Posts

Why We’re Heading Towards a Bloodbath and 4 Strategies to Avoid it

Being the new kid on the block means that ecommerce ventures in Southeast Asia have the luxury to learn from the mistakes of others from mature ecommerce markets like the US and China. It has been over 20 years since Amazon (1994) and eBay (1995) were founded, Jack Ma started Alibaba in his Hangzhou apartment in 1999, right before the Internet 1.0 bubble burst.

A lot has happened in global ecommerce since then, including the slow but steady march of Amazon, the quick rise and fall of daily deals and flash sale sites, and Alibaba’s blockbuster IPO in 2015. What’s next? This historical review creates the two frameworks, the Ecommerce Lifecycle and Ecommerce 1.0/2.0, to help predict the future opportunity of ecommerce in Southeast Asia.

1. The Ecommerce Lifecycle – How Ecommerce Models Evolve Over Time

There is a distinct pattern that has emerged from the more mature ecommerce markets’ evolution that offers a degree of prescience for ecommerce in Southeast Asia. This follows the trajectory of Classifieds and C2C to B2C to eventually Brand.com. The US went from Craigslist, eBay and Amazon to brand sites like Nike, J.Crew and Gap. China went from Taobao, Tmall and JD to the many standalone and marketplace brand sites, like Estée Lauder, Burberry and Coach.

Today’s Southeast Asia is following a similar pattern but at a much faster pace due to “1 to n,” horizontal progress and the resulting leapfrogging behavior. In our region, we have Classifieds (OLX), C2C (Tarad, Tokopedia, Shopee), B2C (Lazada, Zalora, MatahariMall) and Brand.com (L’Oreal, Estée Lauder, Adidas) all happening at once within a very short time frame.

The Evolution of Ecommerce Business Models in Southeast Asia

Figure 1: Ecommerce Lifecycle Model

LIMITATIONS TO THE MODEL

Local nuances give rise to unique ecommerce business models

eBay could only have been invented in the US because of its auction-driven model in a consumerist culture characterized by excess goods and plenty of hobbyists (think baseball cards and Pez dispensers). eBay didn’t work in China for many reasons, one being the auction model was not appealing to Chinese users who preferred to buy first-hand goods and to negotiate person-to-person via chat.

Tmall’s B2B2C model originated in China because of the bazaar-like, hustle and bustle shopping environments that many Chinese were used to in their offline world.

HOW SOUTHEAST ASIA ECOMMERCE IS DIFFERENT

Southeast Asia is a hybrid between the US and China

Lazada, the dominant ecommerce platform in Southeast Asia, is both an Amazon and a Tmall. Founded in 2011 by Rocket Internet as the “Amazon of Southeast Asia”, Lazada today gets 70% of its GMV from third-party, marketplace transactions, with the remaining 30% generated through “traditional” Amazon-style direct retail. Post-Alibaba acquisition, it’s likely that Lazada will follow the Tmall model and move towards a 100% marketplace with all the model’s inherent scaling benefits.

Compare this to Amazon, which traditionally used to be 100% direct retail but has been moving towards a marketplace model. Today, Amazon gets 59% of its GMV from B2B2C.

B2C, B2B2C and Brand.com all happening at the same time

In China, brands progressed from selling via Tmall as a stepping stone towards operating their own brand.com site. A case in point is Uniqlo, which started selling through a Tmall flagship store and then later added their own brand.com webstore.

In Southeast Asia, we see brands doing both at the same time, selling via Lazada as well as their brand.com stores, in addition through distributing through e-tailors like Central Online and MAP. This is driven by technology making it much easier to sell through different channels but also necessitated by the high degree of fragmentation in the ecommerce market. Consolidation is expected to happen soon.

Southeast Asia is mobile-first, C2C ecommerce is jumping straight into mobile marketplaces

Whereas in mature ecommerce markets desktop C2C still plays a pivotal role, in Southeast Asia the leapfrogging towards mobile is disrupting traditional, desktop-first marketplaces. Mobile-only C2C marketplaces like Carousell and Garena-backed Shopee are making aggressive moves against their older desktop counterparts like Tarad in Thailand and Tokopedia in Indonesia. With an estimated 85% and 79% of online shopping outside of the major metro areas in Thailand and Indonesia happening on mobile, it’s not surprising that companies like Facebook are also betting on mobile C2C. The ad giant recently launching mobile payments in Thailand where an estimated 50% of C2C transactions are happening on social networks.

