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This article originally appeared on TechCrunch

Southeast Asia Is Leading The World’s Most Disruptive Mobile Business Models

Earlier this summer, more than 35,000 industry leaders gathered at Mobile World Congress Shanghai 2015 to discuss the future of mobile, making it the largest-ever mobile-focused event in Asia. Whereas the majority of the conference focused on new technologies such as 5G and Internet of Things, I was joined by peers from Netflix, Line, Ola Cabs, Flipkart and Twitter to discuss future business models for the mobile Internet.

Most of this discussion steered toward China and India, but I was there to focus on Southeast Asia. This perspective (or some would say, bias) isn’t just because my company operates in Southeast Asia, but rather is because of our $16 million dollar bet that innovation and disruption in mobile will be coming out of Southeast Asia far faster than other regions, such as the U.S., China and Japan, as expected.

Why? I will argue below that Southeast Asia is at the crossroads of two major socio-technical forces that are creating a perfect storm scenario: the convergence of “no-tail” and “mobile leapfrogging.”

No-Tail: Southeast Asia Jumped Straight Into Web 2.0 And Commerce Will Outlive Ad-Driven Business Models

Remember the early millennial heyday of GeoCities homepages, and later the evolution to self-publishing/blogging, user-generated content? That glorious era of Web 1.0 and, more importantly, Web 1.5 in Western markets was what gave birth to a monolithic monetization model around ad networks like Google AdSense and premium ad networks through an ecosystem of “long-tail” publisher content on platforms such as Blogger.com, MovableType and WordPress.

But in Southeast Asia, the Internet took off a bit later than its Western counterparts, when a tiny little site like Facebook was already most Asian Internet users’ first online experience — the end of the Web 2.0 wave, which hit Thailand in 2007 when Internet penetration crossed the 20 percent mark.

We use Thailand as a proxy for Southeast Asia because the country is the most developed one in the region (excluding Singapore/Malaysia) and, unlike Singapore/Malaysia, most VCs tend to agree that the trends and lessons learned in Thailand apply across the rest of the region, especially in upcoming major markets such as Indonesia, Philippines and Vietnam.

If you compare Internet penetration data from the U.S. and Thailand, you’ll notice that the U.S. went through the Web 1.0 and Web 1.5 booms while having significant double-digit Internet adoption rates of 36 percent and 61 percent, respectively. In Thailand, this number was in the dismal single digits during the same periods. It wasn’t until Web 2.0, around 2007, that Thailand started to see Internet adoption take off rapidly, significantly contributing to the growth of national GDP and e-commerce.

Southeast Asia Is Leading The World’s Most Disruptive Mobile Business Models

Coming to the Internet party late resulted in user-generated content creation going straight onto closed social media systems such as Facebook, Instagram and Twitter — in effect, what marketers languished calling a “no-tail” landscape with lack of quality long-tail publisher inventory.

Southeast Asia Is Leading The World’s Most Disruptive Mobile Business Models

Because of the lack of this long-tail in Southeast Asia, the online advertising industry has lagged behind, forcing both established firms and startups to look for non-advertising-based monetization sources. Enter e-commerce and digital goods.

From Traditional Ad-Driven Monetization Toward Hybrid And Commerce-Driven Business Models

One of the more interesting effects of “no-tail” is the accelerated development and proliferation of unique and Asia-specific business models. This is where the Asian culture and ecosystem meets local ingenuity and entrepreneurship. Whereas startups and Internet companies in the U.S. have a tendency to go with advertising as their default monetization strategy — see Pinterest (Promoted Pins), Instagram (Carousel Ads) and recently Snapchat (“Vertical, Video, Views”) — Asian businesses in our space have had to look elsewhere to make money.

China’s Tencent is the poster child of this. The company generates more than 80 percent of their revenue from VAS (value added services, mainly virtual goods) and e-commerce. Less than 10 percent of their revenue is from selling banner ads and search keywords. Another example is Mogujie, a female-focused social shopping site that raised more than $200 million before being acquired by Alibaba. Mogujie started as a Chinese Pinterest clone, but quickly pivoted into e-commerce and social shopping. Unlike Pinterest, who makes money off “Promoted Pins,” Mogujie struggled to monetize through advertising and had to move into e-commerce to survive.

