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Here’s what you should know today.

1. 99.co raises $7.9m as Singapore’s online property battle heats up

 Singapore property portal 99.co has raised US$7.9 million in fresh funding. The round, dubbed “series A-plus” by the startup, was co-led by Sequoia India and Facebook co-founder Eduardo Saverin.
99.co offers residential property listings for sale or rent. Agents can list their properties on the website and homeseekers can browse houses, compare prices, and book viewing appointments.
It’s currently active in Singapore and Indonesia, where it operates in Jakarta and Surabaya. 99.co will seek to expand into two more Southeast Asian markets.
Candidates include “the usual suspects,” as Darius puts it, like Vietnam, Thailand, and the Philippines.
Read the rest of the story here.

2. Card payment compulsory soon for ecommerce businesses in Vietnam

Ecommerce businesses may have to accept card payments as a way to offering more options of payment when shopping online, an official from the Ministry of Industry and Trade said.

Accordingly, accepting card payment might be compulsory for ecommerce companies

Payment values by domestic-payment cards jumped 597% and by international cards by 319% in the five-year period. The values are expected to increase rapidly if accepting card payment is made compulsory for ecommerce transactions.

Read the rest of the story here.

 

3. Thailand’s Wongnai teams up with Alipay

Wongnai, Thailand’s leading restaurant review and search platform has recently partnered with Alibaba’s Alipay, as part of the platform’s quest in becoming an all-inclusive lifestyle platform.

To date, Wongnai has 2,500,000 registered members and 200,000 restaurants on its database

In Q2 2017, Wongnai has announced 3 key partnerships and have expressed its determination in offering more e-payment options, in order to attract more international users of the platform.

LINE Thailand counts itself as Wongnai’s partners, and the partnership gives consumers the option of using Wongnai LINEMAN Delivery which allows users to order food from Wongnai’s platform to be delivered by LINEMAN.

The second and third partnerships are with Alipay and TrueMoney. The enabling of e-payment is aimed at attract more Chinese tourists who will be able to pay for food via Alipay Wallet. Currently, about 10 million Chinese tourists enter the country each year.

Wongnai has also launched a new vertical, Wongnai Beauty, which sees the platform consolidate various salons and spas onto the platform. This will also be used to attract an influx of Chinese tourists via Alipay.

Read the rest of the story here.

 

 

 

Thailand’s robust mobile payment landscape has given rise to convenient payment methods that range from mobile payments via one of Thailand’s leading mobile networks, AIS’s mPay to top-up kiosks scattered around public transport platforms and 7-Eleven.

Despite the wide range of attractive post-paid plans offered by mobile network companies, a large fraction of Thais still prefer to use pre-paid plans by regularly “topping” up their mobile credit because of it’s flexibility for those with small budgets.

Companies running the kiosks are also capitalizing on their popularity by offering other services in hopes of maturing the users’ digital habit. Long-standing kiosks such as Boonterm provides a money transfer service and even vending machines that dispenses drinks.

With Thailand’s top-up kiosk market worth approximately $1.9 billion, it’s no surprise more payment options are popping up but who are the country’s main players? And what’s True Money’s role in all of this? eIQ explores Thailand’s mobile top-up landscape.

Boonterm

Boonterm operates under “Forth Smart Service” plc. and offers a pre-paid mobile top-up service to Thai consumers nationwide and owns 45% market share. It also offers online money transfers under the brand “F-Smart”, the user simply inserts cash or coins. F-Smart can also facilitate real time verification of payment and displays past transactions.

The company’s 90,000 kiosks kiosks are available nationwide at convenient locations such as 7-Eleven, Tesco Lotus, Family Mart, Big C, Jiffy Gas Station and Bangkok’s public transportation systems (BTS/MRT).

 

AJ Termsabuy

AJ Termsabuy initially offered a pre-paid mobile top-up service as its main ventricle but has since offered other features such as online mobile games top-up (via True Money), mobile phone bill, insurance and credit card payments.

The company’s key advantage is demographic reach because its 3,7000 kiosks kiosks are installed with five languages: Thai, Burmese, English, Cambodian and Bahasa Melayu.

 

Singer

Singer Thailand plc. is a distributor for electronic products from fridges to sewing machines. The company also owns 20,000 mobile top-up kiosks across Thailand. Jaymart, one of Thailand’s biggest mobile distributors, bought 25% of Singer in 2015 for $30 million. The plan was to combine Singer’s 200 distribution outlets nationwide with Jaymart’s 250 distribution channels to own more of its value chain. Singer’s key target is customers upcountry unlike the other two mentioned.

 

True

Thailand’s largest communications conglomerate that owns TrueVisions, TrueMobile and TrueMoney (the latter now tied with Alibaba’s Alipay), True, announced the launch of 40,000 “TrueMoney” kiosks that will allow True users to top-up their mobile accounts and pay online game credit.

