American internet companies are increasingly evincing interest in Indonesian unicorns, looking to grab a slice of the largest economy in Southeast Asia at a time when markets in the US and Europe are witnessing a slowdown.
Recently, internet search giant Google made headlines when sources confirmed that it has reached an agreement along with Singapore’s Temasek Holdings to join the captable of PT e-commerce giant Tokopedia, with a proposed $350 million investment.
The transaction – if it goes through – will offer a big vote of confidence to the unicorn as it gears up to expand its operations after the pandemic gave a boost to its business.
Tokopedia, backed by Japanese tech investment behemoth SoftBank, is also understood to have held talks with US giants including Facebook Inc and Microsoft Corp for a proposed funding.
And it’s not Tokopedia alone that is garnering the attention of US strategics. The archipelago’s unicorns are increasingly becoming a natural choice for global companies looking to make inroads into Southeast Asia, which is touted as the next frontier of growth.
During the peak of the pandemic, in June, Facebook and PayPal made an investment in ride-hailing decacorn Gojek, as part of its ongoing Series F round, which took its total fundraise to over $3 billion to date.
Indonesia is entering a phase where requirements for larger capital are luring strategic investors to participate.
The investment made by Facebook and PayPal in June is slated to support Gojek’s mission to boost Southeast Asia’s digital economy, with a focus on expanding payments and financial services in the region, according to an earlier DealStreetAsia report.
Interestingly, US e-commerce giant Amazon, too, has held talks with the likes of Gojek and Tokopedia, although they did not fructify into transactions.
“Right now, Indonesia’s digital economy has become the largest in Southeast Asia,” Randy Jusuf, managing director of Google Indonesia was quoted saying at the launch of a company’s initiative at the National Library in Jakarta earlier this year.
What works to Indonesia’s advantage is that it comprises 40 per cent of the entire population of SEA and is also home to a growing number of unicorns across diverse sectors that are looking at regional expansion.
According to Google Indonesia, the country’s digital economy is expected to touch $124.1 billion by 2025, more than triple the amount recorded in 2020.
The cloud push
Growing appetite for cloud and related services are also pushing US companies to shift their focus on the archipelago.
Take Google’s investment strategy for instance. It has already signed up with four of the country’s five unicorns for its cloud services. Apart from Gojek and Tokopedia, the company has also forged partnerships with Southeast Asia’s largest online travel app Traveloka and e-commerce giant Bukalapak.
Besides the unicorns, Google also counts the country’s largest lender by assets Bank Rakyat Indonesia, and the second-largest mobile operator XL Axiata among its clients.
The demand for cloud services is only expected to rise with thousands of traditional SMEs coming into the fold of the digital economy.
This year, total Asia-Pacific (ex-Japan) spending for public cloud is expected to touch $34.51 billion, thereby recording an increase of 32.8 per cent from $25.98 billion last year, according to a recent IDC report.
Indonesia is currently one of the fastest-growing markets in the APAC region for public cloud. It is projected to grow fourfold – from $0.2 billion in 2018 to $0.8 billion in 2023, according to BCG.
While the SaaS and IaaS models are the largest segments of the public cloud market today, PaaS is touted to be the fastest-growing segment between now and 2023, with a CAGR averaging 25 per cent.
Doorway to other services
A slew of companies across sectors such as retail, financial services, and manufacturing, among others, are in the early stages of adopting public cloud services in Indonesia. This has drawn the attention of other global cloud providers.
In March, Microsoft expressed its interest in building data centres in the country, two months after the Industry Ministry revealed that Amazon Web Services will build an infrastructure “region” in Jakarta by end of next year or early 2022 in what is considered the biggest investment in Indonesia’s information and tech sector.
Microsoft’s move comes at a time when its technology peers from China are already present in the archipelago. Take Alibaba Cloud (the computing arm of Alibaba Group), for instance. The company plans to launch its third data centre in Indonesia by early next year, following the roll-out of its second data centre to double local capacity in January last year. Back then, Alibaba Cloud was the only global public cloud platform with local data centers in the archipelago, according to its website.