2. Ecommerce 1.0 to Ecommerce 2.0: 4 Strategies to Avoid the Imminent Ecommerce Bloodbath in Southeast Asia

Southeast Asia is the next ecommerce gold rush. For this very reason, it’s also quickly becoming the next ecommerce bloodbath. We’ve already seen many casualties, especially in the B2C space of selling third-party brands. As we previously predicted, Rocket Internet’s Zalora had to sell their Thailand and Vietnam businesses for chump change to local retailer Central Group. This same year, Cdiscount Thailand, part of French retail conglomerate Groupe Casino, was sold for $31.5 million (28 million EUR) to TCC, a local Thai company that also owns the popular Chang beer brand. 

Ecommerce 1.0: Selling other people’s stuff to the masses at low margins

Ecommerce guru Andy Dunn adopted a strategy that allowed his business to stand a fighting chance in the Amazon bloodbath of the US.

“If you’re selling other people’s brands, you are competing not via a local group of competitors but with everyone. In this type of market, you might imagine having one large national winner. You might imagine that winner is ruthless about scale and cost, and is run by a visionary leader who with an extreme long-term focus. Such a company might not make real money for a long time — but when it does — it will be incredibly powerful.”

With Alibaba coming into the region through the $1 billion Lazada acquisition, it increasingly looks like ‘Alizada’ is becoming the big threat for other retailers in the market, both in the pure-play and omni-channel space. Expect the bloodbath to intensify and more consolidation to happen over the next few years.

Today, none of the B2C / Ecommerce 1.0 players in ASEAN have dominant market share yet.

Granted, Lazada has a headstart with an alleged 20% market share (2014) but this number pales in comparison with Amazon’s 60% in the US, Tmall’s 50.6%, and JD’s 51.9% (direct retail B2C market) in China.

ecommerce 1.0, The Evolution of Ecommerce Business Models in Southeast Asia

The Ecommerce 1.0 Goliaths

Over the next 5-6 years, Southeast Asia B2C will go through further consolidation to end up in a 1-2 player game

There is no better way to visualize the ongoing consolidation in Ecommerce 1.0 than with ‘search interest’ data from Google Trends. The graph for Thailand shows the rise and fall of desktop C2C and daily deals, the fragmentation in B2C, and the rapid ascension of Lazada.

google trends, The Evolution of Ecommerce Business Models in Southeast Asia

Figure 3: Google Search Interest Showing Ongoing Consolidation in Ecommerce 1.0

This is where things start to get interesting. Whereas Ecommerce 1.0 is a game of brute force and strength, Ecommerce 2.0 exploits 1.0 loopholes in many creative ways in order to avoid the zero-sum game against the likes of ‘Alizada’.

“This next generation of ecommerce companies is as much about what you exclude as what you include. It is a paradox that excluding some things takes more time than including everything. The new models are fundamentally — whether the merchandise is proprietary or not — about merchandising.” — Andy Dunn on Ecommerce 2.0

The Evolution of Ecommerce Business Models in Southeast Asia

Figure 4: Ecommerce 2.0 – Four Strategies for Avoiding the Bloodbath

Gilt, the posterchild of Ecommerce 2.0, rose from the ashes of the 2008 financial crisis with a unique business model that offered high-end luxury goods at a fraction of their original price through time-sensitive flash sales. One of New York City’s first unicorns at a point in time, Gilt later struggled as the economy recovered and brands no longer needed a distribution channel for clearance stock.

While Gilt played the pricing angle, others like Birchbox and Rent the Runway innovated on the product side by offering a unique shopping experience. Birchbox started the monthly beauty subscription commerce craze and inspired countless “Birchbox for X” clones. Rent the Runway is basically fashion on-demand by providing users rental access to high-end, designer fashion.

Ecommerce 2.0 in Southeast Asia: A glimpse of hope for aspiring ecommerce entrepreneurs?

With the Ecommerce 1.0 bloodbath in Southeast Asia still ongoing as we speak, a few entrepreneurs have realized that it’s futile to compete against the Lazada’s and MatahariMall’s of the region without deep pockets or any other strategic moat. Instead, they are focusing on emerging opportunities in Ecommerce 2.0 by positioning themselves in a unique way.

Proprietary Merchandise

Pomelo Fashion

Founded by the ex-Thailand Lazada founding team, Pomelo Fashion is one of the first Ecommerce 2.0 companies in Southeast Asia. Rather than selling other brands’ products with low margins, Pomelo Fashion has taken a M2C/D2C (Manufacture / Direct-to-Consumer) approach, focusing on building its own fashion brand and vertically integrating its supply chain, going as far as manufacturing its own clothing and apparel.

The Evolution of Ecommerce Business Models in Southeast Asia

Glazziq and Franc Nobel

Inspired by Warby Parker’s success in the US, Glazziq and Franc Nobel are applying the proprietary merchandise model in the eyewear space in Thailand and Indonesia, respectively. Glazziq adds a local spin by positioning itself as prescription eyewear for Asians.