Last year, TrueMoney introduced TrueMoney Transfer, an offline remittance service that allows Burmese workers in Thailand to transfer money to families in Burma safely. Prior to this, most workers would ask friends travelling back to Burma to deliver the money in person but there is no guarantee that the money will ever reach the intended receiver.

TrueMoney Transfer has 681 physical counters, or transfer spots, in Myanmar, where family members across the country can pick-up money sent from Thailand with a secure 8-digit code. Workers in Thailand simply visit any of the 250 transfer spots in Thailand, Bangkok, Samut Sakhon, Samut Prakarn, Tak, Ranong, Kanchanaburi, and Phuket, to complete a real-time transaction.

Currently, this service is available through only TrueMoney Transfer service points and the TrueMoney mobile app.

 

True’s move: Another step towards monopolization?

It gets more interesting when we take into account that True owns 9,000 7-Eleven branches nationwide. A True spokesperson declared that for phase I of “TrueMoney Kiosk”, the company will only be placing a handful of kiosks at 7-Eleven and coffee shops to test out the public’s reception to its mobile top-up service.

However, the power of a wide offline footprint and its convenience factor makes it hardly surprising if TrueMoney kiosks did end up at all of the 7-Eleven branches and effectively squeeze out Boonterm from its usual turf. Last year, 7-Eleven made headlines when it discontinued its partnership with AIS, which meant that 1-2-call mobile top-up cards could no longer be purchased from any of the convenience stores across Thailand.

As True has not yet begun introducing phase I, smaller “top up” players have time to push more aggressive marketing initiatives, one that typically begins with education or others will simply have to adapt or die.

 

Here’s what you should know for today.

1. East Ventures announces new $28M fund for Southeast Asia

Despite recent writeups about the lack of funding in Southeast Asia, Singapore-based VC East Ventures today announced its fifth fund worth $27.5 million for investment in early-stage Southeast Asian startups. With the new capital from unnamed prominent families and entrepreneurs, the VC says it will invest in more than 20 startups in the region.

Read the rest of the story here.

 

2. Alibaba bids to privatize China’s department store, Intime

Alibaba Group has offered to privatize Intime Retail, a leading China department store and mall operator.

It will help pave way for the digitization of old school retailing.

Alibaba currently owns 28% of Intime following an initial investment in the retailer in 2014. If shareholders approve the deal, Alibaba would become the controlling shareholder of Intime with an expected stake of approximately 74%.

Read the rest of the story here.

 

3. KBZ and Kasikorn Banks introduce remittance services in Rangoon

Burma’s Kanbawza Bank (KBZ) signed a memorandum of understanding with Thailand’s Kasikorn Bank in Rangoon on Wednesday to introduce remittance services for migrant workers in both countries. There are an estimated 3 million Burmese migrant workers in Thailand. Many of those workers currently use informal channels to send money home, bank officials said.

Currently, various financial institutions are rolling out remittance services, such as TrueMoney. Kasikorn bank will therefore be tapping into a competitive market to provide transaction aid for developing economies.

Read the rest of the story here.

While president-elect Donald Trump is working hard to stop China from becoming a global superpower, China hasn’t slowed its digital hegemony in Southeast Asia – China meaning Alibaba of course. After calling out Southeast Asia as being on the cusp of an ecommerce golden age in our 2015 trends edition, Jack Ma and his team swooped in four months later and picked up Lazada, the region’s leading ecommerce marketplace, for a crisp $1 billion.

The Lazada-Alibaba deal, Alibaba’s largest overseas acquisition to date, is a pivotal event for Southeast Asia as its implications span the entire commerce value chain from digital advertising, logistics, finance, insurance to even healthcare.

A look back at 2016

Even without the Lazada deal, this year still proved eventful for ecommerce in the region: Fast-fashion fizzled out and Rocket Internet’s Zalora ending up selling for peanuts to Thai retail conglomerate Central Group.

Singpost’s headaches continued after the sudden removal of its Group CEO Wolfgang Baier in 2015, the company also lost its COO, CFO and the group’s chairman stepped down amidst a corporate governance scandal. These events pushed back the company’s deal with Alibaba a third time and wasn’t closed until October.

Across the region, asset-heavy B2C ecommerce suffered. Singapore homegrown RedMart was acquired by Lazada after it couldn’t bleed anymore money and Ascend Group’s iTruemart shut down in the Philippines only a few months after boasting to become the first Thai regional ecommerce player by 2017.

Japan’s ecommerce juggernaut Rakuten withdrew from Southeast Asia and sold its Thailand business back to the original founder. Moxy moved away from traditional mass ecommerce while merging with Indonesia’s Bilna to become Orami, a female-focused content and commerce play that raised funding from Facebook co-founder Eduardo Saverin.

Borrowing Jack Ma’s terminology, if 2016 was the appetizer, then 2017 will be the main course for ecommerce in Southeast Asia. With a $238 billion grand prize and Amazon poised to enter Singapore in Q1, it’s already shaping up to be an interesting year.

Game on.

