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Talk to most experts in Southeast Asia about the potential of ecommerce in the region and they’ll find common ground: the real bottleneck towards growth lies primarily in logistics that can’t keep up.

Decrepit infrastructure, outdated customs processes, and the sprawling landscape all add up to a scenario notoriously murky to navigate. Indonesia, for example, is the largest internet market in Southeast Asia and it’s expected to drive the bulk of growth in ecommerce. Economic indicators are rosy and consumers have higher disposable incomes.

The problem? It’s a massive archipelago consisting of 17,000 islands. Ecommerce deliveries can take up to a week if delivery is even offered at all, leaving customers frustrated and uncertain whether they’d engage in a purchase again.

It’s a similar story in the Philippines, which has over 7,000 islands. Countries like Thailand may be geographically easier to navigate but it’s not without its own set of challenges: the Kingdom witnesses the second-highest road accidents in the world, just marginally behind Libya.

But simply adding more delivery vehicles and hiring people to drive them won’t instantly solve the problem. Within the logistics industry, there are issues such as fuel pilferage, lack of adherence to safety rules and regulations, and rash driving. These problems entail an inherent cost for fleet operators ordinarily passed on to end consumers in the form of delivery fees. And that’s a cost which can be avoided.

Thai company Drvr is trying to tackle these challenges head-on. It uses telematics, which allows devices to send and receive information across large distances, to track vehicle performance, driver behavior, unscheduled stops, and so on. Drvr installs an array of sensors inside vehicles to help managers keep track of the fleet and also provides a SaaS platform that displays an overall dashboard. It can be modified and tweaked according to client requirements, of which Mercedes Benz is one.

CEO and co-founder David Henderson, who hails from Seychelles, first moved to Thailand in 2014 following a stint at a telematics firm in Australia. The challenges of solving mammoth problems in Asia was the primary motive – he had originally pitched the idea to his previous employer but they were far too risk-averse for his liking. So he decided to quit and branch out on his own.

“The product we had two years ago was simply a GPS tracking product,” David tells ecommerceIQ. “We’ve matured significantly as a company since, and it’s fair to say that we have one of the most advanced fleet management and IOT platforms in the world now.”

The Drvr analytics dashboard

Why start in Thailand?

David explains that his target market isn’t just the logistics sector, but any business that owns and operates a large fleet of vehicles. This could entail players in transportation as well as construction. Such businesses need to keep a keen eye on the health of their vehicles to make sure that drivers and support staff aren’t running amok.

“Thailand is a natural market for us because there are over 3 million vehicles manufactured here annually with commercial vehicles accounting for half that number. That’s the primary reason we’re based here,” he explains.

Drvr’s core solution aims to make fleet operators operate efficiently. It achieves this via a number of ways – the first, as mentioned earlier, is via the predictive analytics platform it offers. The driver version of its app also combines gamification elements to help coax drivers into following the rules. There are rewards every time they adhere to a certain standard such as the maintenance of an average speed or keeping unscheduled stops to a minimum – these could be in the form of cash bonuses or enhanced performance reviews, but is agreed mutually between the fleet manager and driver. The company says this helps reduce the element of confrontation between them and HR.

“One of our immediate use cases that we can prove to our customers is in the case of fuel theft. Fuel theft is a major issue, not just in Thailand but right across the world in fact. It takes on different forms in different areas – [in Thailand] it tends to be siphoning but in Australia and other places […] people tend to fraudulently buy fuel or fill up their own car with the company credit card. We can detect these scenarios and prevent them from happening,” says David.

Before Drvr came along, the common solution to this issue was that companies would simply pay their drivers lower. These would lead to distorted economic incentives – drivers would simply shrug their shoulders and pilfer more fuel from the vehicle in order to sell it for cash. And the cycle would worsen.

David doesn’t disclose how many customers he has but does say that the startup turned a profit last month. While they’re based in Thailand, the largest market is currently Myanmar in terms of volume. However, both Indonesia and the Philippines are high on his list of priorities.

