Emerging markets
Feb 7, 2021

Tokopedia, Gojek, and the Quest to Beat Amazon

Tokopedia, Gojek, and Sea Limited represent stiff competition in an expanding market.

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What did Jeff do on Tuesday evening?

Perhaps he celebrated with a good bottle of wine, instructed his chef to prepare a special meal. Maybe his famous work ethic prevented such frivolous jollities, leaving Amazon's departing steward hunched over his expansive desk, iconic bald pate bouncing light from the swing-arm lamp.

Or perhaps, like Alexander at the end of his reign, Jeffrey wept, seeing as he had no more worlds to conquer.

(Classicists will know the quote paraphrased above owes more to Hans Gruber and the Die Hard franchise than it does to its presumed author, Plutarch).

Of course, just as it was for Alexander, such an expression of grief-at-culmination would prove spiritually sound but literally wrong. Sure, Alexander slaughtered a path to Persia, but were there really no frontiers left? Yes, Jeff has conquered America, Europe, and beyond, he has upended industries and altered our way of life, but not every battle has been won. Not every corner of the world is draped in Amazon orange.

Indonesia may prove an increasingly vital battleground. With the world's fourth-largest population of internet users and a growing middle class, American and Chinese super-companies are using the archipelago as the arena for a series of proxy wars. Google, Facebook, Tencent, and Alibaba have all made significant investments in native businesses; Amazon is conspicuously absent.

It may not have the luxury of overlooking the region for much longer. Buoyed by cash from Amazon's domestic and global competitors, local operators are turning into significant businesses, capable of winning the market outright or greatly stressing a future entrance. In particular, Tokopedia, the "Amazon of Indonesia," is poised for a bumper 2021, with interest from Peter Thiel's Bridgetown SPAC and murmurs of an impending merger with local ridesharing behemoth Gojek. It's conceivable that the e-commerce platform, founded 15 years after Amazon, reaches summer with both a colossal war chest and a string of new business lines. That's without mentioning the threat posed by Sea Limited's Shopee.

All to say, that sometime after Jassy gets used to his new office, he might want to look at Indonesia. In today's briefing, we'll explore:

  1. The Indonesian opportunity
  2. Tokopedia's logistical feat
  3. Gojek, and lesser evils
  4. Sea Limited's long shadow
  5. Amazon's workaround

Indonesia: Picking up Speed

There's a scene in The West Wing, one of my favorite shows, that I think about every so often. It comes in Season 5, Episode 5, "Constituency of One." Vice President Bob Russell is trying to convince presidential strategist Will Bailey to take him seriously and join his staff.

Russell: You play baseball coach, for a moment. Two players run to first. They both have the same time, but one has perfect form, the other lousy form. Which one do you pick?

Bailey: The one with lousy form —

Russell: Because teach him the right form and —

Bailey: And he beats the other guy.

Looking at the Indonesian e-commerce market, it's hard not to have two thoughts arise in quick succession: man, these are some real numbers, and wow, look at the room to run. The potential is enormous.

As noted above, Indonesia has the world's fourth-largest internet-connected population. But penetration in the country stands at just 62.6%. That lags much of the Asian region, including South Korea (96%), Malaysia (81.4%), Vietnam (70.4%), and Mongolia (68.1%). That total is expected to expand considerably over the next five years, with a further 50 million projected to come online.

Among those with internet access, e-commerce penetration is low, with just over 50% having made at least one purchase online over the past twelve months. Compare this to China, which has lower internet penetration, but considerably higher e-commerce usage, with 92% having made an online purchase over the same period.

The upshot is that Indonesia's e-commerce market is estimated to be worth a formidable $30.3 billion but should top $56 billion in five years. The entire digital economy stands at $44 billion, projected to expand at an astonishing 23% compound annual growth rate to hit $124 billion by 2025. At that point, the market size will be more than twice that of the region's runner-up, Vietnam


Indonesia's burgeoning middle class is expected to increase Average Revenue per User (ARPU), as well. At the moment, ARPU is roughly $219, a sharp coronavirus-aided increase from 2019's $171. By 2025, ARPU should crest $250.

No wonder tech's colossi have hurried to back the country's first batch of unicorns. Microsoft funded Bukalapak, an e-commerce business, while Google, Tencent, Facebook, and PayPal have invested in Gojek. Tokopedia has its own heavy-weights to rely upon, including Alibaba and Google. In its position as an Indonesia-only e-tailer, the $7.5 billion business may find itself especially well-situated to capitalize on prevailing tailwinds and growing interest.

Data from Crunchbase, Pitchbook

Things were not always so rosy.

Tokopedia: Linking the Archipelago

William Tanuwijaya was raised in a modest home in Northern Sumatra, Indonesia’s fourth-most populous province. An avid reader, William often struggled to receive new books in his district, relying on visiting relatives to bring him fresh reading material.

As the story goes, it was in moving to Jakarta for university — where he financed his studies by working at an internet cafe — that Willam noticed how much more accessible various items were. That recognition spurred his desire to bring everyday conveniences to the rest of the country.