The Evolution of Ecommerce Business Models in Southeast Asia

Sale Stock

In Indonesia, another startup has taken a cue from the Facebook and Instagram seller playbook, and scaled it 10x. Sale Stock, a fast-fashion startup based in Jakarta has taken a similar path to Pomelo Fashion, with vertical integration of design, manufacturing, and supply chain.

Proprietary Selection

Motif Official

Motif Official is a fashion retailer based in Bangkok focusing on proprietary merchandise and selection. Their ‘Motif Official’ label is designed and manufactured in-house. For their ‘Motif Select’ range, they select and curate minimalist brands from across the world. Motif’s ecommerce strategy eerily resembles that of Nasty Gal in the US, where founder Sophia Amoruso started the business in 2006 by curating vintage clothing sourced from second hand stores.

The Evolution of Ecommerce Business Models in Southeast Asia

“We are an online concept store specializing in women’s apparels and accessories; from our own in-house label ‘Motif Official’ to our ‘Motif Select’ range, where we curate the best pieces from brands all around the world to your everyday wardrobe. We believe in the concept of minimalism, with attention to details, shapes and silhouettes.”

Motif proves that you can still compete with the big retailers by focusing on a niche and dominating a category through curation. Many of the premium brands on Motif would never sell on Lazada, let alone Zalora.

Following pure play ecommerce companies in the US like Warby Parker and Birchbox who went offline to augment their brand, Motif also operates physical stores in Central World and Siam Discovery in the heart of Bangkok.

 

The Evolution of Ecommerce Business Models in Southeast Asia

Figure 5: Ecommerce 2.0, Global vs SEA Comparison and Opportunities

The Future of Ecommerce in Southeast Asia

Applying either the Ecommerce Lifecycle or Ecommerce 1.0/2.0 framework makes it easy to see where ecommerce in Southeast Asia is headed.

The B2C war will continue to wage for the next 4-5 years until some run out of money and throw in the towel. In China, this process took almost a decade with Tmall going from 0% to 50.6% market share from 2008-2014. In the direct retail B2C space, JD went from 15% to 51.9%. In the same period, previous leaders like Dangdang (16.2%) and Amazon China (15.4%) faded into irrelevance with 4% and 3.5% market share remaining as of 2014.

During this time, we will also see more startups and venture capital going into the Ecommerce 2.0 space. Ecommerce 2.0 isn’t new to Southeast Asia— many have tried to bring the Birchbox model into the region but failed due to the immature market. However, the next few years may be a fertile time as evidenced from the traction that companies like Pomelo Fashion, Sale Stock, and Motif are getting.

Does this mean we can go ahead and copy something like Gilt into Southeast Asia? It really depends. A model like Gilt needs access to old inventory of premium brands which in markets like Thailand and Indonesia are controlled by 1-2 distributors such as Central and MAP. This is the same issue that caused the downfall of Zalora in the same markets. Any Ecommerce 2.0 model launched in Southeast Asia will need to be customized for the local market.

Ecommerce in Southeast Asia is still relatively young, with only 1% of total retail GMV being generated online compared to 7.1% and 15.9% in the US and China. However, the region is already widely being touted as the next frontier of ecommerce opportunity, or the next ecommerce gold rush and recent research predicting the market to grow 32% year-on-year to reach $88 billion by 2025 (6.4% penetration), up from today’s $5.5 billion (0.8% penetration). As shown in our analysis, there are plenty of opportunities in ecommerce for those with deep pockets as well as those who adopt unique and local strategies.

“Don’t always go through the tiny little door that everyone is trying to rush through… maybe go around the corner and go through the vast gate that no one’s taking.” — Peter Thiel

By Sheji Ho

Share your feedback to @ecomIQ and @sheji_acommerce

Thailand Commerce Ministry to boost SMEs

Ministry of Thailand promoting Thai products in Global Market, Source: madeinthailandfair.com

Thailand’s Commerce Ministry has developed thaitrade.com to link SMEs to trade in the international arena with websites such as Amazon and Alibaba, reports the Nation. This move will encourage small and medium sized enterprises to expand from their usual local landscape.

According to Malee Choklumlerd, Director General of the International Trade Promotion Department,

The Internal Trade Promotion department would talk with Amazon and Alibaba about creating links with www.thaitrade.com to get international buyers interested in purchasing goods from Thai traders.

The department will also launch a project called “Small Order OK” (SOOK) which will encourage small goods companies to trade online, both domestically and internationally.