“We see Indonesia as the critical market in Southeast Asia – volume-wise, it’s just one with huge potential. Margins are a bit lower, admittedly, but there are big opportunities there,” he adds.

“At the same time it’s very tricky to get a foothold – we’ve failed a couple of times because of the difficulty of finding a reliable local partner. If you’re successful in Indonesia, it’s a massive tick on your profile.”

What trends does he notice?

Fleet analytics companies aren’t exactly mindblowing tech and there’s a few of them around already such as Cartrack and Coolasia. For David, however, they’re trying to set themselves apart in terms of the sophistication of their platform and the clients.

Mercedes Benz trucks, one of their key clients, actually ships all vehicles in Myanmar with Drvr sensors pre-installed. This provides a certain degree of validation when pitching to other companies. Drvr is also helping facilitate the growth of a subscription vehicle model – whereby fleet owners ‘rent’ vehicles from manufacturers as opposed to simply buying it outright and then allowing it to depreciate over its lifecycle.

This scenario – which David claims is already happening in markets like Australia – necessitates razor-sharp analytics so manufacturers know how to charge on an hourly or monthly basis. Analysts need to understand costs specifically and it’s simply not possible to do that without carefully monitoring existing vehicles to figure out when it’s liable to break down, what the fuel costs are, and other predictive analytics.

He claims Drvr is working with manufacturers interested in this model – the sensors and analytics will help them build a financial model – but doesn’t name names.

Will IOT engulf Asia?

Some people might scoff at the idea of high-tech commercial vehicles plying the backwaters of Asia given how cheap labor costs are, but David doesn’t believe it’s so far-fetched. He agrees on the fact that the economic imperative, for now, is missing but says the costs of devices and provisioning the service is “much lower than what it was in the past.”

“If you’re in ecommerce or logistics, the reality is that customers expect goods to be delivered the same day or as quickly as possible. In order to facilitate that you can’t have drivers sleeping on the side of the road or stealing fuel. It damages your brand and the perception of your service. Even the most old-fashioned Thai companies are beginning to realize that,” he explains.

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

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

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

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

The dawn of a new era?

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

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

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

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

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

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

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

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

The race for dominance is on

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Which streaming provider is winning over consumers in Southeast Asia?

Our survey results

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

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

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

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

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

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

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

No credit card? No problem. Source: Informedmag

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

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

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

It gets more interesting.

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

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

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

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

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

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

Source: eMarketer

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

What’s the takeaway?

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

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

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

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

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

The Philippines often comes second by various factors when compared to its peers in Southeast Asia. It’s the second most populous country in the region after Indonesia with 103 million civilians. It’s also the second poorest country after Vietnam and currently has the second smallest ecommerce market at $0.5 billion.

Google & Temasek predicted a rosy future for the Philippines’ ecommerce market to become bigger than that of Singapore, Vietnam and Malaysia by 2025 at $9.7 billion.

However, there are several signs indicating online retail has a long way to go before it picks up in the country:

  • Low ecommerce spending
  • Lack of local ecommerce players
  • Slow internet

Can the Philippines’ ecommerce actually reach its predicted potential? We take a deeper look at some of the reasons why it will be challenging.

First, the good things

The Philippines population is projected to increase by 13% to 116 million by 2025, presenting a bigger market for businesses to sell their products.

Beneficial for ecommerce growth is also the 10 million Filipinos living and working overseas.

Around 3.5 million of them work and live in the US, which has advanced their online shopping behaviour and paved the way for innovative cross-border logistics businesses offering deliveries from the US to the Philippines.

Overseas workers have also facilitated the birth of many digital payments businesses in the country as they send remittances home to their family.

Filipino overseas workers sent home $29.7 billion in 2015.

These money transfers have made the Philippines the top third remittance-receiving country in the world after India and China and spurted the growth of fintech startups providing transfer services, such as Ayannah, Coins.ph, BloomSolutions, using blockchain technology to serve the unbanked.