1. The giant finally awakens: Alibaba becomes more active post-Lazada acquisition

Arguably the biggest ecommerce milestone in Southeast Asia this year was Alibaba’s $1 billion acquisition of Lazada but not much action has taken place at surface level since the deal. That is slowly changing already and Alibaba will soon introduce its entire ecommerce ecosystem to Southeast Asia in the coming year. It consists of Ant Financial, Cainiao and the Taobao Partner (TP) program just to name a few.

Launched in China seven years ago, the TP program aims to enroll suppliers to provide ecommerce related services to Taobao’s merchants. TPs such as Baozun and Lili & Beauty offered store operations and fulfillment services that enabled Taobao and Tmall to grow into two of the biggest ecommerce platforms in China.

The imminent launch of a similar program in Southeast Asia (ahem, Lazada Partners?) will create ample opportunities for an entire ecosystem ranging from digital agencies to delivery companies. Full-service ecommerce enablers such as aCommerce and SP eCommerce are well-positioned to further grow the $238 billion Southeast Asian ecommerce opportunity.

2. Last-mile logistics will get commoditized, accelerated by Alibaba’s Cainiao Network

Logistics is often considered the biggest bottleneck to ecommerce growth in Southeast Asia and has therefore resulted in plenty of venture capital funding spawning an army of last-mile and on-demand delivery startups such as Ninja Van, Ascend Group’s Sendit and Skootar. Even cab and bike hailing apps like Go-Jek and Grab have tapped into delivery services as an additional revenue stream. All this has added pressure to incumbents like Kerry Logistics, DHL and JNE who are only scratching the surface in the fast-paced ecommerce logistics space.

This nascent, fragmented and hyper-competitive ecosystem is similar to that of China a decade ago and what spurred Alibaba to launch Cainiao Network, an open platform that aggregates all last-mile vendors. This asset-light approach addressed Alibaba’s weakest link—logistics—and enables the company to leverage its massive demand to control the conversation.

Over 70% of business for third-party logistics (3PLs) in China now come from ecommerce of which Alibaba drives the vast majority. This allows them to set industry standards and increase price competition among last-mile providers, essentially turning the latter into a race-to-the-bottom, commodity play.

Alibaba has already begun bringing in Alipay and Ant Financial and with Southeast Asia’s logistics ecosystem following China’s trajectory, the introduction of Cainiao Network is only a matter of time.

Cainiao Network is Alibaba’s missing piece of the puzzle to control the entire ecommerce value chain – Cainiao Network Business Model

2017 ecommerce trends

3. The battle for “first-mile”: New threats to Google and Facebook

Few people realize that ecommerce giants like Alibaba and Amazon aren’t only a threat to their direct competitors such as JD and Wal-Mart but also to the likes of Baidu and Google.

With product searches increasingly moving off search engines and directly on to ecommerce sites, Alibaba and Amazon are shaking up internet advertising. In the US, 55% of people now start product searches on Amazon, up from 44% in 2015. This is a big deal because product searches are one of the most lucrative search keyword categories commanding high cost-per-clicks.

In China, the rivalry between Alibaba and Baidu has led the former to block Baidu’s search engine spiders from crawling and indexing Alibaba’s pages since 2009, effectively preventing users from going to Baidu to search for products.

Expect this battle for “first-mile” to kick off in 2017 in Southeast Asia when Alibaba migrates Lazada over to its Tmall platform and introduces Alimama, its proprietary self-service ad platform similar to Google Adwords.

Merchants on Lazada will have access to a variety of PPC (Pay-Per-Click), CPM (Cost-Per-Thousand Impressions) and CPS (Cost-Per-Sale) based advertising such as Tmall’s P4P “Express Train” PPC search ads. These ads command an impressive 25% of China’s total online search traditionally dominated by Baidu. To give an idea of Alibaba’s progress in search advertising, Google China’s search ad market share peaked at 30% before throwing in the towel and exiting the Chinese market.

Alibaba’s ad business is more than just search. In addition to Alimama, it also operates an affiliate platform called Taobao Affiliate Network, a display ad network called TANX (Taobao Ad Network and Exchange) as well as a Data Management Platform that rivals Oracle’s Bluekai and Adobe’s Audience Manager.

Media companies better brace themselves for new competition and digital agencies should start learning how to buy and optimize media on the Lazada platform in 2017.

4. Alipay’s entrance into Southeast Asia will drive consolidations in the online payments sector

The new year will mark the beginning of consolidation in the payments space in Southeast Asia. Cash-on-delivery (COD) dominance—75% of ecommerce transactions in the region—has inspired a plethora of startups like Omise and DOKU and established telcos and banks to build the next PayPal.

But most of these initiatives don’t address the core of the issue—lack of credit card penetration and a large population of unbanked in Southeast Asia. For example, LINE Pay, the Apple Pay-esque solution from one of Southeast Asia’s most popular messaging apps, only works with credit cards. While great from a PR perspective, these initiatives have yet to shift consumers away from COD.