Southeast Asia Is Leading The World’s Most Disruptive Mobile Business Models

The same thing is happening in Southeast Asia as it follows a similar path as China because of similar ecosystems. Publishers are seeking help to monetize through e-commerce because they struggle making money from selling ads through ad networks. For example, based on average Thai RPMs (revenue per 1,000 impressions/page views), a popular local vertical publisher like Cosmenet.in.th will only make $350 per month based on page view numbers from SimilarWeb. This isn’t even enough to cover hosting fees, which is why it’s not surprising that these publishers are looking for non-traditional monetization channels such as e-commerce.

Mobile Leapfrogging: Southeast Asia Is “Mobile-First” —  How This Will Be The Breeding Ground Of Future Business Models

Everyone talks about how China and India are going to be the next big thing in mobile, which is not surprising because of how massive those markets are. However, if you normalize the numbers and look at mobile phone and mobile Internet adoption rates, Southeast Asia is actually the more interesting case.

The Average Thai User Has 1.4 Mobile Phones

Mobile phone adoption has skyrocketed in the recent years in Thailand with the latest numbers outpacing the U.S. and China in terms of mobile cell phone penetration. Unburdened by a desktop Internet legacy and driven by ever lower costs of smartphone manufacturing, cell phone adoption in Thailand has accelerated to a point where the average Thai person has 1.4 mobile phones, or 140 percent adoption. Compare this to the U.S. and China, which are “only” seeing 91 percent and 77 percent adoption rates, respectively.

Southeast Asia Is Leading The World’s Most Disruptive Mobile Business Models

Mobile Leapfrogging: Thailand Has Surpassed The U.S. And China in Mobile Internet Penetration In Less Than One Year After Introducing 3G

Mobile Internet penetration in Thailand has jumped from a mere 1 percent in 2009 to a whopping 56 percent in 2013, with the bulk of the growth coming right after the country’s official 3G launch in early 2013. Mobile Internet adoption in Thailand beats mature markets such as the U.S. and China, which stand at 40 percent and 34 percent, respectively.

Southeast Asia Is Leading The World’s Most Disruptive Mobile Business Models

Another way of looking at this is by analyzing the percentage of mobile Internet users out of total Internet users. For Thailand, this number is 139 percent, meaning that Thailand has more mobile phones connected to the Internet than there are Internet users. Thailand pummels the U.S. and China, whose numbers are 47 percent and 75 percent, respectively.

Southeast Asia Is Leading The World’s Most Disruptive Mobile Business Models

Companies in Southeast Asia are noticing this trend and are quickly adapting to it. For example, Lazada now gets more than 50 percent of their traffic from mobile channels after making app development a priority. They’re also one of the first e-commerce players in Southeast Asia that launched both their iOS and Android apps. MatahariMall, Lippo Group’s new e-commerce venture, started with their mobile website and worked backward to create their desktop experience. Others, such as SaleStock, a fast-growing fast-fashion e-commerce site in Indonesia, are foregoing desktop completely and only provide a mobile, albeit non-native, shopping user interface.

The Perfect Storm: No-Tail Meets Mobile Leapfrogging — A Peek At The Future Of Mobile Business Models In Southeast Asia

At the crossroads of “no-tail” and “mobile leapfrogging” we can expect to see a melting pot of new and unique mobile business models to Southeast Asia.

C2C Models: The Six Steps To Quick Social Commerce In Southeast Asia

One interesting, and uniquely Southeast Asian, phenomenon is “shadow marketplaces.” Because of the two forces in play — high mobile penetration and content creation concentrated on social media platforms — there’s been a rise of informal C2C e-commerce on social media, such as Instagram, Facebook and Line. These are not your small mom-and-pop stores that sell bits and pieces here and there — an estimated and whopping one-third of total Thai e-commerce GMV comes from transactions happening on these shadow marketplaces.

This is how it works: Merchants feature their products on Instagram and the transaction is completed via Line messaging, the most popular chat app in Thailand:

Southeast Asia Is Leading The World’s Most Disruptive Mobile Business Models

 

Southeast Asia Is Leading The World’s Most Disruptive Mobile Business Models

This may seem very low-tech to many of us who are used to more “advanced” and seamless e-commerce shopping on platforms such as Amazon and Tmall, but the societal and economical impact it has on e-commerce in Southeast Asia cannot be ignored.

