How market transitions are creating opportunities across Southeast Asia
Adoption of technology or evolution of a market often follows the same S-curve we see in biology. Pieter Kemps uses this framework to pinpoint ‘platform transitions’ and highlight key maturing and emerging market opportunities in Southeast Asia.
Published November 18, 2018
In biology, the S-curve – or Sigmoid Growth Curve – describes a pattern of growth in which the population density of an organism increases slowly initially, before suddenly accelerating rapidly at an exponential rate. It then declines in a negative acceleration phase until, at zero growth rate, the population stabilizes.
Adoption of technology or evolution of a market often follows this same S-curve. My US-based colleague Aaref Hilaly recently leveraged this framework in an excellent article that summarized key “platform transitions” in Corporate IT. These transitions are defined as major shifts in the landscape, either in the form of ‘maturing platform transitions’ or ‘emerging platform transitions’. Opportunities exist wherever platform transitions happen.
We believe this framework was very relevant for how we look at the Southeast Asia market, and could be used to describe a range of interesting maturing and emerging market opportunities.
There are several markets in the region that are nearing the top of the curve. These are well understood, yet still evolving with exciting new models and opportunities. At the bottom, we see large legacy industries, like logistics and media, where new technologies are applied to deliver new solutions and experiences. The evolution of these markets in Southeast Asia is often drawing inspiration from India and China.
Maturing Platform Transitions
It is easy to think of maturing platforms as ‘old news’. Travel and e-commerce are often the first online businesses to take off in an emerging market, and hence, are well understood. Still, market reality shows there are still meaningful market opportunities in these large markets.
In E-commerce, the Southeast Asian market has moved beyond horizontal e-commerce. Cross-border e-commerce has recently taking a flight, leveraging increased data, logistics and market access to build a business based on (China) market arbitrage – as shown by companies like Wish and Club Factory. Vertical e-commerce also proves to offer significant opportunities, but only in large segments, as the fast growth of Zilingo is proving in the fashion domain. Finally, completely new models still emerge. Pinduoduo is a mobile shopping platform that uses a gamified ‘team purchase’ model, combined with social sharing on WeChat to drive viral growth, primarily in Tier 3-5 cities in China. They launched around 3 years ago and recently saw their IPO at NASDAQ, with a market cap of ~$27B.
Travel continues to be a large market and although global players are dominant, specific market dynamics create sizeable opportunities. For example, Traveloka offered a very localized experience and aggregated long-tail hotel supply to become a dominant player in Indonesia and now across Southeast Asia. Building on the Asian traveller’s penchant for group activities, Klook emerged as Asia’s largest in-destination services booking platform. They have scaled up significantly and TechCrunch recently reported that the company offers more than 50,000 activities and services from 5,000 partners in over 200 destinations across the world. OYO Rooms, meanwhile, realized the emerging middle class needed access to affordable rooms, but with standardized quality. Their novel, asset light model allowed them to grow rapidly across five countries. Earlier this month, the Financial Times reported that OYO now has 133,000 rooms in its Indian hotel network, roughly four times the combined total of Marriott and the Tata Group’s Indian Hotels, its two nearest competitors.
Offline-to-Online is another mature segment that saw significant home-grown innovation. Go-Jek stands out as a powerful platform across transport, logistics, food delivery and payments. They chose a platform approach from Day 1 of their app launch, starting with transport, but quickly encompassing food, logistics, shopping, lifestyle, and payments. They also showed that form-factors beyond cars could get adoption: motorbikes! Other form-factors are also gaining traction, such as bike-sharing (oBike, OFO) and now e-scooters (Bird in the US, Bounce in India and BEAM in Singapore). But O2O is not just transport & delivery. Fave has built a large merchant base across three countries and their FavePay product has grown fast, helping them to evolve into a widely adopted mobile payments, loyalty and rewards platform.
These examples of innovations show there is still market cap to be created in mature markets.
Emerging Platform Transitions
Often, mature and large markets are slow to adopt new technologies. They have invested deeply in legacy systems and find it hard to adapt to new market realities. The emerging platforms below are mostly large, existing markets that have only just started to see a rapid adoption of technology. This is creating significant opportunity in financial services, logistics, and media.
Financial Services was bound to see a fast rise in Southeast Asia, a region of markets, merchants, and money. In India and other developing markets, fintech innovation comes in different waves, starting with payments and followed by lending. The third wave is often insurance and investing or wealth management. We are seeing the same in Southeast Asia, where Sequoia India has actively invested in payments (eg. MidTrans, sold to Go-Jek) and lending (Funding Societies/Modalku), and we believe the time will soon be right to invest in insurance and investment products.
Logistics has been the backbone of all commerce activities – from the Silk Route in ancient times to modern ships/airplanes in recent times. Southeast Asia faces unique challenges, with 650M people spread across thousands of islands. This leads to some of the highest logistics cost, globally, at 20-25% of GDP for countries like Indonesia and Vietnam. Several opportunities are ripe for disruption including last-mile and first-mile networks, which are crucial for a smooth e-commerce experience. ZTO and SF Express are main players in China, and in Southeast Asia, we are seeing players like J&T, Ninja Van, and many others. Beyond the last mile, intra and intercity trucking is a large segment, where large companies have emerged such as Blackbuck and Rivigo in India and Full Truck Alliance in China.In Southeast Asia, many companies have tried to crack this space, such as Gogovan and Lalamove. Overall, technology can play a key role in building asset-light logistics networks that offer faster, cheaper and more transparent experiences.
Media saw the first wave of disruption through large social platforms – WeChat in China, and Facebook or Instagram here. The second wave is now happening with authenticity, personalization, and video at its core. An increased need for authenticity has encouraged new formats of user generated content or “WeMedia” – such as live streaming platforms like YY in China and Bigo or Tamago Live in Southeast Asia. A desire for a more personalized experience has led to the fast rise of content aggregation platforms such as Toutiao in China, Dailyhunt in India, and Baca, BaBe and Xiaobu (VN Ngay Nay) in this part of the world. Finally, video is moving beyond YouTube, with a focus on short form video apps like Kuaishou in China, and Kwai and Tik Tok here. In media, China clearly seems to be leading the way.
In summary, opportunities exist whenever, and wherever, platform transitions happen. Maturing platform transitions lead to opportunities in markets that could easily be seen as mature or crowded. And emerging platform transitions represent opportunities in large markets that are just waking up to the potential that technology can bring. Note that we have talked about markets here, less so about different types of technologies. We are obviously looking deeply into AI and blockchain and are seeing these technologies impact all the markets that are discussed here. For a deep dive into AI and blockchain, stay tuned for a next article.
With thanks to Tammie Siew and Rohit Agarwal for their valuable inputs.