Majority of fintech ‘solutions’ have been created to do “technology for technology’s sake”— building a faster car when what is really lacking are more roads.

Lacking what’s most important—scalable distribution channels—we expect these payment companies to struggle throughout 2017. With Lazada, Alibaba pulled off the ultimate trojan horse strategy to bring in Alipay and Ant Financial into the region. The marketplace offers a massive user base and distribution channel that most Southeast Asian payment startups envy.

2017 ecommerce trends

5. “Ecommerce 1.0” to “Ecommerce 2.0”

As previously predicted, Rocket Internet’s Zalora had to sell its 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 to TCC, a local Thai company that also owns popular beer brand Chang.

Alibaba’s presence and the rumored Amazon launch in Singapore in Q1 2017 closes the window of opportunity for “Ecommerce 1.0” plays—those that peddle other people’s products to a mass audience. Even MatahariMall, the “anti-Lazada” ecommerce initiative launched by Indonesian conglomerate Lippo Group, has re-positioned itself as an online-to-offline ecommerce play rather than a direct competitor to Lazada.

As we enter 2017, the opportunity in ecommerce will increasingly shift from “Ecommerce 1.0” towards “Ecommerce 2.0” where firms will base their competitive advantage not on traditional economies of scale but on a mix of what Bonobos’ founder Andy Dunn calls proprietary pricing, selection, experience, and merchandise.

Whereas Ecommerce 1.0 is a game of brute force and strength, Ecommerce 2.0 exploits 1.0 loopholes in many creative ways to avoid the zero-sum game against the likes of behemoths like Alibaba and Amazon.

It’s encouraging to see companies in Southeast Asia already moving towards Ecommerce 2.0. Pomelo Fashion, an online-only, direct-to-consumer fashion brand, focuses on building its own brand and vertically integrating its supply chain by manufacturing its own apparel.

In Indonesia, another startup has taken a cue from the Facebook and Instagram seller playbook, and put it on steroids. Sale Stock, a fast-fashion startup based in Jakarta, has taken a similar path to Pomelo Fashion with its own unique, experiential angle.

With an increasing amount of Sale Stock orders coming from chat sessions on its mobile website, the company has invested in and launched the region’s first ecommerce chatbot to process mobile chat orders on Facebook Messenger, built by former Google, Palantir, and NASA engineers.

2017 ecommerce trends

6. Expect more casualties from a potential Alibaba and Amazon face-off

2016 was a big year for consolidations in the Southeast Asian ecommerce space:

  • Zalora Thailand and Vietnam sold for scraps to Thai retail conglomerate Central Group
  • Cdiscount was picked up by Thai tycoon Charoen Sirivadhanabhakdi’s TCC Group
  • Female-focused ecommerce player Moxy re-emerged as Orami after merging with Indonesia’s Bilna
  • Japan’s Rakuten shut down its Indonesia, Malaysia and Singapore marketplaces as well as returning its Thailand business to its original founder
  • Singapore-based online grocer RedMart sold for less than it raised to Lazada on the heels of a rumored Amazon entry into the market with AmazonFresh

And they will continue throughout 2017, especially in the hyper-competitive “Ecommerce 1.0” space. One of the big victims could be Thailand-based Ascend Group, which owns a portfolio of ecommerce and fintech assets such as Wemall (B2C) and WeLoveShopping (C2C). There have already been signs.

Its Philippines entity, launched in late 2015, shutdown this year. And with the company’s focus on fintech—it sold a 20% stake in Ascend Money to Ant Financial this year—Ascend may pull out of retail ecommerce for good come 2017.

7. Brands skip the marketplace bait-and-switch and go direct-to-consumer or multi-channel

There are many benefits for brands to sell on the likes of Lazada, MatahariMall and 11street—relatively quick setup and access to “free” traffic generated by the host marketplace. And that’s why 2016 saw many brands like L’Oreal and Unilever setting up shop on these platforms.

However, brands are gradually discovering that the cons outweigh the pros. Marketplaces collect huge amounts of data that pinpoint exactly which product categories and brands sell well, at what time and which location, and to whom. Amazon has leveraged this valuable information to introduce its own private labels to compete with its merchants.

In 2017, we will see brands getting smarter and leveraging a marketplace presence as an initial and short-term strategy. The long-term strategy is to sell direct-to-consumer via their brand.com sites where they own all the customer data, control of brand image and can offer features like subscription commerce.

2017 ecommerce trends

Others might adopt a multi-channel approach instead and use marketplaces to sell lower-end and lower price point products while reserving the brand.com channel for a more premium experience.

8. Hyper-competition will drive entrepreneurs and established firms to explore insurance, finance and healthcare

With ecommerce being hyper-competitive and capital heavy, entrepreneurs have started to look beyond physical retail for new opportunities. Following a similar trajectory as the US and China, startups in Southeast Asia will gradually move into insurance, finance and healthcare. The underlying concepts are the same—use the internet and technology to create marketplaces or go direct-to-consumer for non-physical products such as loans, life insurance and even data.