B2C Models

At the Mobile World Congress panel, I shared the stage with Hanna Lee from Line Corp. She’s the GM for Line’s China and Hong Kong business. Hanna showed Line’s evolution from a messaging app to a total media solution covering digital goods, music and video. In Southeast Asia, realizing the shift toward mobile commerce, the same company has launched several pilot projects to tap into e-commerce monetization, most notably Line Flash Sale, Line Hot Deal and Line Groceries.

Line Groceries launched first in Thailand because it’s Line’s second-biggest market outside of Japan, with more than 29 million users out of a total 600+ million users. This is proof that big players like Line are foregoing launching in their largest markets, like Japan, and jumping straight into the most fertile grounds for testing new and innovative business models.

Southeast Asia Is Leading The World’s Most Disruptive Mobile Business Models

B2B2C Models

We’ve recently seen players like Pinterest, Facebook and Google going aggressively into e-commerce for monetization. Earlier last month, Google announced “Purchases on Google” enabling buy buttons on mobile. The same day, Facebook started testing digital stores with a buy button for Facebook Pages, joining the ranks of Twitter, Instagram and Pinterest who ventured into buy buttons in the months prior. All these firms are looking into e-commerce as an additional, albeit lucrative, revenue stream.

However, in Southeast Asia, this may not be a luxury feature compared to mature markets like the U.S. and Europe. Instead, enabling e-commerce through buy buttons may be a necessity, and even a survival mechanism, because the market, as we argued before, is commerce-driven, not ad-driven. Also, given the perfect match of supply and demand in Southeast Asia as we’ve seen in the shadow markets case, we expect adoption of buy buttons to be much faster here.

Given the plethora of established e-commerce platforms available, even in an emerging market like Southeast Asia, one would wonder why Google and Facebook enabling e-commerce is such a big deal. A quick look at actual mobile behavior in a market like Thailand helps us connect the dots. Below is an image that shows two mobile phone home screens of a Thai high school student.

Southeast Asia Is Leading The World’s Most Disruptive Mobile Business Models

Screen one, on the left, shows social media and chat apps like Instagram, Facebook and Line, in addition to a folder dedicated to games. The other screen shows nothing but camera apps.

Three interesting observations can be made here:

  • There’s no Google. Despite Google’s recent massive numbers, as well as media newly proclaiming that mobile isn’t ruining Google’s search business at all, it would be interesting to see these numbers broken down by market, especially Asia and specifically Southeast Asia. Blending numbers and behavior across markets doesn’t reveal the true impact of a “mobile-first” or “mobile-only” market like Southeast Asia. Don’t get me wrong — Google Search is here to stay, even on mobile. However, its impact will be less prominent in our mobile age. As a MediaPost commentary points out: “In a sense, then, the rise of mobile means that — in some cases — search engines are being leapfrogged; we’re going directly to familiar, popular or mobile-friendly channels without visiting a search engine first.”
  • There’s no YouTube. Video is moving to Instagram, Facebook and messaging apps like Line. Facebook now has more than 3 billion video views per day. And Line recently launched a YouTube-like video service in — where else but — Thailand. Line picked Thailand over its biggest market (Japan) for this launch because Thailand, not Japan, is a truly mobile-first market.
  • There are no commerce apps. Granted, this is an 18-year old high school student in an emerging market, but as soon as habits are formed, they are very hard to change. Also, as discussed earlier, there may not be a need for commerce apps at all as Instagram, Line and Facebook already are becoming the de facto commerce platforms in Southeast Asia. Facebook, Instagram and Twitter officially going into buy buttons will only reinforce this, especially in this region. This phenomenon with the next generation will pose a major challenge to established e-commerce retailers and platforms in Southeast Asia, given how dominant Facebook, Instagram, Line and Twitter are in this region.

Conclusion

Driven by two unique forces, “no-tail” and “mobile leapfrogging,” Southeast Asia is in a special position to be the melting pot for new mobile business models. Stop looking at the U.S., China or even Korea/Japan for inspiration for the future of mobile, because it is not happening there. Ironically, mature and developed markets carry the heavy legacy of the desktop Internet era, whereas Southeast Asia started with a clean slate, allowing the latter to be in a unique position to experiment and develop new business models on mobile, primarily driven by commerce.

