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Here are the ecommerce headlines you should know before you head home tonight.

 

1. Google expands its initiative to provide free Wi-Fi hotspots in emerging markets

Google today announced a collection of updates that are aimed at helping get ‘the next billion’ internet users in India and emerging markets online. It could make a huge difference to emerging markets. Read the rest of the story here

 

2.E-commerce firms in plea for state help

More than half of Thailand’s online stores and e-commerce turnover is dominated by foreign e-commerce operators such as Lazada and newer players like Singapore’s Shopee and South Korea’s 11street. Read the rest of the story here

 

3. Vietnam can become Southeast Asia’s largest B2C ecommerce player

This is according to a recent report by global research company Frost & Sullivan, which also predicts the region’s e-commerce market will double in five years. Read the rest of the story here.

 

4. How to enhance last mile delivery, consumer experience with SMS Services

While not a popular choice of communication between people today, businesses still leverage SMS because it is always delivered even when customers do not have smartphones or data connection, representing reliability and consistency. Read the rest of the story here.

 

5. Microlending site UangTeman raises pre-series A to lend banks a hand

The startup launched in 2015 and has a simple premise: it hands out small loans of up to US$136 for a period of 10 to 30 days. The name, by the way, roughly translates to “Friend’s Money”. Read the rest of the story here.

ecommerceIQ Summit panel

Pioneers of ecommerce in Thailand at the ecommerceIQ Summit in Feb 2016. Tarad, Kiehl’s, Lazada, aCommerce discuss the difficulties of moving online.

In the era where two-thirds of the world are going online, a phenomenon known as FOBO, or the Fear Of Being Offline, is becoming a real one. People panic when they lose access to the internet, no matter how temporary those situations might be. But did you know the reverse is experienced by companies in emerging markets?

Despite the massive opportunity of ecommerce in Southeast Asia ($70  billion by 2020, according to Bain and recent Amazon and Alibaba forays into the region), only 3% of total retail sales come from the online channel. What’s going on? In order to understand the apparent slow migration into online retail,ecommerceIQ surveyed 132 senior level retail executives in February 2016 at the eIQ Summit in Bangkok.

The Summit was attended by Director and C-level executives from a majority (67%) of top brands, retailers and e-tailers in Thailand such as L’Oreal, Essilor, LINE, Central Group, Casino Group, P&G and more. Here is the result of their survey responses.

ecommerce research Southeast Asia


1. Limited internal know-how (47.7%)

Forming an ecommerce team to build an online strategy is one of the most strenuous bottlenecks encountered in Southeast Asia. The region remains low tech intensive and resources are so scarce that Lazada, Southeast Asia’s largest online marketplace, has taken the talent challenge into its own hands by educating the first ecommerce generation and generating local expertise out of fresh graduates.

Sheji Ho, aCommerce Group CMO, explains, “Because of the lack of talent, companies are constrained to hire ex-digital marketer or brand managers as to run ecommerce divisions but the scope encompasses warehouse management, delivery, fulfillment, reverse logistics, it is a much broader set of activities than what they are used to.”

2. Cannibalizing offline sales (24.2%)

Channel conflict is when online sales cut from offline sales or if you’re a brand looking to sell direct to consumer, you immediately create a channel conflict by putting yourself in competition with your distributors. In Brand Commerce, channel conflict can be crippling, as retailers can sometimes punish brands offline positioning due to ecommerce promotions or perceived exclusive offers. To overcome this, brands like L’Oreal are creating coordinated online and offline promotional campaigns that compliment and encourage each other. 

3. Not enough demand (23.5%)

With ecommerce slated as less than 3% of all retail sales in Southeast Asia, businesses simply do not think the market is ready yet. But as the Bain report showed above, the market is evolving rapidly. Others believe that the demand is there, but because the customer experience is so poor, Southeast Asians are not compelled to repeat purchase. The internal ecommerceIQ Beauty Report findings in Thailand showed that only 20% of top global brands have a customer experience rated higher than 70%. 

II.What are the top in-demand services?

offline business fear of going online

Source : ecommerceIQ Thailand 2016 Survey

Interestingly, strategy and consulting is the top sought after service for ecommerce in Southeast Asia. This reflects the very nascent level of ecommerce development for the vast majority of retailers in the region still who are not ready to get operational and is very much indicative of an emerging market. Below is a ranking of the top ecommerce services businesses are looking for in Southeast Asia:

#5 Web Development

A website serves as the first touchpoint with customers in an online world so an experienced team dedicated to its development is key to a successful strategy. It helps the company reach millions of internet users who may become potential customers. UX, UI developers are highly sought after. 

#4 Fulfillment, Logistics & Delivery

The ecommerce ‘business-to-consumer’ model requires a different set of systems and mindsets. In Southeast Asia, the complexity of deliveries due to the region’s poor infrastructure, difficult geography, complex cross-border commerce, high rates of cash on delivery all take the challenge to an entirely foreign level. The company must also take into account the customer demand for visibility and transparency. Reverse logistics in case of returns must also be taken into account.

#3 Omnichannel enablement

The omnichannel experience leverages customer behavior across all relevant sales and distribution channels, online and offline. It is basis for a consistent, personalized interaction between brand and customer. Having an omnichannel strategy is the next step to reaching your customer and providing them with convenience to shop anywhere at anytime. 

#2 Performance Marketing

Data collected online is a powerful tool to enhance marketing to a level that cannot be reached with offline tools. A combination of new advertising tools and innovation makes performance marketers able to help retailers and affiliates grow their businesses and drive online sales. Performance marketing done right creates win-win opportunities for both retailers and affiliates.

#1 Strategy and Consulting

It is necessary in today’s digital age to have an online presence if businesses want to continue growth. In order to get pass the fear of going online, finding the right ecommerce service partner to provide strategy and consulting will take the brand to the next stage of ecommerce maturity and rid them of FOGO once and for all.

III. Value of the ecommerce B2B landscape

The good news is that these potential ecommerce businesses are willing to invest into the process, although almost a quarter of participants are not willing to spend more than $20 thousand annually. In ecommerce terms that’s barely enough for a website and fulfillment of very few items per week, according to The Evolution of Brand Commerce in Southeast Asia, which gives a cost breakdown of ecommerce.

ecommerceIQ Summit budget survey questions

Ecommerce in Thailand and Southeast Asia is being restrained by a lack of expertise and fears of offline retail legacy politics. But as the region wakes up to the opportunities inherent in online, much like the US and China before them, businesses will find a way to overcome the bottlenecks.

By Alexandre Henry

Tweet your feedback to @ecomIQ and @alex_Nry

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