Thailand Commerce Ministry to boost SMEs

Under this new initiative, SMEs will be able to advertise their products via thaitrade.com and consumers will be able to browse and purchase goods through an e-payment platform. The website will also have a partnership with DHL Express for worldwide shipping allowing business owners to focus on developing their business and products without having to worry about international logistics and supply chain.

Prior to this new international trade initiative, thaitrade.com was only facilitating business-to-business (B2B) transactions and buyers had to order in bulk volumes or large quantities.

The new platform, SOOK will help SMEs generate sales of small orders coming directly from customers.

Over the next three years, the department aims to get 15,000 SMEs to go online.

Recently, there has been more initiatives in getting local trade players to sell internationally online. Most recently, local Thai fruit companies have been establishing an online presence through Alibaba’s Tmall with successful results. This government initiative is a positive step in encouraging SMEs to think on an international scale.

A version of this appeared in The Nation on July 6. Read the full article here.

jeff-bezos, Amazon Quietly Eliminates List Prices

Jeff Bezoa, Founder and CEO of Amazon, Source: businessinsider.com.au

In a major shift for online commerce, Amazon has quietly dropped any mention of a list price, changing how it entices people to buy. There is just one price. Take it or leave it.

The retailer built a reputation and hit $100 billion in annual revenue by offering deals. The first thing a potential customer saw was a bargain: how much an item was reduced from its list price.

For example, Amazon originally promoted the Rave Turbo Chute as being discounted by 36%. Then, all mention of a discount was dropped and the 60-foot water slide was simply listed at $1,573.58, with an explanation that it used to be $1,573.59 — one penny more. Then, it dropped the old/new price comparison. Then, it dropped the price to $1,532.01 and put the comparison back.

Larry Compeau, a Clarkson University professor of consumer studies, comments

“When Amazon began 21 years ago, the strategy was to lose on every sale but make it up on volume. It was building for the future, and the future has arrived. Amazon doesn’t have to seduce customers with a deal because they’re going to buy anyway.”

That is why stores love big discounts: they work. In studies by Mr. Compeau and others, the perception of a deal is often what makes the purchase happen.

Big brands slapped with fake-discount suits

J.Crew, Macy’s have been slapped with law suits for displaying bargains online and offline that are not real bargains and are breeding “fake-discounts suits”, much of it using a tough California law against deceptive advertising. Amazon itself was the target of a fake-discounts suit — an unexpected development, because all Amazon customers agree to go to arbitration instead of court. A judge dismissed the complaint but the plaintiffs are now appealing, saying the arbitration clause is “unconscionable” and should be invalidated. Amazon declined to comment on the suit.

In Amazon’s third decade, with its complete domination of the ecommerce landscape, there are signs it is beginning to emphasize the value each customer brings. Amazon also appears to have stepped up its monitoring of a vendor system that allowed some sellers to insert data that listed their products as 99% or even 100% off.

Mr. Kovarik of Rout said his analysis indicated that Amazon was regularly eliminating more list prices. “In early May, about 29% of the products we saw were missing list prices, but now the number is up to about 70%,” he said.

As Amazon prepares to enter Indonesia, it is vital the ecommerce behemoth takes the necessary steps to sway Southeast Asian shoppers who have recorded one of the lowest interpersonal trust indexes in the world.

A version of this appeared in New York Times on June 29. Read the full article here.

Amazon India Beats Local Ecommerce Platforms in Overall Web Traffic

US founder and CEO of Amazon.com Jeff Bezos poses on a lorry in India. Source: Manjunath Kiran/AFP/Getty Images

Amazon India beats local ecommerce platforms Flipkart and Snapdeal, its top competitors, in overall traffic on web and mobile. Amazon generated between 33% and 62% more monthly traffic than Flipkart for the period from November 2015 to May 2016.

With the estimated growth of the Indian ecommerce market to be $120 billion by 2020, there is a huge opportunity for Amazon to take over market share from its competitors. Gross Merchandise Value, which has been long used to measure the success of ecommerce companies has led local players to neglect other metrics such as customer service, which Amazon success story is synonymous with. The latest traffic data suggests that it may contribute in grabbing market share from its bigger rivals.

Amazon_India Market Share EcommerceGlobal vs Local Competitive Landscape

With the recent introduction of some new rules for ecommerce companies by the Indian government, including disallowing big discounts and predatory pricing, the industry’s focus from “lowest pricing” strategy has shifted towards quality services.

Amazon has recently injected more money into India totaling to $5 billion which will help them focus on building the backend technology and quality services including app and website experience, ease of payment, quick delivery, convenient return and refund policies.