By Sheji Ho

Please share your feedback to @ecomIQ and @sheji_acommerce

View or download the Mobile World Congress Shanghai 2015 presentation – “Commerce + Mobile: Evolution of New Business Models in Southeast Asia
Ericsson Mobility Report

Fig.1: Mobile subscription is set to increase at a compound annual growth rate

The Ericsson Mobility Report, published in June, presents a market overview of mobile broadband and smartphone availability in Southeast Asia and Oceania. Find the key takeaways below:

  • Smartphone subscriptions are expected to increase at a compound annual growth rate (CAGR) of 15%, up until 2021 (See Fig.1).
  • The rise of mobile broadband is due to smartphone availability and popularity of data intensive apps (leading to a competition of data driven bundle deals by Thai mobile carriers).
  • Mobile broadband growth has the potential to trigger an entirely new wave of growth across Southeast Asia, opening up opportunities for innovation in apps and services
Ericsson Mobility Report

Fig.2: Line is the most popular app in Thailand, whereas other countries in the region prefer the Facebook trifecta.

Unlike Whatsapp, Line users in Thailand are able to do more than messaging on the app. Line offers payments, branded content through mobile marketing and has now branched out to food delivery. This would explain the app’s popularity in the country, whilst Whatsapp remains the go-to choice for smartphone users in Malaysia, Indonesia and Singapore.

Smartphone Use In Southeast Asia

Ericsson also reports that in Malaysia and Thailand, almost half of smartphone users access social networking, instant messaging and online videos on a daily basis (40-50%), making the two countries very mobile driven. This focus on mobile leaves a lot of room open for mobile commerce opportunities, from payment platforms to shopping (see Fig.3)

Ericsson Mobility Report

Fig.3: Thailand and Malaysia has the most daily users of social networking apps

When it comes to the profiles of daily smartphone users, there are differences between countries. However, there is an overrepresentation of users who are young and educated from a regional level.

Ericsson Mobility Report

Fig.4: Currently, Wi-Fi has the larger share of overall smartphone traffic

Southeast Asia’s mobile broadband and Wi-Fi data traffic on smartphones continues to grow. User generated data shows that all markets in the region experienced increases in average data traffic per user for mobile broadband and Wi-Fi. Leisure time apps, such as games are not necessarily data intensive but are often accessed from home, this also contributes to Wi-Fi growth.

Mobile Subscriptions in Southeast Asia

Ericsson Mobility Report

Fig 5: Indonesia leads the way in mobile subscriptions

  • Singapore, Malaysia and Thailand are expected to have more than 100% mobile broadband subscription penetration by the end of 2016.
  • Mobile subscriptions in the region will grow annually at 4% between 2015-2021, totaling to 1.2 billion by the end of 2021.
  • Mobile broadband services are foreseen to account for more than 90% of total mobile subscriptions in the region by the end of 2021.

Although fixed broadband subscription penetration is still low in emerging markets, compared to mobile broadband, the region has been seeing a growth in middle income households that should contribute to the rise in demand or high speed broadband services in residential areas. This is particularly true in Thailand, Indonesia, Philippines, Vietnam and Malaysia.

Mobile broadband will still be the main form of broadband access for the majority of people in the emerging markets of Southeast Asia. This opens up a window of opportunity for operators to fill the need for home broadband.

Network Performance In the Region

Communications is increasingly becoming more app centric, with video streaming to be accounting for almost 70% of all global mobile data traffic by 2021. The increasing popularity of video streaming services on smartphones is driving innovation in video compression and display technology. In order for videos to be fully utilized, a high speed network is much needed.

High expectations will continue to be placed on network performance. This should be challenging for developing countries. As mobile connectivity grows, network connectivity should be experiencing similar rate of growth in order to facilitate innovation.

Download the full Ericsson Mobility Report, June 2016, here.

Line aims to raise $1.3 billion

The launch of Line’s pop-up store, with its popular bear and rabbit characters in New York City is an effort to give exposure in the West. Source: PR Newswire

Thailand’s  most popular chat app Line is aiming to raise $1.3 billion in a dual Tokyo-New York IPO listing in July, meaning that the company is sticking to its pre Brexit target, the Financial Times reports. It has set a price range between 2,700 and about $26.50-$31.50 per share.

It announced earlier this week that it plans to sell 35 million shares, putting Line on track for the largest IPO in the global technology sector of this year.

The global equity sell-off and price volatility following the UK’s exit from The European Union have cast a dark cloud over Line’s IPO plan, especially at a time when investors were already doubting the company’s growth prospects. Despite investors’ uncertainty, the company is still confident that it should be able to raise $1.3 billion.

