July 10, 2023
JAKARTA – The rapid growth of social commerce through platforms like TikTok and WhatsApp is redefining e-commerce in Southeast Asia and threatening the market position of conventional online marketplaces like Shopee and Lazada.
With a population of 630 million people, half of them under 30, Southeast Asia is one of TikTok’s largest markets.
Reuters reported that the region saw more than 325 million visitors use the ByteDance-owned app each month, with 125 million from Indonesia alone.
Indonesia also accounts for the lion’s share of e-commerce sales in the region, contributing $52 billion to Southeast Asia’s total $100 billion last year, according to a study published by Momentum Works last month.
The study finds that TikTok has established itself as a significant e-commerce force in the region, where it achieved a gross merchandise value (GMV) of US$4.4 billion last year.
Lazada, a more conventional online marketplace, meanwhile, has seen its GMV decline from $21 billion in 2021 to $20.1 billion in 2022 due to a reduced average order value (AOV), according to the Momentum Works data.
While Lazada’s GMV still dwarfs TikTok’s, momentum is in the latter’s favor, because TikTok’s $4.4 billion GMV marks massive growth over just $0.6 billion achieved in 2021, and the Beijing-based social media firm is gunning for $15 billion this year.
Tokopedia and Shopee still dominate e-commerce in Indonesia with respective market shares of 35 and 36 percent, according to the Momentum Works report, followed by Lazada and Bukalapak with 10 percent each and and TikTok Shop with just 5 percent.
In the fast-growing subsegment of social commerce, however, TikTok Shop and WhatsApp Store are the most popular platforms, according to data from research platform Populix based on a survey conducted in September 2022 with 1020 respondents.
The survey revealed that TikTok Shop was particularly popular among 18- to 25-year-old women in smaller cities across Java. Meanwhile, Instagram Shop was frequented by upper-level consumers and WhatsApp is favored among the older generation or people aged 46 to 55.
Social commerce, according to a McKinsey report published in October last year, reflects a shift in how customers connect with brands: where, when and how they shop. For companies, this opens up possibilities for a more interactive client experience.
Vion Yau, head of insights, and Weihan Chen, insights lead at Momentum Works, added that the traffic on social media platforms influenced people to engage in compulsive buying.
“Social media platforms may collect a lot of [data on] consumer preferences and behavior to attract consumers to purchase items that address their specific interests” Chen said.
“Social commerce’s specificity makes it easier to turn consumers into purchases. Social commerce users are there for entertainment, not to buy, unlike traditional e-commerce.”
Yona Marisa, a Jakarta-based online seller, claimed that conversing with customers and providing information on social media increased trust in a way conventional e-commerce platforms could not accommodate.
She added that the target market for social commerce had also expanded, particularly because there was a small price gap between what was offered on social media platforms and what was available on other platforms, the difference being that there was no take rate, or the fee charged by online marketplaces.
“People in the Jakarta area can find prices that are far lower than those seen on e-commerce sites. If I have to sell the things [on conventional e-commerce sites], my offering price should be 10 or 15 percent higher than the original price [to compensate for] the take rate,” Yona said.
“However, there is a minor difference in behavior if the consumers live outside of Java Island, because shipping fees may exceed the e-commerce [discounts].”
In January, GoTo increased Tokopedia’s net take rate to 4 percent, which, according to a report by Kontan, could generate additional revenue of Rp 2.1 trillion if customer transactions remained constant.
Bhima Yudhistira Adhinegara, executive director at the Center of Economic and Law Studies (CELIOS), said a higher take rate could drive consumers away, while discounts and free shipping were also important features for customers.
“When companies start to reduce their discounts or promotional offers and become more profit-oriented […], sellers aren’t happy, so they shift to social commerce platforms, which don’t have the take rate,” Bhima said.
He also pointed to the simple registration mechanism of social commerce platforms, as merchants did not have to provide their tax identification number or even ID card.
“It’s just more complicated on e-commerce platforms, because sellers have to deal with more tax requirements and regulations,” he said.
He noted, however, that goods bought through social commerce were generally lower-cost items than those sold on conventional platforms.
Meanwhile, Indonesian E-Commerce Association (idEA) digital economy chief Bima Laga said e-commerce payment systems were still safer than those available on social commerce, which was why he did not see social commerce supplanting e-commerce in the foreseeable future.
“E-commerce has better regulations. Buyers do not have to worry about whether they will actually receive the requested products. Furthermore, they are not required to do transfers manually,” Bima said.