2016 saw new fintech startups such as EdirectInsure—with frank.co.th in Thailand and frankinsure.com.tw in Taiwan—trying to change the way car insurance is being sold as well as incumbents such as Asia Insurance offering Pokémon Go and mobile phone micro-insurance direct-to-consumer and exclusively online.

Alibaba’s acquisition of Lazada wasn’t so much about growing retail gross merchandise volume as it was about getting a scalable distribution channel for Alibaba’s other, higher-margin products. Jack Ma publicly alludes to it in his 2015 letter to shareholders:

“Alibaba group’s strategy is to build the infrastructure of commerce for the future. Ecommerce is only the first step. […] Around half of Alibaba Group’s workforce and our affiliated companies, including Ant Financial and Cainiao, are working on important areas of our ecosystem, including logistics, Internet finance, big data, cloud computing, mobile Internet, advertising and the so-called double H industries—Health and Happiness (the big data-based healthcare and digital entertainment businesses which will take 10 years to become data-driven).”

2017 ecommerce trends

Expect a roll-out of Alipay and Ant Financial related services (banking, credit scoring, mutual funds, etc.) towards the end of 2017. In addition, we will see more incumbents such as traditional banks, insurers and healthcare businesses moving online.

9. Ignored but not forgotten, companies will focus on the last remaining vestige in Southeast Asia: Myanmar

Businesses will be exploring new markets geographically in Southeast Asia as large markets saturate making greenfield ones like Myanmar more appealing.

With 53 million people, Myanmar is the fifth largest country in Southeast Asia. The country is also very unique compared to its neighbours as the country was shut off from the world until 2011 and is currently leapfrogging straight into the mobile era. Unlike its cousins who are “mobile-first”, Myanmar is mostly “mobile-only”—an estimated 20% of the population is online, most of which happened in the last two years.

Rocket being Rocket went into Myanmar as early as 2012 launching classifieds sites like Work.com.mm and Ads.com.mm. Its first proper ecommerce venture in Myanmar called Shop.com.mm got its start in late 2014. With an average of 90,000 sessions per month for the last six months and flat growth, Shop.com.mm doesn’t exactly paint a positive picture of the ecommerce opportunity in Myanmar.

However, given that Myanmar has 10 million Facebook users in the country, perhaps marketing an ecommerce business the traditional way isn’t the right approach. With so much of Myanmar’s internet usage attributed to social channels, starting out on Facebook shops may be a better way to tap into what could be one of the most interesting future ecommerce markets in Southeast Asia.

2017ecommerce trends

(Source: Minzayar Oo / BuzzFeed News)

This has already been proven effective in Thailand where an estimated one-third to half of ecommerce transactions are happening on Facebook, Instagram and LINE. One would expect chat commerce to be even more pervasive in Myanmar.

“Facebook’s influence in Myanmar is hard to quantify, but its domination is so complete that people in Myanmar use “internet” and “Facebook” interchangeably.”—Sheera Frenkel in a BuzzFeed report on Myanmar.

10. On-demand in Southeast Asia will whittle down to a few industries where the model actually makes sense

Once hailed by pundits as the holy grail of ecommerce thanks to zero burden of costly physical assets, on-demand seems to be nearing its end in the US. Other than Uber itself, many Uber-for-X clones have shut down or are struggling such as Homejoy, SpoonRocket, DoorDash, and Postmates to name a few.

Poor unit economics, platform leakage, and a stronger economy in general are all issues that have plagued on-demand startups over the past year.

In Southeast Asia, things haven’t been much brighter for on-demand startups. Happy Fresh, a groceries on-demand service, recently shut down its Taipei and Manila offices while going through a round of layoffs. It also quietly replaced its former founder and CEO Markus Bihler with a new guy. In Thailand, Inspire Ventures-backed Tapsy, a personal services marketplace, also shut down only few months after launching.

Go-Jek, Indonesia’s bike-hailing and now on-demand everything unicorn, suffered through an exodus of founders, with both its co-founder and VP of product leaving the company in October, triggering suspicions of internal turmoil.

While general sentiment for on-demand startups has taken a hit both globally and across Southeast Asia, in reality this is only the start of a natural process of weeding out all the “me-too” players in verticals where the on-demand model doesn’t make sense.

“The issue isn’t with the concept of something being available “on demand”. It’s whether a consumer or a business will pay a premium in order to have access to it immediately. Just because you make something available on demand, it doesn’t mean people will pay for it,” said Mathew Ward, co-founder and CEO of Helpster, the Bangkok-based company that matches employers with candidates seeking blue-collar jobs.