This news comes after a two year delay in Line’s initial listings schedule. Fund managers have commented that investor interest in technology startups have lessened and wavered with intensified risk as a consequence of the Brexit vote. Although LINE does not have presence in Europe, this follows the global reaction trend of the fallout.

The risk tolerance of investors has declined in the post-Brexit market volatility. It is also hard to put a premium on Line’s growth potential. – Ikuo Mitsui, Fund Manager at Aizawa Securities

The social messaging app’s  dominance in Japan and Thailand is seemingly not enough to convince global investors of the company’s growth potential. With many competitors in the market, this makes it harder to evaluate potential growth rate. Two-thirds of Line’s 218 million users come from Japan, Taiwan, Thailand and Indonesia, but it is not a major player in Indonesia. Line’s struggle to penetrate the US and European markets has often been brought up by industry analysts and investors.

Line’s effort to establish a name outside Asia and take on rivals, such as Facebook, is reflected in the company’s goal to sell 63% of shares in New York. The company should not be too complacent with its place in Asia, as Facebook is making a push in the region, emphasized by the announcement that it was testing social commerce platforms in Thailand, an area which is also being facilitated through Line.

Excerpts from the Financial Times on June 27. Read the full article here.

LINE And WeChat Boost Mobile Marketing

Source: wsj.com

Marketing on mobile messaging apps has yet to take root in the US and Europe in a big way, but it is already in full swing in Asia. The operators of Line and WeChat, Asia’s most popular chat apps, are enabling marketers to tap into platforms that provide hundreds of millions of users with a variety of customized services beyond messaging, including hailing taxis, streaming music, ordering food and making payments.

Unlike its Asian counterparts, Facebook Inc. doesn’t make money from its two mobile messaging services, Facebook Messenger and WhatsApp. But both apps are testing models that could potentially generate revenue, such as showing users messages sponsored by advertisers.

Serkan Toto, a Tokyo-based mobile industry consultant, comments,

In terms of monetization, the messenger apps in Asia like WeChat and Line are light years ahead of Western messaging apps. 

Advertisements accounted for a third of LINE’s $1.1 billion in revenue last year. The company also earned revenue from mobile games and virtual stickers that people can buy and send to one another in conversations. The platform allows businesses to create official accounts for free, for instance, brands can set up a LINE account to stay in touch with its consumers, allowing them to be updated on promotions, launches and general news about the brand. Some accounts use LINE to directly communicate with consumers.

The company has also recently begun providing optimized advertisements based on user demographics and interests.

WeChat has more than 762 million monthly active users world-wide, mainly in China. Many businesses communicate with consumers and share discount coupons to draw people to their products, for example, luxury fashion brand Chanel used WeChat to interact with fashion show guests in May, sharing videos and snapshots of its new collection on the messaging platform.

Although the two messaging platform giants are pushing the boundaries of mobile marketing and creating new opportunities for brands to elevate consumer experience, both LINE and Wechat are struggling to expand beyond its core user base, serving as a bottleneck to their growth as game-changers. However, as they continue to influence how brands interact with consumers, they remain key mobile players in Asia.

A version of this appeared in The Wall Street Journal on June 22. Read the full article here.

WeChat is struggling in countries beyond China. Despite global ambitions since 2013, investing in big scale marketing strategies such as signing up soccer star Lionel Messi and infiltrating India, and differentiating themselves from Whatsapp, the global push has not amounted to much.

“The network effects of chat apps like WhatsApp and WeChat is what drives adoption; if your friends are users of a particular chat client, you’re more likely to use that client to stay in touch with them,” says Sarah Matthews, associate content marketing manager at US-based Jana, makers of an Android app store aimed at emerging markets.

This means that in Thailand, the majority of people use LINE and Whatsapp, and BBM one of the most popular chat apps in Indonesia. What also hinders Wechat’s growth is ‘The Facebook Trifecta’, consisting of Whatsapp, Facebook and Facebook Messenger. This applies to India, as they are the top picks for communication methods right now. Wechat is also trailing behind The Facebook Trifecta in Hong Kong, Singapore, Philippines and Mexico, all the countries Wechat was aiming at.

They have to go back to the drawing board to figure out the next step for global expansion, if the trifecta can be beaten, that is.

Read the full article from Techinasia here