On the contrary, Indian e-tailers’ ability to raise further capital has diminished – cash was burning to attract customers and gain market share via heavy discounts. It was recently reported that both Flipkart and Snapdeal had been unsuccessful in raising funds at their asking valuations of $15 billion and $6.5 billion, respectively.

Amazon has made aggressive moves in India since its launch in 2013 and has emerged as the most trusted online retailer. This could be another indication of their success in grabbing market share in the densely populated country. This also aligns with the trend of shoppers trusting global brands over local ones whether it is for consumer brands or ecommerce platforms.

Most Trusted Online shopping Brands in India, Amazon India Beats Local Ecommerce Platforms in Overall Web Traffic
With Alibaba’s India entry in April and Amazon causing top Indian ecommerce companies to rethink their success measurement metrics, it will be interesting to see who will emerge as winners in the global vs local ecommerce competitive landscape. Will local companies survive the competition and outperform the global companies in the long term?

A version of this appeared in Forbes on June 27. Read the full article here.

By Ruchipha Thakral

Following in the footsteps of China and the U.S., Southeast Asia is on the cusp of an ecommerce golden age. With online shopping accounting for only 1 percent of retail today, the region is slated to reach double-digit China-esque numbers within the next 4-5 years.

With a population of 600 million — twice that of the U.S. — Southeast Asia is poised to eventually become the third-largest ecommerce market in the world, second only to China and India (and ultimately surpassing the U.S.).

But enough of the macro overview. How did 2015 turn out? And what will 2016 bring to ecommerce?

Local, regional and global players stepped up their games. In particular, we saw Indonesia rise this year: MatahariMall launched with big fanfare as the nationalist answer to Rocket Internet’s Lazada; Lazada, in turn, doubled-down on Indonesia with the return of previous CEO Magnus Ekbom; for the first time, aCommerce Indonesia surpassed Thailand in order volume; and, recently, China’s Alibaba competitor JD snuck into Indonesia and surprised everyone with the launch of JD.id. This has served to add to an immense amount of pressure and competitiveness in the pure B2C space.

2015 also was the year of M&As, as other players allied together or were absorbed in order to arm themselves against the behemoths mentioned above. First, Ardent Capital-backed WhatsNew acquired lifestyle vertical site Moxy in Thailand in January.

More recently, we witnessed an encouraging ecommerce exit as beauty site Luxola was acquired by French luxury superstar LVMH. And in December, aCommerce gave a 20 percent stake to a 150-year-old Swiss retail distributor, giving it access to more than a hundred of its Western brands and physical infrastructure in the region.

Unfortunately, the year did not pass without its share of casualties due to the hyper-competition in B2C ecommerce in Southeast Asia. Fashion retailer Paraplou Group shut down in October after two years (and having raised $1.5 million) due to lack of focus and deep pockets.

In March, SingPost and Indonesia’s mobile phone retailer Trikomsel announced a mysterious ecommerce partnership — only to have reports pop-up of the telco’s dire financial situation three months later, in addition to the sudden removal of Wolfgang Baier as Group CEO of SingPost in December.

If 2014 was the year of unprecedented capital injections to build Southeast Asian ecommerce businesses, 2015 was the year we saw the early rise, fall and transmogrification of players in the fragmented landscape as they vied for a piece of the rapidly growing ecommerce pie.

We expect to see serious movement in the region from offline players moving online.

In line with our annual tradition, we are giving you a sneak peek at what will be on the menu for next year. The conclusions were determined through extensive investor and executive interviews, as well as internal data and secondary sources from January 2015 to December 2015.

Because we work for a major Southeast Asian service provider, with the biggest ecommerce names in the region (such as Lazada, MatahariMall, L’Oreal and more), we are privileged to sit at the intersection of tech, logistics, retail, marketing and VC. We see where our partners are putting their money and where the investors are willing to follow.

As such, we are able to see with acuity where the growth will be. There’s no crystal ball or trusting a gut feeling here; we simply have the privilege of a bird’s-eye view that most players don’t have, and we’re providing projections here in the form of predictions.

1. Brand.com Is Poised To Be The New Black

The evolution of ecommerce commonly follows the trajectory of P2P and C2C to B2C to eventually Brand.com. The U.S. went from Craigslist and eBay to Amazon to brand sites like Nike, J.Crew and Gap. China went from Taobao to Tmall and JD to the many standalone and marketplace brand sites, like Estee Lauder, Burberry and Coach.

Today’s Southeast Asia is following a similar pattern, yet at a much faster pace due to “1 to n,” horizontal progress and the resulting leapfrogging behavior. In our region, we have P2P (OLX), C2C (Rakuten, Tokopedia, Shopee), B2C (Lazada, Zalora, MatahariMall) and Brand.com (L’Oreal, Estee Lauder) all happening at once within a very short time frame.