He continues,

“Home services is one area that is ‘nice to have’ access to instantly, but not a ‘must have’.  People won’t pay a premium for it and your unit economics don’t work, this is why we have seen so many of these fail. If you focus on things that have urgency such as transport or in Helpster’s case, access to qualified staff to fill an urgent staffing need, people will pay a premium and therefore you can build a business that actually works. The “on-demand” model isn’t broken – you just have to look for areas where speed of access is incredibly valuable. If you do, you can build a successful, thriving “on-demand” business.” 

2017 ecommerce trends

With Southeast Asia’s funding sentiment shifting in 2017 from growth at all costs towards sustainability and profitability, we expect to see on-demand startups thrive in verticals where the model works while other “me-too” ones fizzle out. The process will only be exasperated by the likes of Uber and Grab doubling down on Southeast Asia with their massive war chests.

11. Amazon to enter Southeast Asia (finally)

“Keep your friends close but your enemies closer.”—Michael Corleone in The Godfather Part II

2017 ecommerce trends

BY SHEJI HO, CMO AT ACOMMERCE.

alibaba-southeast-asiaIt’s been several months since Alibaba’s blockbuster acquisition of Lazada, the leading ecommerce platform in Southeast Asia.

When the news broke, pundits and critics debated whether or not each side got a good deal, how it would impact rivals like MatahariMall, Tokopedia and Orami, and how the region would be flooded with cheap Chinese products.

Elsewhere, startup founders and VCs high-fived each other as the move put the region on the global map and they hoped it would lead to more funding and exits in the future.

However, everyone has failed to go beyond superficial observations. Alibaba’s acquisition of Lazada is much more than simply growing retail GMV, proving exactly why Jack Ma is Jack Ma and why he’s always been several steps ahead of the game.

Those celebrating the news, especially those in the retail space, may end up biting their tongues.

Peter Thiel, PayPal and Why Distribution Matters

In his book ‘Zero to One’, Peter Thiel talks about how PayPal almost didn’t survive were it not for their lucky break stumbling onto what would become their biggest distribution channel, growth engine, and eventual acquirer: eBay.

PayPal focused on targeting eBay’s Power Sellers — those responsible for the bulk of volume going through eBay — and then amplified it by paying for user sign ups and invites to friends, effectively turning PayPal into a mainstream payments platform.

No wonder Peter Thiel has been such a fervent proponent of distribution, beyond just building a great product.

“Poor distribution — not product — is the number one cause of failure. If you can get even a single distribution channel to work, you have great business. If you try for several but don’t nail one, you’re finished,” Thiel writes.

eBay accelerated PayPal’s growth thanks to its reach and velocity of transactions — high usage kept the payments company thriving. Distribution is exactly what Alibaba needs Lazada for. But for what? Most definitely not cheap Chinese products.

Inside The Belly of The Beast

Around the same time that Peter Thiel’s PayPal was acquired by eBay, the latter company was attempting to grab market share in China through an investment into — and eventual acquisition of — EachNet in 2002, at that time the leading Chinese C2C marketplace.

In response to this, Alibaba launched Taobao in May 2003 and eventually beat EachNet to become China’s largest consumer-to-consumer e-commerce marketplace. In a timespan of 3-4 years, eBay’s C2C market share plummeted from 72% to 8% and caused them to throw in the towel while Taobao’s share continued to climb, reaching over 80% by 2007.

Shortly after Taobao’s launch, Alibaba introduced Alipay, a third-party online payment platform, in 2004 to help facilitate transactions on Taobao. Today, Alipay is China’s largest third-party payment platform with 70% market share, boasting over 400 million users and generating over 80 million transactions per day (compared to PayPal’s 9 million).

Whereas PayPal was primarily a peer-to-peer (P2P) online payments platform based on email and linked to credit cards, Alipay was connected to bank accounts and incorporated features tailored to the Chinese market, such as escrow services.

alibaba-sioutheast asia

According to Jack Ma, Chinese culture, despite being one that traditionally values trust and integrity, lacked a system that enforced it. As a result, Alipay’s escrow feature was a perfect solution to the trust gap and shifted China’s e-commerce behavior away from cash-on-delivery (COD) towards one that is seeing 68% of transactions today.

With Taobao’s massive reach and distribution — 423 million annual active buyers and over 90% of total C2C ecommerce GMV in China — Alipay was able to cement its position as the leading third-party payment method.

Leveraging its 400 million users and reach through Alibaba e-commerce platforms, Alipay has grown beyond being an Internet-based payment platform into a finance and banking behemoth to the extent of threatening the old financial guard.

In 2011, Alipay spun off Alibaba to become Ant Financial Services Group, covering everything from online payments to microlending to banking and credit scores. Based on its recent funding round of $4.5 billion earlier this year, the group is now valued at $60 billion, making it the second most valuable non-public tech company behind Uber.

With this new war chest, Ant Financial looked to expand into new markets and for a while had been trying to get a foot into Southeast Asia. The company set up a Singapore entity as early as 2010 but lacked a proper distribution channel. Ant Financial’s lucky break seems to have arrived earlier this year.