|Announcement Date||Major Players||Activities and Plans In Indonesia|
|2019-10-20||Tencent Cloud||No specific plans for data centres in the country, but earmarked $70 billion in 2019 for cloud services, AI and cybersecurity for recent five years. Serves companies operating in Indonesia such as Shopee and Gojek (where it has a stake)|
|2020-01-24||Amazon||Building an infrastructure "region" in Jakarta by end 2021 to early 2022, with Jakarta having three Availability Zones consisting of several interconnected data centers.|
|2020-03-06||Microsoft||Expressed interest in building data centres at the country's Digital Economy Summit 2020 in February.|
|2020-06-24||Google launched the first cloud region in Indonesia.|
|2020-07-02||Alibaba Cloud||Alibaba Cloud rolling out third data centre by early 2021. First data centre in early 2018, making it first global cloud platform in the country.|
|2020-08-04||Oracle||No specific plans for Indonesia. Introduced dedicated Region Cloud@Customer, allowing customers to bring cloud into their own infrastructure.|
Apart from on-demand data storage and computing power, cloud operators also offer digital ‘transformation services’ for companies that seek to update their processes and cybersecurity services. Google claims that its clients had been able to cut the time spent on processing queries from days to minutes, thereby shifting to some of its cloud tools.
Gojek and Tokopedia are examples of local companies that have benefitted from its services. Gojek’s Go-FOOD division has reportedly streamlined sales solutions and transformed data management, according to the company’s user story on SalesForce’s website. The latter taps on Amazon’s cloud to run its online services – it had last year signed a deal to tap Microsoft Azure’s public cloud, CNBC had reported.
For Tokopedia, being able to clock concurrent transactions over public cloud during its peak sales cycles has been crucial in capturing growth. During last year’s Ramadan, the online marketplace was able to make more sales in a single day than it had in its entire first six years of operation, enabled by cloud services offered by Google and Alibaba to run its Ramadan event through their cloud servers, FT had reported.
Indonesia: The bridge for SEA
To establish a foothold in Southeast Asia’s digital economy, global strategic investors cannot ignore Indonesia, whose population makes up 41 per cent of the 660 million people in this region.
Additionally, Southeast Asia, home to about 320 million unbanked and underbanked adults, throws up an opportunity to serve new customers for a range of financial services. Indonesia alone makes up 43 per cent of the unbanked and underbanked adult population in the region, as depicted in the data below.
Source: e-Conomy SEA 2019 report, DealStreetAsia Research & Analytics
As cloud-based computer engine creates scalable virtual machines that power hundreds of back-end services, from ride-hailing to food delivery and tickets to shopping, financial service providers can indirectly track spending of end customers with their partners, and up the ante for services offered.
Tie-ups with unicorns: The way ahead for US strategics
Even as high-profile late-stage investments or acquisitions by US tech firms in Southeast Asia have historically been sparse as US companies with plans for Asia have tended to favour Japan and China, things could now be changing.
In recent years, geopolitical tensions between China and the US have shifted the spotlight on Southeast Asia. US tech giants see the region as the next friendly frontier compared to China, which has lost its lustre in the wake of recent US-China tensions, venture capitalists point out.
Making investments in unicorns could be the most practical way for US strategics to foray into the country – after all, Facebook’s internet.org app had failed to take off in Indonesia after its launch in 2015.
XL Axiata, Facebook’s early partner during Internet.org’s research phase in Indonesia later discontinued its partnership with the US social media giant, citing concerns surrounding net-neutrality of the project, and business model concerns, local media Indotelko had reported.
The Indonesian government, on its part, has recently introduced the Omnibus law, meant to relax the complex web of business and labour regulations, and to stimulate an economy that has been hit hard by the COVID-19 pandemic.
All in all, with businesses gearing up for action in the burgeoning startup ecosystem, there is a growing requirement for permanent capital and high-tech know-how – both areas that US technology giants can provide.
As of July 2020, Google Asia Pacific was amongst the five top shareholders in Gojek:
Source: Company filings, DSA Research & Analytics Unicorn Report: Gojek
Besides Google, other US internet giants offering cloud services such as Microsoft, Amazon, Cisco are reportedly mulling over strategic opportunities within Indonesia, as the country’s digital transformation gains steam. A stake in one of Indonesia’s growing platforms can provide an indirect play in the region, especially when local unicorns spread their wings.
“By working together, we have the opportunity to achieve something truly unique as we aim to help more businesses to digitise and ensure that many millions more consumers are enjoying the benefits that the digital economy can bring,” said Gojek co-CEO Andre Soelistyo, when Gojek snagged funding from PayPal and Facebook in June.