Indonesia internet is going public in 2015?

Andi S Boediman
stock exchange

I have high hopes for the Indonesia internet scene. Which company from which category will be the first to go public: Media, E-commerce or Payment company

Startup Asia is always a good event to attend, especially the latest one where I saw the attendance growing, the overseas visitors expanding and there were many new faces I met at the event. By having a good conversation with friends here and there, I would take a risk to predict that Indonesia Internet landscape will go public in 2015. Most of the information I heard and found can’t be confirmed or disclosed, and I make these notes for myself as an investor, to write down my personal thinking and gut feeling; so read this at your own risk.

The consumer internet has finally arrived
Various studies project that Indonesia internet users in 2013 will reach about 70 – 75 million and it will grow to 90 – 95 million in 2015. This is already more than 30% of the Indonesian population. The real number of internet users is a little difficult to calculate as one person can have multiple access points to the Internet through various devices. But this doesn’t really matter. In other countries, this ‘mainstream’ adoption of Internet is the most crucial factor of the consumerisation of Internet. This means Internet will become ubiquitous like electricity and water. You simply want to ‘connect’ as this has become your basic need. The internet is no longer for the early adopter, it’s for everyone!

And when one has an access to the internet, there will be a change of behaviour, people will use internet for everything. Earlier, internet was used for communication, followed by social media. Now with mainstream adoption, the shopping behaviour will change; people will shop online more and more. Companies will use the internet for everything, from procurement, sourcing, operation, finance, distribution and many other functions.

My focus to invest is now the consumer Internet. Companies like Urbanesia that work like Yelp, are now becoming valuable since so many users need to access local information. This will be followed by local social media like PicMix and others. The rest of the 2.0 model like AirBnB, Kickstarter, Uber might see their first incarnation in Indonesia as internet users grow so much. The solution might come in various models, the one that is suitable to solve local problems.

Infrastructure challenge: When telcos have too much profit
This growth will face its biggest challenge from lack of investment into infrastructure. Telkomsel revenue in 2012 was IDR 54.5 trillion and IDR 30.6 trillion profit. This is about 56% profit. Despite its commitment to invest on infrastructure, the capital expenditure is considered low for Indonesia that has a strong need for broadband connectivity. We need a bigger investment for infrastructure. Indosat that is owned by Ooredoo; and XL that in turn is owned by Axiata are mostly foreign companies. So they don’t benefit from investing in infrastructure.

Telkom as the fixed line provider is targeting 1 million WiFi hotspots. Branded as WiFiID, these hotspots are aimed as new advertising channels. It still has less than 100 thousands hotspots installed as of now.

It should be job of the state owned company to invest on infrastructure and lower the cost of broadband connectivity so that more people get access to broadband. Like what happened in Jakarta traffic, we have seen it in our mobile connectivity. Indonesia’s lack of investment in the infrastructure will be the biggest hurdle for internet growth.

The Indonesia digital media landscape: Google, Portal and the Media Giant
Of the US$ 6.2 billion advertising spends in 2012 in Indonesia, digital media contributed only 2.2%. And worst, of that money, 60% was spent just on Google and Youtube. Local digital media has yet to compete for its advertising share. TV groups are attracting revenues to their digital streams by bundling their offers as packages for both TV and digital. Local media houses like Kapanlagi (for its in turn have turned towards content marketing, and servicing clients such as Unilever for their digital media strategy.

Portal war is not over yet; Yahoo is leading the portal media segment by having its own editorial team. PlasaMSN as Telkom and Microsoft digital media subsidiaries have seen a strong traffic growth but they haven’t got attention and investment they deserve. Successful models by Microsoft and Yahoo in other countries are NineMSN and Yahoo7 in Australia. Local TVs and international portal players might replicate this model. Major portal players from Korea and China now are eyeing Indonesia and definitely considering to partner with local TVs that have massive contents in their arsenal.

