but not the long term game. As the ecommerce landscape becomes increasingly competitive and incentivized; companies need careful monitoring of all acquisition channels if they desire sustained growth.

 

250 million Indonesians have rapidly embraced the rise of ride-hailing apps to add convenience to their lives.

The three largest players in Indonesia – Go-Jek, Grab, and Uber – not only lower congestion on the roads by connecting drivers to multiple riders, they also offer food delivery, payments via e-wallet features, and almost any service you can think of on-demand.  

These value-added features are possible thanks to each player’s treasure chest topped up with billions of dollars from venture capital funds and massive corporates like Alibaba, Honda, and SoftBank.

But which app do users in the archipelago actually prefer and why?

Indonesians judge their favourite ride-hailing apps

Consumer Pulse by ecommerceIQ is a new series that dives into the minds of consumers to translate their trends and habits into actionable business strategies.

The team conducted an online survey answered by 515 people (46 percent men, 54 percent women) in major cities in Indonesia – Sumatra, Java, Kalimantan, Sulawesi, Bali, West Nusa Tenggara, to Papua – to find out which ride hailing application (Uber, Go-Jek and Grab) they use the most on a daily basis.

A general consensus is that price and number of promo codes are the two key factors that impact adoption in Indonesia, but, our results indicate otherwise.

The majority of respondents pointed to safety as the primary factor when choosing which ride-hailing application to use. It’s not hard to decipher when you consider Jakarta traffic and the thought of weaving through the streets on a high-speed motorcycle.

Indonesians choose safety as the primary factor when choosing which ride-hailing application to use. Image source: ecommerceIQ team.

According to the Head of Indonesia’s Traffic Police Unit, traffic related deaths in the country have hit worrisome levels at roughly 30,000 per year – higher than crime related and terrorism caused deaths combined.

He also added that the number of traffic incidents in Indonesia is the highest among ASEAN countries.  

“Think of the approximately 28,000 to 30,000 people who die on the road per year because of accidents. Compared to terrorism and crime (the difference) is huge,” — National Traffic Police Chief Royke Lumowa

Providers should focus on improving the quality of their riders and vehicles, protective gear and insurance policies to capture more users. Both online and offline elements should be considered during product development as they are equally crucial when it comes to consumer purchase decisions.

For added assurance to both passengers and drivers, the three major ride-hailing apps in the country offer insurance:

  • Go-Jek offers up to 10 million IDR ($751 USD) for death and 5 million IDR ($375,50 USD) for an injury.
  • Grab provides up to 50 million IDR ($3,755 USD) for deaths, and 25 million IDR ($1,877.50 USD) is given to users with severe injuries.
  • Uber provides the most; up to 100 million IDR ($7.510 USD) for deaths, and 10 million IDR ($751 USD) for the treatment.

In 2016, Grab Indonesia promoted a controversial ad campaign to highlight the importance of road safety and how standards in Indonesia can improve. Unfortunately, the images were too graphic and the video was removed but it succeeded in bringing awareness to safe driving practices.

Grab’s ad campaign in Indonesia received a less-than-positive reaction from netizens, with many calling it too gory and disrespectful but it did its job in increasing awareness. Image source: Brandingasia.com

The second most popular reason why people used one ride-hailing app over the others was (unsurprisingly) the ease of finding a driver (23 percent). The rest of the reasons are as follows:

  • Frequent promotions and discounts (22 percent)
  • Easy navigation within the app (16 percent)
  • Many payment options (5 percent)
  • Wide food delivery options (3 percent)
  • Helpful customer service (3 percent)
  • Loyalty rewards (2 percent)

Consumers also indicated that they’re not excited about e-wallet features. Unsurprising as there’s no widespread use apart from the apps own services.

Nevertheless, payments remain a priority area for senior management looking to build a super app like WeChat in China.

CEO and co-founder of Go-Jek, Nadiem Makarim, mentioned he wanted to separate Go-Pay from the Go-Jek ecosystem during an interview with CNBC,

“Payments will be our core focus in 2018, and it will become the year of Go-Pay leaves the Go-Jek app ecosystem and it goes online and offline and to start fulfilling its mission to be the number one financial inclusion tool for Indonesians to gain access to these digital goods and variety of financial services, that frankly they have been deprived of this thought.” — Nadiem Makarim

So which ride-hailing player wins Indonesia?

What’s the app used on a daily basis among our respondents?

First position goes to homegrown unicorn Go-Jek.

Working under the slogan, “Karya Anak Bangsa” (Made by Indonesians), the company has become a favorite among the survey respondents (56 percent) and Indonesians since its establishment in 2010.

The country’s first tech unicorn scaled from a call centre and fleet of 20 riders to more than 654,000 drivers in 50 cities.