Eyeing The Payments Opportunity in Southeast Asia

In many ways, Southeast Asia e-commerce is like China e-commerce but 8 years younger. Back in 2008, cash-on-delivery (COD) was still the dominant payment method in China making up over 70% of payments. Today, Southeast Asians rely heavily on COD when shopping online, attributing to roughly 70% of transactions.

To wean customers off a high dependency on COD, many well-funded startups and established conglomerates have been trying to solve the payments bottleneck, including Omise (Thailand), Doku(Indonesia), LINE Pay (Thailand), and True Money (Thailand).

Despite the PR and media hype, these homegrown solutions have yet to shift consumers away from COD because a lot of these heroic efforts have been “technology for technology’s sake” — building a faster car when what is really lacking are more roads

The Product Challenge

  • Platforms like Omise and 2C2P are basically payment gateways and don’t offer a viable solution for the massive C2C and P2P space that Google and Temasek peg at ‘several billion dollars’. These payment gateways still primarily process credit cards and, with credit card penetration across emerging SEA standing at single digits only, doesn’t really address the core of the issue. In addition, these solutions do not offer a fix for the trust issue often hindering C2C and P2P transactions — namely escrow.
  • 2C2P and Omise also face getting ‘pushed out’ as they don’t own any ties to the end consumer. Meaning if a cheaper and better alternative was to present itself, there is nothing stopping a merchant from swapping them out. Taobao got users to sign up to Alipay, making it much easier to convince non-Taobao e-commerce platforms to adopt Alipay as well.
  • Rabbit LINE Pay, previously LINE Pay, never captured much market share despite its association with LINE, the popular messaging platform reaching 33 million users in Thailand. LINE Pay’s limitation is that it only supports credit cards, stumbling yet again into one of the fundamental payment obstacles in Southeast Asia – lack of credit card penetration.

The Distribution Challenge

  • Although good attempts at providing shoppers with a second payment method, fintech startups like Digio and Deep Pocket are building mobile wallets before solving their chicken-and-egg problem.
  • It is difficult for mobile wallets to become widespread when awareness is low and users don’t have a strong (often financial) incentive to adopt it. User acquisition then becomes an expensive play without an inherent distribution channel.

The (Lack of a) Use Case Challenge

  • One of Thailand’s leading mobile wallets, Ascend’s True Money, connects with major banks in Thailand and has distribution access to companies in the CP conglomerate portfolio, including over 19 million mobile subscribers.
  • Yet, True Money is reported to have as little as 100,000 active monthly users out of 6 million registered users as of 2014. True Money’s current use cases are limited to mobile phone top up, online game top-up, and bill and over-the-counter payment, typically at CP-owned 7-11 stores.

Ecommerce is a more obvious and natural use case and therefore True Money is also used as a payment gateway on Ascend’s ecommerce properties WeMall and WeLoveShopping. However, with only 26% of Lazada’s traffic, Ascend still has a long way to go before taking a page out of Peter Thiel’s playbook and turning its ecommerce properties into a fertile breeding ground for its payment solutions.

The Lazada Acquisition: A Trojan Horse Strategy?

Alibaba’s foray into Southeast Asia has never really been about growing retail GMV. In the long run, it’s not so much about beating Lazada’s direct rivals or tapping into new growth markets outside of China; it’s about securing access to a massive end user base in a market whose lack of commerce infrastructure is eerily similar to early days China. Jack Ma’s endgame is to introduce and monetize his other products and services, starting with Alipay.

alibaba-southeast asia

Adopting Alipay would be pivotal for the region’s e-commerce growth and that of Lazada in particular. Widespread adoption of a convenient payment platform that bridges the trust gap between buyers and sellers will lead to more transactions overall as witnessed in China, now the world’s biggest e-commerce market in terms of GMV and penetration.

Alibaba’s (ironic) 20% stake in Ascend Money, the parent group of True Money, coming just a few months after the Lazada deal, shows Jack Ma’s master plan for Southeast Asia gradually coming to fruition.

But it’s much more than just Alipay and facilitating marketplace payments. As highlighted earlier, Ant Financial, Alipay’s parent company, operates an entire digital finance ecosystem in China consisting of but not limited to: Yu’e Bao, the biggest mutual fund in China in terms of investors with $108 billion in assets; Zhaocai Bao, a P2P lending platform with $32 billion in transactions in its first year; and Sesame Credit, a credit-scoring system based on — you’ve guessed it — ecommerce data.

And finance is only scratching the surface. Jack Ma, in his 2015 letter to shareholders, hints at much more to come:

“Alibaba group’s strategy is to build the infrastructure of commerce for the future. Ecommerce is only the first step. […] Around half of Alibaba Group’s workforce and our affiliated companies, including Ant Financial and Cainiao, are working on important areas of our ecosystem, including logistics, Internet finance, big data, cloud computing, mobile Internet, advertising and the so-called double H industries — Health and Happiness (the big data-based healthcare and digital entertainment businesses which will take 10 years to become data-driven).”