In 2007, he and a co-worker started Tokopedia, with the business's name a portmanteau of the Indonesian word for shop, "toko," and "encyclopedia." It took William and his partner two years to close their first round of funding, with an old boss finally persuaded to pony up.

It would never be so difficult to raise again. That 2009 round was followed by another in 2010, led by East Ventures. Further funding came in 2011, 2012, and 2013. The big news arrived the year after: in 2014, Tokopedia became the first company in the region to attract investment from Sequoia Capital. Along with Softbank, the venture firm's Chinese arm deployed $100 million into the business.

William's vision manifested as coffers grew. What began as a consumer-to-consumer e-commerce platform (more similar to Alibaba than Amazon's merchant-focused offering) sprawled into an empire that now boasts 42 different products and four key business lines.

Those include the original marketplace, a suite of financial services for merchants and consumers, a logistics network, and a platform that brings brick-and-mortar inventory onto the app. The company boasts 85 million monthly active users (MAUs), 350 million product listings, and nearly 10 million merchants.

More impressive than any of these statistics, though, is the connectivity Tokopedia has enabled. It's at this point that I should emphasize Indonesia's unique geography. It is the world's largest island nation, with an archipelago of more than 17,000 islands across 5,000 kilometers. That alone is a nightmare, but even beyond that challenge, infrastructure is comparatively weak. A 2018 World Bank report rated the nation's logistical efficiency as a 3.2 out of 6, behind Malaysia, Vietnam, and Thailand. Orchestrating delivery on a national scale is no mean feat, and yet, Tokopedia — in conjunction with 11 partners — seems to have done it. The company's website notes that they serve 99% of Indonesia's 7,024 districts, with at least 65% of products available within one-day.

Tokopedia did the hard work, and looked set to prosper as the dominant e-commerce provider in an accelerating market.

Then Sea came along.

The Case for a Merger: The Enemy of My Enemy

Sea is a strange, frightening beast. A $131 billion market cap company that took no venture capital money, a gaming company with a dominant e-commerce business, a chimera of Epic Games and Amazon. (If you're interested in a deeper look at the company, I recommend Julie Young's excellent, early analysis.)

For the first six years of its life, Sea, then known as Garena, posed no threat to Tokopedia. Through its platform Garena+, the company provided access to different games, grafting on a social layer. Two events changed Sea's trajectory:

  1. In 2010, the company received exclusive Southeast Asian distribution rights for the hit game League of Legends. This elevated Garena's brand, brought in significant capital, and created a relationship with Tencent. Sea would later serve as the publishing partner for the gaming conglomerate — a lucrative arrangement for both parties.
  2. In 2017, Sea launched Free Fire, a social battle royale game influenced by Fortnite. In 2019, it was the most downloaded in the world. It has since hit 100 million daily active players, surpassing $1 billion in revenue.

Sea's early successes in gaming propelled product expansion; monster hits like Free Fire have sustained it. In 2015, the company launched Shopee, an e-commerce platform for the Singaporean market. In short order, it expanded to Malaysia, the Philippines, Vietnam, Taiwan, Thailand, and Indonesia. Today, Shopee is also available in Brazil.

It didn't matter that Shopee was six years behind Tokopedia and three behind Alibaba-owned Lazada (a similar business) — it took the market by storm. It is now, by almost all measures, the biggest player in Indonesia. Nearly 100 million visited Shopee's platform every month, compared to 85 million on Tokopedia. The Sea subsidiary also ranks number one on both Apple and Google app stores for its category.

Data from iPrice

Not content to dominate e-commerce, Shopee has made aggressive moves to own digital payments, too. Leveraging the revenue from Free Fire and the rest of the Garena games division, Sea has spent assertively to expand ShopeePay. Thirty percent discounts on purchases are common, with banners and billboards plastering much of Jakarta. That marketing blitz seems to have worked with ShopeePay stealing share from other providers, including Gojek's GoPay.

Having taken Tokopedia's lunch money, Sea is now bullying Gojek.

Best-known as a ride-hailing business, Gojek is, like Tokopedia, actually a constellation of products. This includes food delivery, a loyalty program, and, of course, digital payments. Given the slim-margins in ridesharing, not to mention sluggish demand during the pandemic, payments have become increasingly crucial to Gojek. That's evidenced by the company's recent investment in Bank Jago, a local fintech, that Gojek hopes will funnel new account holders to its financial management platform.

While much of the discussion of a potential Gojek and Tokopedia team-up has focused on the potential logistical efficiencies — imagine if Amazon could leverage Uber's fleet of drivers for local delivery — the real value may come on the financial side. By combining forces, "GoTo" (a name I have made up) would aggregate a vast, active user base already accustomed to accessing the respective platforms for transport, food ordering, and shopping. Offering financial services, including loans, payments, and wealth management, could prove effective in slowing Sea's incursion.