Later entrants in the space benefitted from Go-Jek’s investments in marketing and awareness. Consumers, now educated about ride hailing and startups didn’t need to be persuaded too much to try a new option.

  • Grab placed second at 33 percent
  • Uber place last at 8 percent
  • 3 percent of the respondents reported they don’t use ride-hailing apps at all

When considering these results, there are a few factors that impact the ranking:

  • First mover advantage (Go-Jek)
  • Largest reach in the country (Grab)
  • Time of entry into the country (Go-Jek October 2010, Grab June 2014, Uber August 2014)
  • Location of the respondents

A couple of months ago, Grab announced its expansion to 100 cities in Indonesia, making it the dominant player in the country. Meanwhile, Go-Jek and Uber can be accessed in only 50 cities and 34 Indonesian cities, respectively.

Price and promos also carry more weight after the Indonesian Ministry of Transportation announced basic rates for all online car-hailing services; 3,000 – 6,000 IDR ($0.23 – $0.45 USD) per kilometer in the areas of Java, Bali, and Sumatra. For Kalimantan, Sulawesi, Nusa Tenggara, Maluku, and Papua, the rate is more at 3,700 – 6,500 IDR ($0.28 – $0.49 USD) per kilometer.

Meanwhile, the Indonesian government hasn’t announced any regulations for online motorcycle taxis. Based on eIQ research, rates vary between each app.

*The rates are based on a 15 kilometer trip that eIQ personally hailed on each app during rush hour.

46 percent of respondents admitted they have two ride-hailing applications installed on their smartphones. 23 percent of respondents had three applications installed, 29 percent owned one application and 2 percent didn’t use any apps.

Final takeaway

It’s not difficult to understand why residents in each city prioritize certain features over others. Respondents from Semarang, Surabaya and Greater Jakarta value discounts and promotions more than any other option, probably because they have more access to transportation choices.

The KRL Jabodetabek (Jakarta Commuter Line) and TransJakarta in Jakarta; TransJateng and BRT in Semarang; and TransSuroboyo in Surabaya.

Based on the data collected, providing a helmet, hairnet, and insurance is a safety standard all ride-hailing apps should meet.  

The other takeaway from this piece is that being first mover in an industry may not always guarantee an advantage. Go-Jek was the first company to introduce ride-hailing in Indonesia, seizing a head start on later entrants but Grab has been quick to develop and expand its operations in Indonesia and become the dominant player in the country.  

Growing your business without understanding your market and competitors is risky. Consumer Pulse by ecommerceIQ helps collect and analyze information about consumer behavior to help you to hone your marketing strategy.

Singaporean netizens rank at 4th place globally for sessions per year on Amazon, when judged in proportion to the number of internet users. That puts them just marginally behind Canada.

Source: SimilarWeb/World Bank

It’s probably one of the reasons why the company chose to enter Southeast Asia via Singapore; not only is there is an internet-savvy population with a high credit card penetration, consumers already have a stated preference to transact with the platform.

Amazon wasn’t physically present in Singapore until last year but the company’s white-label electronic products such as the Echo Dot and Kindle have been stocked and fulfilled by Lazada Singapore through grey market sellers as far back as March 2015, according to analytics platform BrandIQ.

Demand for Amazon in Singapore

BrandIQ mapped the number of reviews on Amazon products on Lazada SG over a three-year time period. When compared against Google Web Search data from Google Trends, there was a direct correlation between the volume of reviews on Lazada and Google search interest for Amazon from Singapore – until the marketplace’s official launch in July 2017.

Source: BrandIQ/Google Trends

Amazon products on Lazada witnessed a spike of product reviews towards the end of 2015, coinciding with the September 2015 announcement of the Fire Tablet and Fire TV product lines.

Google Trends data shows a very similar spike to that of product reviews on Lazada in December 2015, which can be attributed to the holiday season and popularity of the new Fire product lines.

A very similar trend was also witnessed in 2016; product reviews rose following the September 2016 announcement of the new Echo Dot product, with corresponding spikes in both Google Web Search and Lazada product reviews in December 2016.

Web search interest in Amazon reached a crescendo in July 2017 following the Prime Now launch in Singapore. This event also marked the first inverse trend between web searches for Amazon and product reviews on Lazada. While the number of product reviews grew approaching the December 2017 holiday season, it never recovered to 2016 or 2015 levels, suggesting decreased interest across Lazada following Amazon’s entry.

There’s a correlation between Amazon product launches and their popularity in Singapore based on reviews by certified users, but what does it mean?

Rival on Lazada’s marketplace

Despite Amazon’s belated entry into Southeast Asia, its products are still ranking high on Lazada.

