Asia PE-VC Summit 2019: Hype over valuation but customer satisfaction is key to success

From left to right: East Ventures managing partner Willson Cuaca, Traveloka group operations president Henry Hendrawan and Tokopedia president Patrick Cao at Asia PE-VC Summit 2019 in Singapore.

For Indonesian homegrown consumer internet unicorns Tokopedia and Traveloka, factors such as deep localization and relevant regional experience are what really matter when it comes to executing and expanding business in Southeast Asia.

During a fireside chat session titled The making of Indonesia’s top unicorns and the road ahead at DealStreetAsia’s Asia PE-VC Summit 2019, Tokopedia president Patrick Cao and Traveloka group operations president Henry Hendrawan shared their insights on what it takes to expand in the region or go further deep into the local market, growing competition, super app strategy, the route to IPO, among others.

The session was moderated by East Ventures co-founder and managing partner Willson Cuaca.

Edited excerpts:-

Regional Vs Local

Traveloka, valued at over $1 billion, is the first Indonesian unicorn that expanded its operations to neighbouring markets such as Thailand, Vietnam, and the Philippines, besides Australia.

“Every country in Southeast Asia is different. There are markets that we feel are closer to Indonesia, and maybe more attractive from our point of view. The way to execute will be to get a combination of local talent… combine it with the experience of what you learnt in Indonesia,” Hendrawan said.

A lot of users rely on Traveloka’s app to avail services for booking trips, flights, concerts, besides getting insurance and making internet payments.

Southeast Asian market is rather fragmented, wherein Traveloka’s technology, says Hendrawan, fits other countries as well.

“Firstly, we are dominant in Indonesia. We are clearly the market leader, so we have that luxury. Number two, the travel business actually has a lot of cross-geographies and synergies and number three, the issues are the same that users are facing in Indonesia,” he added.

Meanwhile, Tokopedia has a different perspective on e-commerce growth, especially since the company is still focusing on the domestic market.

“I think for us it is actually pretty simple, we are lucky and we are the beneficiaries of having a large enough market. Indonesia has the fourth-largest population, with an economy which, according to the Indonesian president, will go from $1 trillion today to $5 trillion in the next seven to 10 years,” Tokopedia’s Cao said.

He said it’s critical for a unicorn, equipped with all of the infrastructure tools, to able to go from tier one to tier four cities and be relevant to consumers of all ages.

“We have the benefit of a majority market share. We are over the 50 per cent mark, but you know, to get to that Alibaba kind of level or Amazon kind of level, that requires a different sort of game. I think [for now] we will keep to the Indonesian market,” he added.

Cao emphasized that commerce business has different variables compared to other businesses.

“What Traveloka’s done, it is more scalable, [by] leveraging technology and products. And the point about hotels and airlines – it is both complimentary and synergistic in different regions,” he said. “For commerce, it is very local. For example, we don’t have an English version of our app. It’s purely by the way you work with a merchant in tier one, tier two, tier three, tier four [cities in] Indonesia, versus any other country.”

One app for everything

Unicorns in Indonesia have been focusing on the ‘super app’ concept, wherein they offer many apps and services under one platform.

Tokopedia began its e-commerce business ten years ago and from then to now, it has expanded to a marketplace that offers a plethora of products across categories. Apart from facilitating utility and telephone payments, it helps businesses sell credit cards, flight tickets, event tickets and game vouchers, among others.

“We call it building bridges, not building walls. Tokopedia is good at commerce, we are not experts at logistics, or fulfilment, or payments. But we have very good partners,” Cao said.

On the logistics side, he added Tokopedia works with many warehousing and fulfilment partners. The company has so far created partnerships with banks, credit card companies, and fintech players.

“I think our intention is we know what we do well, but for everything else, we should be friends, build partnerships, with the best players and partners in that particular industry,” he added.

For Traveloka, to be able to grow into the company with an over $1 billion valuation, the key driver is team effort that can help develop a good product.

“It is not an individual effort. We’d like to think that our product is one that is the key to success, winning the hearts and minds of the consumer. We really focus on the user experience and developing a really great product,” Hendrawan said.

“We did flight really well, then we moved on to doing hotels to [expand] into other countries and [adding new] categories as well,” he said, adding that the company also started to branch out into the next phase of growth. Apart from transportation and accommodation, the company forayed into two new verticals: lifestyle and financial services.