There would also be narrative value in such a union. Both Gojek and Tokopedia are Indonesian businesses, first and foremost, rather than foreign conglomerates extending their reach. Together, the companies would be valued at $18 billion, creating a national leader sure to attract both local investors and public buyers in the US.

Interestingly, Gojek has seemed reticent to tap public markets as a solo proposition, perhaps indicating an unease with current numbers. A merger with Tokopedia would alleviate that immediate stress. As mentioned earlier, Peter Thiel's Bridgetown Holdings SPAC investigated bringing the e-commerce company to market; with Gojek involved, sponsors could credibly cast GoTo as the next Alibaba, likely to follow the same upward arc. Just as reasonably, GoTo could be described as a singular business, a "mashup of Uber Technologies Inc., PayPal Holdings Inc., Inc., and DoorDash Inc," as Bloomberg described the potential crossbreed.

Whether a deal with Gojek goes through or not, the Indonesian market appears to be consolidating. Thanks to Tencent and Free Fire, Sea can afford to pour money into Shopee. Alibaba will be happy to keep funding Lazada even as it slips down the rankings. And, Tokopedia presumably has a good portion of its 2020 funding from Temasek and SoftBank.

Amazon will hope they are not already too late.  

Amazon's Move

Sure, having a hit game is a cool way to stack profits. But have you ever owned a cloud computing platform?

Amazon Web Services (AWS) is the Mother of All Benefactors, spinning off enough cash to bankroll any manner of loss-making ventures. Last quarter, AWS sales topped $100 billion, an uptick of 28%. As it stands, 52% of Amazon's total operating income is attributable to Jassy's old division.

That gives the business latitude to enter the Indonesian market. While Amazon hasn't made any substantial inroads yet, it has announced its intention to build data centers in Jakarta as part of a more considerable investment, with $951 million earmarked over ten years. That may sound significant, but on the scale of Amazon, it represents a relatively subtle expression of interest.

To accelerate its entrance, Amazon might consider three possible routes that fit the age-old "build, partner, buy" framework.

  1. Build local operations and challenge Shopee and Tokopedia directly.
  2. Partner with Tokopedia or Gojek.
  3. Buy Blibli, a smaller e-commerce platform.

Amazon may reasonably feel they need no additional help to win Indonesia's e-commerce customers; they can build the solution themselves. The company has shown it can adapt to serve developing markets with its work in India. Though it arrived six years after Flipkart's 2007 inception, Amazon has overtaken the Indian company as the country's number one e-commerce provider. That's been achieved by investing more than $5 billion since its entrance in 2013, onboarding local distributors, building out physical locations, and altering its app to perform on simple phones with limited connectivity. Though each country brings its challenges, and Indonesia's unique geography presents novel issues, Amazon has a track record of acclimating to such environments.

It may not need to, though. Short of spinning up local operations or buying a competitor outright, Amazon could gain exposure to the market through a partnership. In all likelihood, that would take the form of strategic investment, similar to those made by Facebook, Google, Microsoft, and others.

Amazon considered an investment in Gojek in 2019, but a deal fell through. Now might be the time to revive it, particularly if a merger with Tokopedia doesn't happen. With revenue falling during the pandemic, Amazon might be able to invest at a valuation flat from the last round (or better). Investing in Tokopedia would be a more straightforward play, given the companies' similar focus. While there would be some awkwardness given Google and Alibaba's involvement, Google's interest is fairly incidental while Alibaba's is predominantly focused on Lazada, which it owns outright.

The final move that could make sense is an acquisition. Buying Tokopedia wholsale may be a bridge too far — markets are hot, and top-tier sponsors have expressed interest. There's every reason to believe Tokopedia might see a similar pop to other public market debutants, making an acquisition — even at a premium from the last round — potentially unattractive.

With Sea owning Shopee, Alibaba owning Lazada, and Tokopedia heading towards the exit, Blibli might make the most sense. Though an exact valuation has not been shared, the company was tipped as a "future unicorn" in 2020. Despite its relatively small size, Blibli is among the top five e-commerce sites and boasts an established brand name. The company is owned by Djarum, best-known as a clove cigarette business, though possessing a growing set of digital companies. That might make Blibli a more straightforward acquisition than competitors with convoluted cap tables.

Though Jassy will have plenty on his hands as the successor to an (almost) all-conquering emperor, he would be wise to act on the ascendance of the archipelago.

With Sea Group burning cash to gain share and Tokopedia on the verge of a transformative merger and fruitful liquidity event, Amazon's route to the Indonesian market is becoming crowded by serious competitors. If the firm dallies, waiting another couple of years, it may find these titans impossible, or impractical, to dislodge. It has to make a play.

To paraphrase a common saying: the best time to enter Indonesian e-commerce was fifteen years ago. The second best time is now.

The Generalist’s work is provided for informational purposes only and should not be construed as legal, business, investment, or tax advice. You should always do your own research and consult advisors on these subjects. Our work may feature entities in which Generalist Capital, LLC or the author has invested.