The interesting part is that the products in question; Amazon Fire TV, Kindle, and Echo are simply unavailable on Prime Now and can’t be shipped to Singapore from AmazonGlobal, it’s international shipping site.

Instead, these products are sold and fulfilled by a multitude of grey sellers on Lazada such as GeekBite, that has been active on the platform for 3+ years.

Despite its Amazon Prime Now offerings for free international shipping, some of Amazon’s best selling items can’t be shipped to Singapore

There’s clear demand and interest for Amazon products, which leads us to the question: why is a customer-obsessed Amazon content with grey market sellers fulfilling this need?

Standard industry practices indicate that well-known brands often find a crowded grey market for their products to be a cause for concern. Leaving grey sellers to fulfill local demand for foreign products results in brands losing control of their brand image, as delivery, packaging, and warranties from grey sellers usually don’t correspond to the same brand guidelines adhered to by the company.

The answer here is likely linked to the outdated industry distribution rights for television/movie content on the Fire platform and e-book rights for the Kindle. Content distribution rights are negotiated geographically, and local distributors commonly have long term contracts with content producers. Amazon either hasn’t prioritized, or is still in the process of securing distribution rights for Southeast Asia, and thus can’t make these products available to purchase.

What Amazon is falling short of, grey market sellers are picking up admirably. In the electronics categories including “Tablets” and “Video” on Lazada, Amazon products rank in the Top 10 when sorting by “Popularity”. The Amazon Fire TV Stick and Amazon Kindle stand out within their own respective categories.

The prices of items like the Kindle are also marked up by almost 23% (US$79.99 on Amazon US vs US$103 on Lazada SG) and the Echo Dot is marked up by 15% (US$49.99 on Amazon US vs US$59 on Lazada SG).

Singaporean consumers itching for the new Amazon items are stuck with purchasing through grey sellers on Lazada, like local reseller SGKindleShop, who offers the Kindle for US$155, or like forwarder shipping service like comGateway, which can set you back another US$15 for the US$79 Kindle, only slightly cheaper than the US$103 price tag on Lazada.

Cost of shipping a 1kg package using a forwarder shipping service from the US to Singapore.
Prices in SGD

Amazon is missing out on a large potential revenue source by foregoing some of its best selling products on Prime Now. It’s also unable to cross-sell by offering enhanced product warranties, which are an important addition to overall product revenue streams.

Unless Jeff Bezos makes a conscious decision to include Amazon’s products on Prime Now SG, it’s going to continue to cede the market to grey sellers on its largest regional competitor.

Osman Husain of ecommerceIQ contributed to this report.


HOW IS YOUR BRAND PERFORMING ON SOUTHEAST ASIA’s TOP MARKETPLACE

Southeast Asia’s inbound tourism industry has grown by an annual average of 7.9% since 2005 and the region now accounts for over 30% of international expenditure in this sector.

But as high-end and mid-market hotel brands strive to attract a greater number of tourists to fill up their rooms, they might be missing out on an emerging demographic: the domestic Asian millennial traveler who is more likely to opt for a budget hotel.

According to E&Y, millennials and millennial-minded travelers are far more cost-conscious and experience-focused than their predecessors.

This view is augmented when you consider travel preferences in Asia. The top three requirements for travelers looking for recommendations within the region are to help them save money, make travel more comfortable, and to save time.

Preferences of APAC travelers. Chart: Amadeus

Millennials are increasingly likely to ditch glitz and glam for minimalism and function. And with travel within APAC democratized by the likes of no-frills carriers such as Air Asia, it’s only a matter of time before complementary industries start riding this wave too.

The budget hotel industry has certainly witnessed greater investor interest in the past couple of years looking to solve a key problem – standardization. It’s often that travellers booking online even after combing through ratings & reviews are commonly surprised upon arriving at the hotel.

The idea to club together existing hotels, upgrade their facilities to ensure safety & comfort, and bring them under a unified brand was popularized by India’s OYO Rooms. The startup has raked in US$450 million in funding primarily by Softbank.

Since 2000 the Chinese tourism industry has also witnessed a surge in budget hotel franchises, aiming to address the historical issue of lack of standards, safety, trust, and reliability. Franchises like the China Lodging group and 7 Days Inn are now worth billions.

ZEN Rooms is another startup that operates on a similar model and was brought to Asia by German startup incubator Rocket Internet in mid-2015. It’s now present in seven countries across Asia, namely Indonesia, Singapore, Hong Kong, the Philippines, Malaysia, Sri Lanka, and Thailand.

At the time of launch, the company pointed to the expanding nature of regional travel as a critical factor in its decision.