Today, Traveloka enables users to book recreational activities and provides tickets for theme parks and music concerts across regions. It also has been offering a feature called ‘pay later’ since last year. As the name suggests, it enables users to pay for transportation and accommodation in instalments.

Tokopedia’s Cao added that for a company to be able to grow exponentially, it needs to know the market it is in, investors who understand the real value and have perseverance.

When the company started 10 years ago, “you didn’t have robust infrastructure, payments. And in the last four years, you’ve had a new crop of logistics providers… and people have moved more into digitalization. Same with the banks and credit card companies,” he said.

“The same could be said about infrastructure. I think we’ve also been the beneficiaries of a very progressive and supportive government that has supported the digital economy initiative. So, all these things helped us grow together,” Cao said.

Mounting competition

Hendrawan said when foreign players enter Southeast Asia or the Indonesian market, they will see Traveloka as a significant player. This is especially true for travel companies trying to foray into the archipelago.

“We have the largest hotel channel in Indonesia. We are the only ones who can cater to Indonesian consumers. If your market is targeting consumers in Indonesia, you need to work with us,” Hendrawan told the panel.

Cao, on the other hand, recalled how Tokopedia used to be among a number of players competing for a slice of the pie in the Indonesian market five years ago.

“I think competition is a good thing. It helps you move faster, mitigates complacency. It really brings the best side of what a company and founders and teams can produce. But yes, I know sometimes it can be irrational as well,” he said.

Cao said five years ago, when cash-rich JD.com and a number of international players came to Indonesia, they had the ability to build massive warehouses and asset footprints.

“How do you compete against someone that you know will probably do free same-day shipping, using their own deployment… We had no money. How can I leverage my ecosystem better to deliver products?

“That’s where the tie-up between Gojek and Tokopedia happened, and for the first time, the company started using ojeks [motorcycle taxis] in Indonesia to deliver packages. Today, if you’re a prime member in Amazon in the US, you can get your package in two days. On Tokopedia today, 70 per cent of our products are delivered within 24 hours. I think when you are going abroad, you’re spoilt by Tokopedia, or the other players in the market. It is because of the product innovation,” he said.

IPO path

Cao told the panel that for companies to hit the bourses, there are three key things. One, they should carve out their path to profitability, and two, they should operate in a healthy market. And last but not the least, they should focus on creating the right corporate governance structure.

“There’s a lot of hype around valuations and fundraising. I actually don’t think that we should be celebrating this,” he said, adding: “What you really want to go for is to build the best product for your customers, wherever that customer is. And in the traditional business sense, it has to be done sustainably.”

Cao said Tokopedia is fortunate to have access to capital “but how will the company invest that capital is the most important thing, especially in infrastructure as a service and complementary businesses, whether investing in another vertical or region.”

Road ahead

“On the e-commerce penetration today, Indonesia is about 5 per cent. Last month [in August], Tokopedia contributed about 1.5 per cent to the GDP. So, you know, those seem like big numbers. But if you put it in the context of China or the US, China has about 20 per cent plus of e-commerce penetration,” said Cao.

Indonesia is an important market in Southeast Asia that is poised to witness significant growth in the years to come. According to the latest report jointly launched by Google, Singapore’s state investment firm Temasek, and Bain & Co, the country’s internet economy has recorded a growth rate of over 40 per cent year-on-year, driven by a slew of factors such as growing middle-class coupled with a rising ‘netizen’ population in the backdrop of strong domestic consumption.

Cao said at this point Tokopedia is focused on the customers, buyers, merchant partners, brands and many partners on the supply and demand side.

“We continue to do that because the market is big enough because commerce is big enough. We just have a lot of a lot more to do. I call it the lifetime customer journey,” Cao added.

Tokopedia recently announced the acquisition of wedding services platform Bridestory, along with Parentstory, a marketplace for children activities, which Cao said fit into what the company’s visions are.

Traveloka’s Hendrawan, on the other side, said that the company wants to unlock a lot of products and services to cater to the underbanked population.

“Underbanked means that people that have a bank account and that’s it. They don’t even have a credit card,” he said.

Traveloka recently launched life insurance, and people started questioning why the company would offer such a product when its core businesses revolve around travel and tourism products.

“The problem with life insurance is it is hard to sell because the product itself is complicated. Meanwhile, the ticket size is big and people need to pay it forward. Unfortunately, when you don’t have a credit card, how can you pay? So [through our service] people now can actually pay through an instalment,” he added.