By understanding the Indonesia media landscape, we can understand who is going to be the major digital media players. There’re only a handful giant players in the Indonesia media landscape:

  • MNC Group owns RCTI, Global TV, MNC TV and
  • SCTV – Indosiar group own
  • Trans Group owns Trans TV, Trans 7 and
  • AnTV, TV One and
  • Kompas Gramedia group owns Kompas print and
  • Jawa Pos group owns various print publication in East Java that is yet to embrace digital media

Beside these big groups, there are only two future digital media players that might challenge the big guys:

  • Kaskus, owned by Djarum Group
  • Kapanlagi group, affiliated with Trikomsel – Skybee

Kaskus is somewhat hard to be described as social media or classified e-commerce, but it has its place to Indonesian users. Kapanlagi group is the only independent media company at this moment.

With the consumerisation of the internet, the next competition will be in the vertical media and user generated content. On social media frontier, Indonesia is yet to find its own ‘Mark Zuckerberg’ and howegrown social media is yet to be born. If China has QQ and RenRen, why can’t we?

Digital content and apps distribution
Digital content is driven by hit. Our investment is TouchTen, a game company that is very good at creating hit games one after another. This is quite rare. And it uses channels like iTunes and Google Play to distribute the games. Another case study from Indonesia is Icon Pop Quiz, which has created a successful quiz game franchise for the global market and it too is using the same distribution channels. Most of the business model is advertising, but this model has its own limitations, simply because the lifecycle of games is not more than three months. We are yet to see digital item business model that proves to be the most scalable business model for games. This model enables a longer lifecycle and even with only a small percentage of users willing to pay, it still generates much more revenue for the publisher than advertising.

3G usgae in Indonesia is still below 30% and gaming companies focusing only on the Indonesian market is not a scalable idea. Kota Games is one gaming company that  has been focusing on the feature phones and has had a pretty good adoption.

Coming on to the messaging market, BBM, despite getting bad publicity globally, is the leader in Indonesia. At No 2 is WhatsApp, followed by Line, WeChat and KakaoTalk at No 3, 4 and 5 respectively. Looking at this number, Indonesia is now the single most important market for Blackberry, but ironically the company itself is not serious about the Indonesian market. It doesn’t have a strong local team that would localise its offering for the Indonesian market. This is a shame.

Blackberry is valued at US$ 4.7 billion; I think a company like Telkomsel have the budget to own controlling shares of this fledging company and make it an Indonesian innovative acquisition like what happened with Lenovo acquired IBM laptop business. By partnering or as a joint venture with handset maker from China like ZTE, we can enjoy a low cost Blackberry below US$ 10. Blackberry should become an Indonesian company!

For Indonesia, it’s truly an opportunity to get the best intellectual property acquisition as well as acquiring the loyal users from  popular messengers. I can only hope that telcos do think beyond their current business model. If not, then Ooredoo, Axiata or Singtel might want to consider this option as well since they already have their stake in Indonesian telco business.

Line, WeChat and KakaoTalk now are very seriously investing in Indonesia. And Whatsapp as a western company, is not serious about Indonesia. Looking into their marketing muscle and business model, I believe Line will become the winner eventually. If this is the case, Naver will definitely use Line as its adoption strategy for its other services.

Besides messengers as the gateway to content and apps, historically there will be a few apps portal that will last. iTunes and Google Play are two of them. Telcos with their channels will have their own apps store. We should be in a position to see a big battle amongst app portals in the next two to three years.

E-commerce is still a darling
Fashion, gadget & electronics, and health & beauty are the three biggest categories in e-commerce today. Sales traction for fashion e-commerce sites like Zalora and Berrybenka have shown significant growth in 2012. They have fought their way fighting offline retail giants like Matahari. similarly, sites like Lazada and Blibli have fought their way to get exclusive deals to sell gadgets and electronic products. They are willing to commit significant marketing budgets to offer the best deal to the customers. Tokopedia as the most visited marketplace today, got its major transaction from beauty products. It is able to facilitate transaction over IDR 600 million per day only from the health & beauty products.

What interest media the most is what will define the e-commerce trend in 2014. The answer is simple: Brand Goes Online! Every individual brand now sees that e-commerce is one of the most crucial channels for them. Each brand wants its own online store, either only as a catalogue or allow online transaction. This will drive the needs of services for online commerce for individual brands. That’s why Singtel wants this e-commerce slice by bringing Shopify as a solution for small and medium size online store.