“…in terms of accommodation and travel, Southeast Asia behaves like one big country. There is a lot of inner-country travel. Indonesians travel from Jakarta to Bali, Malaysians from one city to another. There is a lot of inter-region travel, from Jakarta to Singapore to Bangkok to Kuala Lumpur, for example,” said co-founder Kiren Tanna while speaking to TechCrunch.

Most travelers in Asia like to journey closeby. Source: Euromonitor

In 2017, ZEN Rooms received a fresh capital injection of US$4.1 million adding further credence to its business model. New investors joined the party, namely Redbage Pacific and SBI Investment Korea.

And the Rocket Internet-backed startup isn’t the only contender in this space. Companies like Reddoorz, Nida Rooms, and Tingall have all propped up aiming to cater to an ostensible gap in the market. Cumulatively they’ve managed to attract US$10 million in funding so far.

Another competitor is Goldman Sachs-backed Red Planet. Its model is slightly different; rather than partnering with existing budget hotel operators, it chooses to own and operate its own properties. The company has over US$200 million in funding purportedly because it’s not an asset-light model, but is trying to solve the same pain points of uniformity of service.

“The [budget] hotels in Southeast Asia lack efficiency in many aspects and that eventually translates into substandard customer satisfaction,” explains ZEN Rooms co-founder and global MD Nathan Boublil to ecommerceIQ. “That’s the difference between Southeast Asia and the West. We want to improve the budget hospitality market with better sales and distribution, technology, and lowering the cost of procurement.”

“The Southeast Asian market is largely made up of small “mom-and-pop” hotels with no structural efficiency, which penalizes both guests and the hoteliers themselves. In the end, prices have to go down and the service level has to go up so that domestic and regional travelers can fully access travel,” he adds.

The Philippines in focus

The Philippines has rapidly emerged as one of ZEN Rooms’ largest growth areas.

Nathan says the dominant budget hotel chain before them only had 11 hotels on board which his company has surpassed since, although he declines to disclose the total number of partners they have.

11 certified budget hotels compared to the 6 million international tourist arrivals in the country in 2016 presented a large gap in the market and existing infrastructure – a fact alluded to by Domingo Ramon Enerio, Chief Operating Officer of the Philippines Tourism Promotions Board.

“We ended 2014 with 4.8 million tourists; this year we’re hoping to reach 5.2 to 5.5 million. We estimate that the demand for Philippine tourism is in excess of 10 million – meaning these are people who want to visit the Philippines but couldn’t for several reasons, whether it’s flights or not enough rooms or information,” he explained to Philstar in 2015.

The government has also aggressively promoted tourism in the island-drenched nation under the “It’s more fun in the Philippines” banner.

Hence according to official estimates, there’s still a gap of about 4 million inbound tourists who would like to visit the country but aren’t able to do so. This doesn’t factor in domestic tourists who might be put off by similar challenges of finding suitable rooms. So the total number is likely to be higher.

In the Philippines, ZEN Rooms first piloted a project to bring serviced apartments under its banner in addition to regular hotels. This has grown to be immensely popular with the category running at 95% occupancy and an average customer rating in excess of 9, according to Nathan. There’s 200 such budget serviced apartments in Manila alone with plans now to introduce the category in Kuala Lumpur.

Domestic travelers account for 50% of ZEN Rooms’ customers, with regional travelers making up an additional 30%.

In the Philippines itself, domestic travel is being fueled by an emergent middle-class, strong GDP growth, and a larger number of households with young children.

A larger number of households with young children are fueling tourism in the Philippines. Source: Euromonitor

The push towards branded serviced apartments does bring ZEN Rooms in competition with property owners on Airbnb but Nathan says they’re succeeding due to economies of scale and lower prices.

Typically Airbnb owners can’t offer things like late night check-ins or daily housekeeping unless they partner with a management agency like GuestReady. This also drives up costs as the agency will typically charge a commission.

Nathan points out that ZEN Rooms’ existing operations drive synergies between the two business units. As they’re already helping improve the level of service in budget hotels, the team can leverage its expertise and manpower towards serviced apartments. This helps facilitate things like late check-ins and quality controlled daily housekeeping.

The French entrepreneur is taking a long-term view of the market.

Really, we’re just starting our expansion in Southeast Asia, the region is huge and inter-country travel is growing very fast,” he notes.

Southeast Asia is, in fact, the world’s fastest-growing travel region according to the World Travel & Tourism Council.

And there’s little doubt about a palpable sense of optimism engulfing the region: 80 million new consumers came online via their phones last year, representing a 31% increase as compared to 2016. Asian millennials are also addicted to social media, internet shopping, and increasingly rely on the web for travel & tourism research.

It’s time for no-name, obscure hotels to partner up with players like ZEN Rooms in order to gain more exposure, efficiency and latch on to emerging millennial travel needs.