Even Unilever in Thailand has created an ecommerce division with revenue targets they expect to start hitting in 2016. We are seeing brands going online much earlier than one would normally expect.

It was no big surprise, then, when aCommerce recently landed a strategic investment from Asia’s biggest retail distributor, DKSH. Swiss-based DKSH owns distribution rights for some of the biggest brands in the region, such as P&G, Unilever and Johnson & Johnson.

This partnership validates the growing demand for brand ecommerce in the region, and will further expedite the process at which brands go online, whether on their own brand sites or on the many marketplaces in Southeast Asia.

10 Trends That Will Shape Southeast Asian Ecommerce in 2016

2. Omni-Channel Awakens: “There Will Be No More Ecommerce, Only Commerce”

This is what aCommerce Group CEO Paul Srivorakul said when ecommerce logistics player SingPost announced it would create a futuristic mall that combined online and offline shopping, in pursuit of the omni-channel retail dream — a dream that is quickly becoming a reality in the U.S. and China.

Referring to a seamless shopping experience across stores and the online channel, omni-channel retail is considered the elusive Holy Grail in retailing due to the politics and logistical challenges of integrating often independent online channels with their brick-and-mortar counterparts. But so far, Southeast Asia has been late to the game, with its focus (reasonably so) on building up pure-play ecommerce first.

In 2016, we expect to see serious movement in the region from offline players moving online, and vice versa. 2016 will be the year in which offline brands will go online due to the plethora of online marketplaces available, as well as the presence of full-service ecommerce enablers.

Southeast Asia is on the cusp of an ecommerce golden age.

For B2C players, the appeal of adding offline operations to the mix includes enabling faster last-mile fulfillment and delivery. In Southeast Asia, Vietnamese electronics retailer Nguyen Kim (acquired by Central Group) is able to pull off same-day, 4-hour deliveries because of the massive offline retail footprint it has.

Ecommerce players with a traditional offline arm, such as MatahariMall, Cdiscount and Central, will be in an advantageous position to execute on this. However, 2016 will also have B2C pure players looking into this, as logistics and last-mile in Southeast Asia increasingly struggles with industry-wide capacity bottlenecks.

10 Trends That Will Shape Southeast Asian Ecommerce in 2016

3. Niche-Commerce Models Will Evolve To Avoid The B2C Bloodbath

In our 2015 predictions, we discussed how B2C ecommerce is a long-term, cash-intensive, winner-takes-all game. Companies trying to battle it out in this space better have deep pockets (see Lazada, MatahariMall, and JD) — or face extinction (see Paraplou Group).

In his seminal essay “Ecommerce is a Bear,” Andy Dunn, founder and chairman of Bonobos.com, elaborates on why B2C ecommerce is a winner-takes-all game, and what options remain for other players who don’t have the luxury of deep pockets or a sugar daddy.

Much of this comes down to a “David versus Goliath,” Peter Thiel-esque contrarian approach to ecommerce. The U.S. ecommerce scene has been dominated long enough by Amazon to witness some of these models coming to fruition over the last several years: 1) Proprietary Pricing (think flash sale, Gilt Groupe), 2) Proprietary Selection (ModCloth, NastyGal), 3) Proprietary Experience (Rent the Runway, Birchbox), and 4) Proprietary Merchandise (Warby Parker, Bonobos).

This will be the year where more creative ecommerce models emerge. Companies like Pomelo and Sale Stock Indonesia have already adopted the proprietary merchandise approach toward achieving a competitive advantage. They do this by designing their own fashion and gradually moving upstream to include manufacturing.

Moxy has staked their flag as the “Everything Store,” but focused on women. We also may see the return of subscription-commerce business models with retailers like Central, impacted by a dip in foreign shoppers, seriously considering a Gilt-style flash sales model to get rid of excess inventory.

10 Trends That Will Shape Southeast Asian Ecommerce in 2016

4. Cross-Border Ecommerce Will Be Driven By Silk Road 2.0, Not AEC

Despite all the media hype and lofty expectations (even our own predictions last year), the ASEAN Economic Community (AEC) will not have a significant impact on ecommerce in 2016.

Governments are too fragmented on policy; coupled with the immediate growth opportunity within the domestic markets, it doesn’t make sense to focus on cross-border within ASEAN, as evidenced by companies such as Lazada and MatahariMall doubling-down on Indonesia’s ecommerce opportunity.