In recent years, I have sees market adoption for vertical e-commerce market, especially in property. When looking for or selling properties, and become the first destination, but we are yet to see more advanced property sites like or in Indonesia. Online ticketing is also a major vertical e-commerce used by mainstream market. Agoda is the leading airline and hotel online transaction site, which recently got challenged by There are many other vertical e-commerce sites yet to fulfil the market needs, like music ticket, automotive, etc.

Indonesia’s biggest challenge is distribution. To make the most of the economic of scale, fast moving consumer goods companies separate themeselves from distribution and retail. They should learn from US retail giant, Walmart, which has become the biggest retailer by being the best supply chain leader. Amazon is able to compete with Walmart by challenging its supply chain management. By integrating supply chain, distribution and e-commerce, Amazon now is the biggest online retailer in the world. So far, there is no company in Indonesia that can provide this kind of efficient supply chain and distribution.

Alfamart and Indomaret, the biggest modern retail markets now are the point of sales for train tickets. 7-Eleven goes as far as selling concert ticket in its stores. KFC now is the biggest music distributor compared to any music store as it has more physical retail stores. Music publishers are experimenting on using modern market to sell music CD as well.

The true leader will emerge as the one that is able to integrate supply chain as it’s offering to the e-commerce players.

Digital payment solution: Who is the winner?
Even though total credit card in Indonesia is almost 20 millions, each person has at least 2 or 3 credit card and they use the credit cards as discount cards. So credit card will not gain massive traction to become the mainstream solution for digital payment.

In e-commerce, majority of the transaction is still done through bank transfers. So having an account on BCA and Mandiri is the most crucial part for merchants as these two banks accounts for 80% of the Indonesian consumers. Both banks have launched their token payment for e-commerce. Companies like JNE, First Logistics and RPX are among the first to offer cash on delivery (COD) solution for e-commerce. COD is now the fastest payment solution adopted by e-commerce.

Indonesia is a unique market when it comes to mobile bill payments. Ninety-fice per cent of its users are on prepaid. PC multi-player games in Indonesia like Point Blank, Ragnarok, etc. also have utilised the prepaid system. A significant player, Indomog is focusing on digital content e-wallet besides the one provided by each of the big MMORPG players.

In late 2013, Mandiri launched its e-cash system, similar to CIMB Rekening Ponsel (mobile phone account). Mandiri e-cash has a strong value proposition for e-commerce as this payment method allows us to pay anybody through our cellphones even if somebody doesn’t have an account in Mandiri. The real benefit is that merchants can withdraw the money through any Mandiri ATM.

Telcos too have similar payment solutions. Telkomsel with T-cash, Indosat with Dompetku, XL with XL Tunai, but the telcos still need to work with banks to withdraw money. So I believe, the telco model will work better for digital content rather than for e-commerce.

I believe that bank e-wallet has the fattest chance to succeed even though there’s no precedent of e-wallet success for e-commerce.

Oriental invasion & Western civilization come in good term
During my two days at Startup Asia, Ideosource, venture capital that I founded with Edward Chamdani was part of the Startup Dating programme, in which startups can meet investors. Within an hour, a VC can meet 12 startups for them to pitch their business. If there’s a further interest, then the VC and the startup can schedule to meet later. This is a rewarding process for both sides. Investors can see the idea, the company business model and meet the founders without having to spend so much time. The startups can meet with various investors without having to chase their schedule. The chance of meeting the right partner is easier now.

What is intriguing about the venture capitals is that I see so many Japanese venture capitals taking part in this Startup Dating. It seems that Japanese model of investment is to pick the local founders and invest in some smaller bets to see its traction before committing to a bigger investment. Besides the Japanese investors, the only US based investment company in the Startup Dating was 500 Startups lead by Dave McClure that visited Indonesia, earlier this year.

This is different from the Korean model of strategic investment. SK Telecom doing joint venture with Telkom to build Melon, the digital music service. Within three years, this company has turned into a US$ 7 million revenue. SK Planet also has a joint venture with XL Axiata to build their own e-commerce marketplace with US$ 40 million investment. Chinese companies also prefer doing strategic investments like the joint venture between Tencent and MNC for WeChat apps.

