Shopping the web: Domestic market primed for e-commerce expansion

As smartphones become more commonplace in Indonesia, apps are enjoying a surge in popularity, suggesting increased platforms for e-commerce to strengthen its economic foothold. Online trading and transport apps in particular are generating interest, offering a solid foundation for other start-ups, and attracting international players and financiers to the country. However, technology companies will be looking for further improvements in related services, such as logistics, as well as changes to foreign investment regulations to support continued expansion.

Era Of The App 

Since launching its mobile app in early 2015, Go-Jek, the Indonesian two-wheeled motorbike taxi service, has seen its market value rise as high as $400m by early 2016 and the number of registered drivers jump from 500 to 200,000. Spotting opportunity in the market, in May 2015 Malaysia’s Grab expanded into Jakarta, launching its GrabBike service, before introducing a car-based service several months later. The company is now active in at least five cities around the country, with plans to expand further in the year ahead.

The growing use of ride-hailing apps signals a wider expansion in e-commerce and mobile transactions. According to the Indonesian eCommerce Association, the domestic online market is projected to triple in size between 2014 and 2016 to reach Rp283trn ($20.7bn). While online sales represented around 1% of all retail sales in Indonesia in 2015, research firm eMarketer expects this share to grow to 4.4% by 2019, with e-commerce spending forecast to rise from $3.2bn to $10.9bn over the period.

Moving In 

With a population of around 250m, Indonesia’s e-commerce potential has captured the attention of global technology and investment giants. In January 2016 US-based e-commerce platform eBay confirmed plans to open an office in Indonesia, following in the footsteps of Twitter, which has had a base in the country since March 2015. The move will see eBay build on its local partnership with state-owned telco Telkom, through which it operates Blanja, an online shopping portal. At the same time, the Chinese internet search company Baidu announced plans to boost investment in Indonesia, where it operates the MoboMarket app store with more than 500,000 products available for download.

Major new domestic players are also entering the e-commerce scene. launched its operations in September 2015 with $500m in backing from Indonesian real estate developer Lippo Group. Describing itself as the Alibaba of Indonesia, the firm said it hopes to become a driving force for e-commerce in the country. Hadi Wenas, the company’s CEO, suggested the site was created to mimic a brick-and-mortar shopping experience, with the platform allowing user to “walk around and shop by floor.”

More To Be Done 

However, some obstacles to growth remain. While internet connectivity is rapidly increasing, it is coming from a smaller base than other countries in the region. The number of internet users in Indonesia reached 73m in 2015, or approximately 29% of the population, according to the Ministry of Communications and IT, significantly less than Malaysia (67.5%), Thailand (55.9%) or the Philippines (43%). A fragmented logistics landscape and underdeveloped payment infrastructure also present hurdles to expansion, with just 6% of Indonesians holding credit cards, according to a 2014 report by UBS.

Being mindful of the market’s characteristics will be crucial for app developers planning expansion. E-commerce solutions are increasingly being used to bridge gaps in Indonesia’s infrastructure, with some start-ups helping firms extend their reach to rural areas. Start-ups looking for innovative ways of reaching rural customers are also employing a tactic known as assisted e-commerce, which uses technology to connect local stores with product distributors, helping to minimise geographic and payment challenges.