When ecommerce first boomed in Indonesia around 2014, Albert Lucius saw many companies racing to serve the top 20% of the urban population while ignoring the rest.
“What about the people unfamiliar with the internet, let alone shopping online? And what about those living in rural areas?” Lucius mused. “Ecommerce players at that time were doing almost nothing to educate this demographic.”
Seeing this gap, Lucius teamed up with a fellow schoolmate from the University of Berkeley’s Haas School of Business, Agung Nugroho, to build Kudo – the online to offline (O2O) technology platform that connects online merchants with offline customers and was acquired by Grab in April. TechCrunch estimated the deal is worth $80 – $100 million but no confirmation has been made by either party.
Lucius acts as CEO, while Nugroho takes care of operations as COO and through its platform, Kudo wants to ensure all Indonesians are included in the online revolution and benefit from an economy that boasts a $157 billion potential.
Product-market fit: Tales of trial and error
Currently, the company is using individuals, mom and pop shops, and small store owners as Kudo agents to act as medium between online merchants and hard to reach customers.
Through these agents and a tech platform, the company enables the unbanked or those with low financial literacy to perform digital transactions. How?
- The agent invests capital into their Kudo agent account, which can be as low as IDR 10,000 or $0.75
- The customer views a list of products on the Kudo platform on mobile or a tablet provided by the agent
- The customer chooses what they want to buy and pays the agent in cash
- The agent makes a commission based on the product category sold (3%-20%) – the more they sell, the more they make
Although currently a well-functioning system, this was not how things were always done at Kudo. The company pivoted two times before finding a model that complemented Indonesians buying behavior.
Kudo is an acronym for ‘kios untuk dagang online’ or ‘kiosk for online trading’, and funnily enough, the business’s first model was literally a kiosk.
The company installed machines loaded with the Kudo platform in office complexes, shopping centers and convenience stores in Indonesian suburbs, as well as second-tier malls in the city, in hopes people would use it to place orders for various things such as food, tickets, and other goods.
They soon discovered that majority of citizens are wary about using unknown machines, afraid to break it seeing as they didn’t know how to operate it.
Kudo later redefined its business by creating a tablet-friendly platform and employed the help of sales promotion girls (SPG) to educate the people about its buying process. The second attempt worked well but hiring so much (wo)man power was not sustainable nor scalable.
The two broken models taught the founders a valuable lesson.
“Most Indonesians still need the element of trust in order for commerce to work. They need the personal and social touch in order to purchase something.”
Kudo’s agents of change
Through its present-day network of more than 500,000 agents across 500 cities and rural areas in Indonesia, offline customers once disconnected from the digital world now have access to products from Kudo partners like Lazada, BukaLapak, Berrybenka and Unilever to name a few.
The platform not only offers commerce but also facilitates bill-payments, phone credit top up, and purchase of financial products such as insurance.
The most popular transactions are top-ups that make up 30% of total transactions, followed by purchase of goods, especially cheap electronics, fashion, and bill payments.
There are millions of customers that have used Kudo in Indonesia and the company credits its Kudo agents for partially solving three main roadblocks commonly encountered in emerging ecommerce markets like Indonesia – trust, payment, and logistics.
“Our agents are all familiar faces in the neighborhood, so even if initially the community does not understand nor trust the internet, they’re more willing to try out a new technology if it comes from someone they know,” explain Lucius.
From a logistics perspective, agents act as the drop-ship points for ecommerce players who can either have pick ups from their store or deliver straight to the customer. This highly reduces the chance of failed deliveries.
Kudo agents also decrease shipping costs for retailers when they order customer purchases in bulk.
“We know it’s not the most sophisticated system in the world and it’s not perfect, but it works for our market as it utilizes Kudo’s network of agents to solve a real logistics problem in Indonesia,” remarks Lucius.
Grooming a generation of micro-entrepreneurs
By taking a traditional route and using real people to educate and share new technology within communities, Kudo is not only speeding up the race to e-retail adoption but empowering individuals to dabble in “micro-entrepreneurship”.
“People only need a smartphone to become an agent and it doesn’t need to be an expensive one because our app works on every Android phone,” said Lucius.
There are two kinds of agents in Kudo’s network right now; store-owner agents and non-store agents, with the share of 40% store owners and 60% non-store agents or individuals. On average, the store owners agents could doubled their normal income through Kudo.
Building an inclusive economy with a giant
The company’s principle is and has always been to improve the lives of people.
Under its current model, Kudo aims to slowly convert more people to try online shopping by maturing the country’s payments literacy and understanding of ecommerce.
Its acquisition by Grab takes the company’s mission a step further as the Kudo platform will be integrated with Grab’s mobile payments platform, GrabPay and both companies are invested in a collaborative R&D lab in Kudo’s office called Kudoplex.
Kudo’s agents are also offering services like GrabPay credit top-ups and recruiting drivers for Grab to interconnect the two already-large networks into one expansive and all-encompassing payments infrastructure.
“We are very excited to work with Grab as we share the same mission to empower the unbanked to benefit from the rapid growth of digital economy,” closed Lucius. “There are a lot of good things to come.”