Cross-border ecommerce in 2016 will be driven mainly by what we call “Silk Road 2.0.” These are Greater China-based companies that will bring their products into Southeast Asia, laying the foundation for our generation’s version of the Silk Road and attempting to expand China’s soft power and hegemony through commerce and digital.

Southeast Asia is poised to eventually become the third-largest ecommerce market in the world.

China’s JD is a classic example. The No. 2 online retailer in China just recently set up shop in Indonesia and will be expected to leverage their 40+ million SKU product assortment and China-Southeast Asia supply chain to compete with the likes of MatahariMall and Lazada. Alibaba investing almost half a billion into SingPost clears the way for Alibaba, Tmall and Taobao packages to smoothly enter Southeast Asia.

5. Payments: COD Will Continue Its Reign While Third-Party Payments Struggle

The next double-digit billion dollar opportunity in Southeast Asia ecommerce is the third-party online payment space. U.S. has PayPal and China has AliPay; what does Southeast Asia have?

Contrary to what many people believe, building a successful payment product isn’t about technology, it’s about distribution. Payment technology is a commodity; everyone’s building the same thing, including banks (SCB UP2ME), telcos (TrueMoney, PAYSBUY), media (Line Pay, AirPay by Garena), retailers (helloPay by Lazada) and payment-focused startups (2C2P, Omise).

The hard part is distribution. How do you reach critical mass in order to cruise off network effects? Until this happens, COD will remain the dominant payment method in Southeast Asia. Based on aCommerce’s latest aggregated numbers, COD made up 74 percent of transactions in Southeast Asia, up from 53 percent the year prior. This validates the importance of COD to ecommerce in our region, and already exceeds the COD penetration rate at the height of its popularity in China back in 2008.

Eventually, COD will naturally reach its shelf life and be replaced by a “modern” third-party online payment product. Even then, the most likely scenario will be one leading payment product per country in Southeast Asia due to the region being fragmented.

Until then, good luck “killing off” cash on delivery, Mr. Jon Sugihara.

6. The Fizzle Of Fast Fashion E-Tailers

We’ll see mass, fast-fashion players like Zalora struggle and either fizzle out or be rolled into cousin Lazada. People familiar with the history of ecommerce in China will see similarities between Zalora and VANCL. VANCL, a mono-brand fast-fashion retailer founded by Chen Nian (who sold his previous business, Joyo, to Amazon), rose to prominence in 2009, raised up to $570 million and even planned for an IPO, but then gradually faded away. Selling your own fashion products is less about retail economics and much more about brand building.

In addition, VANCL suffered from competition from Taobao merchants who sold similar products for higher quality at lower prices. Replace Taobao with Instagram and Facebook and you’ll understand the pain that Zalora and other mono-brand, mass-fashion retailers are going through in Southeast Asia.

Ecommerce companies need to understand that this is a long-term game.

Following the natural progression of ecommerce, fashion will start becoming a more popular category for online shoppers, especially with the rise of richer female consumers in Southeast Asia. Fashion brands currently have the choice of selling on the many marketplaces in Southeast Asia and/or selling via their own brand sites. We’ll expect them to set up shop on their own brand sites or specialized, fashion-friendly marketplaces.

However, premium fashion brands may be hesitant to set up shop on mass marketplaces like Lazada and Rakuten because of the risk of being perceived as a mass brand. After many years of courting fashion and luxury brands, Amazon is still struggling. Don’t forget, most of Amazon’s premium fashion sales today are generated via Shopbop, a fashion-only destination that the company acquired in 2006.

7. New Channels Will Emerge To Challenge Google And Facebook’s Dark Side

When you’re digging for gold in the remaining ecommerce gold rush on the planet, you better be equipped with the best picks and shovels available. Unfortunately for ecommerce players in our market, the range of weapons available is quite limited due to historical and socio-economic factors unique to Southeast Asia. The appearance of a “no-tail” landscape in terms of publishers severely hampers the effectiveness of traditional tools, such as affiliate marketing and programmatic display.

In Southeast Asia, players are already exhausting the “usual suspect” channels, such as Google Search, Facebook and Criteo, with the result being CPCs rising to all-time highs and companies tapping into offline marketing to seek better returns. This is Andrew Chen’s “Law of Shitty Clickthroughs” in full effect.

Companies and savvy entrepreneurs will start addressing this gap by designing and building new demand-generation platforms to offer an alternative to the Googles and Facebooks out there. Expect to see more ecommerce firms adding channels such as price comparison, coupon sites and cash-back sites, as well as innovative affiliate marketing solutions to balance their media mix. 2016 will give us the excavators and bulldozers to complement today’s picks and shovels.