One of the earliest investors in Indonesia tech scene is Tiger Global, the investor of Detik and now Dinomarket. Naspers, the investor behind Tokobagus and now defunct Multiply, has put many stakes on the Indonesian e-commerce. Last year, Tokobagus spent more than US$ 4 million in TV advertising, not to mention out of home and digital advertising.

Most of Indonesian biggest investors are yet to make digital investments and bet on Indonesian startups. As an Indonesian, it saddens me to know that foreign investors have more faith in our digital ecosystem than the local investors. The good thing of having a venture capital model is that the Indonesian founders and startups keep the majority ownership with an Indonesian.

By nature, Indonesian companies prefer to have their strategic investments since they already have their grip in the local market as compared to foreign investors who prefer to lower the risk by having smaller bets in many companies. In corporate strategic investments, most startups invested will have a conflict of interest with the bigger corporate groups since the group wants the startups to add value to the big group. That’s why local startups have the most advantage when they get foreign investments since the investors will fully rely on the founders to scale the company.

Indonesia should become the leading key player, and not merely as a spectator. All the investment by foreign investors in Indonesia should be seen as a great opportunity for Indonesian entrepreneurs to reach the maximum potential.

Viva diaspora
Last year, I had a chance to visit Silicon Valley. It was a good trip to visit Google Campus, Stanford that has given birth to many of the internet companies like Sun, Yahoo and Google. What I enjoyed the most was meeting fellow Indonesians who are currently working with companies like Yahoo, Flipboard, Google and other internet companies.

When you see the history of Silicon Valley, most successful Internet entrepreneurs come from Paypal, Microsoft, Apple, Google and Facebook. Why is this so? The answer is because these people face real problems and learn to solve them in a scalable way.

In Indonesia, I have seen the similar trend; people from Detik, Plasa, Multiply, Koprol, Zalora are people with the previous Internet company experience that later starting their own companies. This is simply because they have proven experience.

A huge number of Indonesian diaspora that are working aboard and are successful, now are coming back to Indonesia to build the Indonesia Internet landscape. Kaskus, Disdus are among others.

I believe that the combination of Indonesian Diaspora and foreign investment will enable Indonesia Internet players to become global Internet players.

Going public with US$100 million in Indonesia: Media, Ecommerce or Payment?
When Trans Group acquiring Detik in 2011, it was valued at US$ 60 million with US$ 15 million revenue. The valuation is four times the revenue multiplier. Kaskus was rumoured to have US$ 30 million valuations when it got investment from the Djarum group. With only US$ 2 million revenue, it has 15 times revenue multiplier. This maybe based on lifetime value of Kaskus users that is more loyal than any other media.

What will happen in 2015?
There will be at least one internet company with the minimum size US$100 million that will go public!

Media, that has a higher margin is naturally the first to reach such valuation. If we use 8 – 12 times revenue multiplier, the media companies need only US$ 8 – 12.5 million revenue to reach that valuation. Detik, Kompas, Kaskus, Kapanlagi and Vivanews are all in those bracket. If we use EBITDA multiplier instead of revenue multiplier, Indonesia historically values companies with 14 times EBITDA. To reach US$ 100 million valuation, companies need to have US$ 20 million revenue and US$ 7 million profit, which is  achievable.

Retail e-commerce that has bigger margin then, is naturally the next contender to go public as the category matures and it needs big investment to build its supply chain. Digital payment that has more margins is also the next candidate to go public. Both e-commerce and digital payments that are focusing on content are capable to deliver 25% margin and 15% profits. With the same EBITDA multiplier, to reach US$ 100 million valuation, each company needs US$ 47 million gross merchandise or transaction value.

If the investment market believes in internet, the 14 times multiplier gets bigger to 20 to 30 times multiplier, then smaller companies will be able to go public faster or the mature companies valued higher. In any way it will be a winning formula for internet companies.

I have high hopes for the Indonesia internet scene; so let’s see which company will be the first to go public in 2015 and from which category: Media, E-commerce or Payment company.

Reproduced with permission with editing to suit e27 stylesheet from Ideonomics: Turning Ideas into Economy

Featured Image Courtesy: Robert Lucian Crusitu / Shutterstock

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