In line with rising Internet and smartphone penetration across Indonesia, the modern Indonesian consumer is increasingly buying products online. Another important factor is that Indonesia's huge population (260 million individuals) is young and therefore easily adapts to a modern, online lifestyle. Meanwhile, Better Than Cash Alliance, a partnership consisting of governments, companies, and international organizations, released a report last year stating that Indonesia has become the world's fastest-growing mobile-commerce market (m-commerce).

It does mean, however, that competition between e-commerce platforms is becoming increasingly fierce in Southeast Asia's largest economy.

Based on research conducted by iPrice, Lazada was the most popular e-commerce platform in Indonesia in 2017. Lazada managed to receive an average of 131.8 million visitors per month, followed by Tokopedia with 115.3 million visitors per month.

It is interesting to note that both Lazada and Tokopedia received a capital injection from China's e-commerce giant Alibaba Group Holding Ltd in 2017. While Alibaba strengthened its grip on the Southeast Asian e-commerce market by investing USD $1 billion in Lazada in mid-2017, it invested USD $1.1 billion in Tokopedia in August 2017. Hence, Alibaba now has a very strong presence in Indonesia's e-commerce market, something which may encourage the flow of Chinese products into Indonesia.

Meanwhile, iPrice also states that four e-commerce platforms in Indonesia are now valued above USD $1 billion: Lazada, Tokopedia, Bukalapak and Shopee. However, only Tokopedia and Bukalapak are Indonesian unicorns because they are headquartered in Indonesia (while Lazada and Shopee are headquartered in Singapore).

Over the past year Shopee has been rising rapidly in Indonesia. Based on a report from Shopee's parent company Sea Ltd, the gross merchandise value of Shopee reached USD $4.1 billion in full-year 2017, up three-fold from the preceding year. Meanwhile, 40 percent of its gross merchandise value stems from Indonesia.

What explains the rapid development of Indonesia's e-commerce industry?

  • Indonesia contains a huge population numbering more than 260 million people. In combination with rising per capita GDP and purchasing power this population forms a huge consumer force

  • Indonesia's middle class segment continues to expand. To determine the exact number of middle class consumers in Indonesia is a matter of definition. Using a low bar (as used by Boston Consulting Group or McKinsey) Indonesia has 45-75 million middle class and affluent consumers. Institutions that set a higher bar say Indonesia has less than 20 million middle class consumers. However, all institutions expect the number of middle class consumers to rise rapidly in the years and decades to come

  • Smartphone penetration is rising in Indonesia. Based on data from research institute eMarketer there were 69.4 million smartphone users in Indonesia at the end of 2016. Moreover, this figure is expected to grow to 103 million by 2018, which would make Indonesia the fourth-largest smartphone market worldwide after China, India and the United States

  • Internet penetration is rising in Indonesia. According to the Indonesian Internet Service Providers Association (in Indonesian: Asosiasi Penyelenggara Jasa Internet Indonesia, abbreviated APJII) there are currently 132.7 million Internet users in Indonesia. With the government's Palapa Ring project under construction this figure will rise steeply in the years ahead

  • Online shopping - as well as other online activities (such as social media or gaming) - is a popular activity among the Indonesian population because Indonesia has a young population (hence more interested in digital technology and more able to adapt it into their lives). Moreover, a characteristic of Indonesia's young population is that it likes to purchase the newest "trending" products