8. The Battle For The Last Mile Continues As 3PLs Fail To Adapt

In 2016, we will see companies like Lazada (LEX), MatahariMall and aCommerce investing in building out their own delivery fleet in order to help relieve the industry-wide capacity issues and serve the anticipated record-breaking transaction volume. The pressure will only become bigger in 2016 as transaction volume is expected to hit record highs in Southeast Asia.

Challenges with last-mile delivery in Southeast Asia, if not addressed properly, will become the biggest bottleneck to ecommerce growth in the region. The industry is currently witnessing industry-wide capacity bottlenecks beyond what the JNEs, Kerry Logistics and DHLs of this world are able to handle.

Part of this is the poor infrastructure to begin with. China, the world’s largest ecommerce market, never really had this issue because of the socialist and central government mindset of prioritizing infrastructure investments. By the time ecommerce took off, the infrastructure was already there, which resulted in last-mile delivery becoming a commodity service.

Also, many existing delivery companies were never built for B2C deliveries to begin with. Their core competencies are in B2B deliveries, which typically don’t face B2C headaches, like returns management, reverse logistics, pre-calling, multiple delivery attempts and cash on delivery.

10 Trends That Will Shape Southeast Asian Ecommerce in 2016

9. Channel Management Will Be The New “Programmatic” Ad Agencies Still Stuck In 2011

Year in, year out, brand advertisers, agencies and adtech sales execs rave about programmatic display advertising and DSPs being the future of digital marketing. However, few actually have been outside their ivory tower in Singapore long enough to realize that “no-tail” has essentially killed off any promise of “programmatic” advertising in Southeast Asia outside of Singapore and Malaysia.

The real “programmatic” opportunity in Southeast Asia will be in ecommerce, not in display advertising. With the advent and fragmentation of online marketplaces, the challenge for brands will be to choose on which channels to be present and what products to push in each of these channels.

One of the biggest issues faced by all ecommerce players in Southeast Asia is the lack of talent.

2016 will see the emergence and adoption of next-generation channel management platforms, which are essentially “ecommerce DSPs.” These products will help brands enable omni-channel retailing across all major marketplaces, while also offering traditional programmatic benefits such as a dynamic optimization engine and plug-and-play integration with multiple first- and third-party data sources for better targeting, personalization and optimization.

10. The Talent War Will Inflate Salaries Faster Than Uber’s Valuation

One of the biggest issues faced by all ecommerce players in Southeast Asia is the lack of talent. In 2015, it was common to see employees being poached left and right with new salaries of 1.5-3x. Obviously, this isn’t sustainable, but it is the current foundation of the talent war in Southeast Asia.

Opportunistic professionals, often young, jump to roles where their skills, experience and leadership don’t match the package and title. “The most important thing to optimize for on your first job is growth. Growth is king, queen, and emperor combined. Optimize for growth above compensation, above location, above lifestyle, and above anything else,” says Auren Hoffman, former LiveRamp CEO who founded and sold five companies.

Ecommerce companies need to understand that despite all of us being in the midst of a Gold Rush, this is a long-term game. To attract and retain the best talent, more and more ecommerce companies will be buckling down on culture and building an appealing work environment. aCommerce in 2016 will be relocating its headquarters to the Ecommerce Valley of Bangkok — Emquartier (also home to Lazada’s regional headquarters).

11. Amazon Will Enter Southeast Asia

Not. Sorry, Jeff.

By Sheji Ho & Felicia Moursalien

Please share your feedback to @ecomIQ@sheji_acommerce and @LilFel

This article originally appeared on TechCrunch Dec 24. 

According to Daniel Tumiwa, the Chairman of the Ecommerce Association of Indonesia (IDEA), Amazon is coming to Indonesia with $600 million US (Kompas).

Tumiwa did not know exactly when Amazon would begin operations in Indonesia but said that the company’s first rumored entry into the region would probably follow the same pattern in other large countries.

The pattern, like in India, consists of one year of testing the waters followed by a decision on whether to stay in the game or not.

The IDEA chairman mentioned that Amazon was able to take over 50% of the Indian ecommerce market within one year, despite well-established local competitors like Flipkart. However, he also noted that they bowed out of China after one year, conceding the market to Alibaba. There are no ecommerce companies in Indonesia with the same kind of dominance that Alibaba has in China, which is why it would make sense for Amazon to enter the Indonesian market now.

Indonesia’s rapidly growing middle class, which is slowly becoming more comfortable with online shopping, makes the market potential huge. With an estimated worth of around $300 billion US, Amazon can burn through plenty of money to find solutions to Indonesia’s ecommerce problems.

A version of this appeared in Coconuts Jakarta  and Deal Street Asia on June 20. To read the full story, click here and here.