The innovative payments and logistics solutions work in favor for ecommerce development as online companies are dependent on the ease of payments and the efficiency of logistics networks for speedy delivery to attract customers.

As a result, Lazada, the Southeast Asia’s marketplace for everything, ranks as the 7th most visited website in the Philippines.

No money, no honey?

Despite the mentioned factors, ecommerce has not yet picked up as quickly in the Philippines as it has elsewhere in Southeast Asia. Although 30 million people reported shopping online in 2016, the Philippines has the lowest average annual retail ecommerce spending per person.  

A Filipino spent on average $33 shopping online in 2016.

Even the Vietnamese, who are the poorest of Southeast Asian nations spent 67% more per person shopping online and Malaysians with two times less online shoppers spent twice as much as Filipinos in 2016.

According to Statista, people shopping online in the Philippines are expected to increase by 42% to 48.8 million in the next five years and the average annual spend on ecommerce per person will reach only $48 in 2021.

For comparison, the Vietnamese are expected to spend on average $96 and Malaysians – $129 in 2021.

Where are the local players?

Low online spending per person is not inspiring local businesses to invest in ecommerce  as seen by presence of a few local ecommerce players.

The Philippines is a market where Southeast Asia’s darling Lazada is dominating ecommerce with around 40 million monthly visits.

Local ecommerce players, be it marketplaces or vertical webstores, are not even close to Lazada in terms of number of visitors.

And overall, the competition is rather thin in any category but more brands are working to capture the growing ecommerce potential.

There are a few first movers that are choosing a full ecommerce strategy such as local telecommunications service provider Globe Telecom and retail brand Bench, or global brands Payless ShoeSource and Adidas, and performing quite well. It’s also common for traditional brick-and-mortar retailers such as SM Store to open a shop-in-shop on Lazada to test the ecommerce waters first before investing in a brand.com strategy.

Slow and slower

Filipinos are connected to and browsing the second slowest internet connection in the Asia Pacific region. While a speedy internet doesn’t guarantee strong ecommerce behavior, it does impact a good user experience. Who would be willing to browse for a new phone or a pair of shoes if it takes ages to load pictures and product descriptions?

On top of this, the country ranks lowest among its Southeast Asian neighbors in terms of ease of doing business because of slow and complex procedures of starting a business, enforcing contracts and protecting minority investors, which doesn’t help to boost online trade either.

So how to reach its golden potential?

While the large population, familiarity with cross-border deliveries and digital payments offers a great foundation for ecommerce growth, projections of its future market growth greatly vary.

Statista projects the Philippines ecommerce will reach only $2.345 billion in 2021 making the country the smallest of markets in Southeast Asia, while Google and Temasek expect the market to be $9.7 billion by 2025.

The difference will depend on the number of first-movers that kick off the snowball effect.

Recently Ayala Group, one of the largest conglomerates in the country, acquired a 49% stake in online fashion retailer Zalora Philippines. The group hopes its footprint in banking, real estate and telecommunications will generate synergies throughout the ecommerce value chain.

If the takeover proves successful, it could inspire others to follow and contribute to ecommerce growth.

To increase ecommerce growth in the country, there are several things needed to be done. Some of the issues are up to the Philippines government, such as increasing the internet speed by breaking the existing telecommunications market duopoly and opening it up to competition or easing the company registration process.

There are few things businesses themselves can also do to add to the growth:

  1. Invest in market education to explain how ecommerce works and provides convenience
  2. Training workshops for small and medium sized sellers, as well as larger traditional players can nudge more businesses to explore different channels for sales
  3. Improving security of their sites and adding secure payment methods to build trust   between businesses and consumers concerned about fraud
  4. Attract more customers online by selling ‘lifestyle’ services, insurance, etc.

The collaborative effort in the entire ecosystem between brands, retailers, service providers, logistics players, marketing agencies, consumers, etc. will help take the Philippines ecommerce market to the billions.

By: Aija Krutaine