Hence it shouldn’t be retailers like MatahariMall or Central that should be worried about increased competition; instead, banks, insurers, hospitals and everyone else should start preparing for some ass whoopin’

For a preview of what could be coming up in Southeast Asia one only needs to look at what happened to Uber recently in China.

Learnings From China or How Alibaba’s Trojan Horse Strategy Killed Uber China

“Uber didn’t lose in China in 2016. They lost in 2014 when they got in, and found out 2 years later.” — Wang Di, Quora User

Alibaba, partnering up with long-time frenemy Tencent, adopted a similar strategy in China to take out Uber.

Outsiders often point to the classic textbook “why-foreign-Internet-companies-fail-in-China” excuses like lack of localization (culture/language barrier), lack of connections/guanxi, government protection, and lack of IP law enforcement. Although these do apply to a certain degree, none of them get to the core of why Uber failed in China.

Uber failed because it thought it was competing against Didi in the smart transportation space. Little did they know that Didi’s majority shareholders, Alibaba and Tencent, were playing according to an entirely different set of rules.

For Alibaba (and Tencent), Didi wasn’t just a ride-hailing app; Didi’s strategic and hidden purpose was to serve as a scalable user acquisition channel for Alipay Wallet, Alipay’s mobile version, as well as Tencent’s WeChat Wallet, according to this brilliant Quora answer:

Around 2012, WeChat’s super success helped many Chinese IT companies shift their focus to the mobile app market. Meanwhile, though with occasional suspensions, the government started encouraging mobile payment development. All was set for Tencent and Alibaba to launch their mobile payment app to be a booming big thing. All except for the Chinese user habits.

The Chinese were not familiar with mobile payment at that time. In fact, no large group of people in the world were significantly better than the Chinese either. Moreover, the Chinese were mostly quite cautious when paying online, and a lot of them are not exactly fans of novelty gadgets.

But how they love discounts or kickbacks! A dollar saved is a dollar earned.

The cab-calling apps Didi and Kuaidi became perfect for user traffic introductions.

Users could tap Didi to call a cab and pay 30 yuan in cash, but if they paid the cabbie by Tencent Wallet (redirected from Didi), they would only have to pay 10. Were users willing to save 20 yuan—3 or 4 US dollars—by using an already built-in feature in another app? Just a few taps here and there? Hell yeah.

And then they were hooked-up with WeChat Wallet. Which was what Tencent really wanted.

With Didi as a key distribution channel for Alipay Wallet, Alibaba was able to acquire more users into its ecosystem of services including Taobao, Tmall, Ant Finance and much more, leading to monetization across different products. Uber only had transportation.

Tencent and Alibaba have been throwing unthinkable amounts of money to pay for all the unbelievable kickbacks. Unthinkable for a cab-calling app, but totally reasonable if you want to mark your territory in the biggest market in the world that is most advanced in mobile payment.

What The Future Holds for Southeast Asia

alibaba-southeast-asia

With Southeast Asia being hailed as the next big and untapped ecommerce market in the world, we are seeing many players subsidizing their way into growth through discounts and coupons. Not surprisingly, critics often look at this as a race to the bottom for everyone.

Not entirely true. As the Uber China example has shown us, this will only be the case for companies that fail to look at the bigger picture and are unable to monetize through a diversified set of products or services, whether now or in the future.

With all this in mind, one could argue that Alibaba got a pretty good deal with Lazada, especially given the long-term opportunities in SEA beyond retail ecommerce. A quick look at Alibaba’s stock confirms this—Alibaba’s share price jumped after the April 12 acquisition announcement and has increased by 35% ever since (as of October 3, 2016).

Alibaba’s acquisition is widely considered a victory for the growth of ecommerce in SEA but how many of us here are ready to face the fact that whatever trophy we hauled in may not be a shiny unicorn but perhaps something else?

THIS ARTICLE ORIGINALLY APPEARED IN TECH CRUNCH ON NOVEMBER 7. WRITTEN BY SHEJI HO, CMO AT aCommerce

Winding down from your work day? Read today’s top ecommerce headlines here.

1. 500 Startups announces second 500 Durians fund worth $50m

“Southeast Asia has a ready pipeline of explosive growth companies,” Khailee Ng, 500 Startup’s Manging Partner says of why they are deepening their presence in the region. Funding for Durians II was kickstarted by “fund of funds investor” Mavcap, the Malaysian government’s VC arm, which also largely backed Durians I. Read the rest of the story here.

 

2. TrueMoney transfer launched

TrueMoney Transfer enables real-time fund transfers from Thailand to Myanmar, allowing migrant workers to significantly reduce the expense and risks associated with sending money to family back in Myanmar. Read the rest of the story here.

 

3. Line launches ‘Line Finance’, partners with fintech firms

Line Finance is an official account where users can go in to make inquiries regarding finance. Whether they need information on the stock market or tips on investment, this app also allows for a degree of personalization. Read the rest of the story here.