Indonesians are clearly avid internet surfers, but can they be made to pay? Convergence is the name of the game, with GSM operators banking on triple-play packages while fast-growing groups like James Riady’s Lippo Group are launching online news portals. While the lines have blurred between service and content providers, the challenge of how to monetise this online community remains a difficult, but potentially highly remunerative, problem to solve.
SOCIAL NETWORKS: Only 12% of Indonesians are connected to the internet, of which 5% use a PC to get online. A recent Boston Consulting Group report forecast that these figures will triple by 2015. While Facebook doesn’t have an office in Jakarta, it counts over 30m local users, its second-largest market worldwide. Indonesia is also Twitter’s third-most-active market. Indonesians account for a full 20% of users on Friendster, Asia’s largest social networking site. Google, also interested in the market, announced in July 2011 they will be opening a representative office next year to help expand their internet presence in Indonesia All major newspapers run websites but the issue of charging for content remains tricky, as in most markets. Online news is affecting large print media groups. The likes of Tempo Inti Media (publisher of the Koran Tempo daily newspaper) and Abdi Bangsa (with Republika) had relatively low revenue growth and a negative net income in 2009. Yet online publishing is increasingly being viewed as a viable means of targeting the vast Indonesian market, circumventing the high operating costs that have plagued print media in the disparate archipelago. Online portals like Vivanews! have generated significant traffic volumes. Meanwhile the Wall Street Journal is launching an Indonesian-language version online, seeking to replicate its similar ventures in Japan and China. There is also investor interest in buying into this online market, showing the strategic importance of the Indonesian online market in Asia. Yahoo! bought out location-based social network Koprol in May 2010 for a rumoured but unconfirmed $100m.
CHALLENGES: From a regulatory standpoint, the lines have become blurred within the Ministry of Information and Communications Technology, with relatively lax regulation. Tapping into this vast online community, the majority of which connects to the internet through mobile devices that preclude most online adverts, remains a challenge. Much of the recent increase in internet usage is driven by the low cost of Blackberry handsets, subsidised by GSM operators. Online advertising equalled 4% of spending in 2010. Credit card and banking penetration remain limited, making online purchases difficult. Facebook estimates only 10-20% of its Indonesian users click on adverts.
GROWING POTENTIAL: Yet from low levels, online advertising is growing fast, by 400% year-on-year in 2010. Spending on online display adverts reached $28.4m that year, while that on search adverts grew to $13.4m. Both Facebook and Friendster work with Admax Network to access advertising space, keeping the revenue sharing splits confidential. Established in 2006, Admax Network claims to be the biggest online advertising network in South-east Asia, with 4600 websites.
Indonesia is also becoming a testing field for innovative online marketing. If telecoms operators temper their take on micro-purchases, online advertising could take off. Multiply, a US-based social networking site that offers the trading services of a marketplace in the same way as eBay, has 7m Indonesian browsers, 2m of which are active users. Average transactions amounting to Rp150,000 ($18), of which the firm takes 3.9% in commission, are turning Indonesia into Multiply’s largest market worldwide in 2011. “One of the keys of e-commerce is trust and recommendations,” said Andy Djiwandono, the vice-president of Multiply Indonesia.
The Indonesian online market has already proven its dynamism, generating significant investor interest both locally and internationally. If online advertisers are successful in circumventing obstacles for advertising and e-commerce, the vast and growing Indonesian market looks set to develop into a highly profitable one.
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