E marketer indonesia_online-a_digital_economy_emerges_fueled_by_cheap_mobile_handsets

INDONESIA ONLINEA Digital Economy Emerges, Fueled by Cheap Mobile HandsetsMARCH 2013

Rahul Chadha

Contributors: Tobi Elkin, Jennifer Jhun, Monica Peart

INDONESIA ONLINE: A DIGITAL ECONOMY EMERGES, FUELED BY CHEAP MOBILE HANDSETS 2013 EMARKETER INC. ALL RIGHTS RESERVED 2

EXECUTIVE SUMMARY

Among emerging markets, Indonesia often falls

into the long shadow cast by Brazil, Russia, India

and Chinaalso known as the BRIC countries. But

Indonesiawith the fourth-largest population in the

worldis growing rapidly, as is its online population.

Indonesias economic engine will help create a new and considerable digital class of consumers. eMarketer projects about 29% of the populationor 72.7 million peoplewill have access to the internet by the end of 2013. That penetration rate is expected to climb to 39.8% by 2016, accounting for 102.8 million internet users.

Internet use remains heavily concentrated in Indonesias largest cities, where people are more able to afford both internet-enabled devices and service plans. Mobile internet is making gains, aided by the proliferation of cheap feature phones and smartphones manufactured in China, along with more affordable data packages.

KEY QUESTIONS Who makes up Indonesias online population?

Will internet users leapfrog fixed broadband in favor

of mobile internet?

What is shaping Indonesias peer-to-peer economy?

millions, % of population and % changeInternet Users and Penetration in Indonesia, 2011-2016

2011

43.0

17.5%

40.4%

2012

59.6

24.0%

38.6%

2013

72.7

29.0%

22.1%

2014

83.6

33.0%

14.9%

2015

93.4

36.5%

11.7%

2016

102.8

39.8%

10.1%

Internet users % of population % change

Note: individuals of any age who use the internet from any location via anydevice at least once per monthSource: eMarketer, Feb 2012136985 www.eMarketer.com

CONTENTS2 Indonesias Online Population

6 Internet Usage in Indonesia

8 Social Society, Social Media

11 Advertising

12 eMarketer Interviews


INDONESIAS ONLINE POPULATION

Indonesia is sometimes overlooked as an emerging

market, with more attention paid to the BRIC

countries. But its size and economic growth are

increasing its profile.

In September 2012, McKinsey & Company estimated that Indonesia could grow from the 16th-largest economy in the world to the seventh largest by 2030. The International Monetary Fund (IMF) estimated that Indonesias GDP will grow 6.3% this yearwell higher than the global average (3.6%) and the average for emerging market and developing economies (5.6%). The IMF also predicted that Indonesias growth rate will increase over the next several years and continue to outpace that of developing markets in general.

Not surprisingly, internet usage is rapidly expanding in the country, with growth reaching almost 20% this year. eMarketer estimates that Indonesias online population will reach 72.7 million in 2013 and 102.8 million in 2016.

Comparative Estimates: Internet Users andPenetration in Indonesia, 2011-2016

Internet users (millions)

APJII, Dec 2012 (1)

eMarketer,Feb 2012 (2)

IDC, June 2012

Jefferies, Sep 2012

comScore Inc.,Nov 2012 (3)

BCG, April 2012

Frost & Sullivan,Feb 2012

McKinsey & Company, Dec 2012

Internet user penetration (% of population)

eMarketer,Feb 2012 (2)

IDC, June 2012

BBG, Oct 2012 (4)

Roy Morgan Research, June 2012 (5)

ITU, July 2012

Frost & Sullivan,Feb 2012

2011

55.0

43.0

39.0

-

-

31.0

-

-

17.5%

15.0%

-22.1%

18.0%

-

2012

63.0

59.6

45.0

55.0

47.0

-

-

-

24.0%

17.0%

27.0%-

-

-

2013

82.0

72.7

50.0

-

-

-

-

-

29.0%

19.0%

--

-

-

2014

107.0

83.6

56.0

-

-

-

-

-

33.0%

21.0%

--

-

-

2015

139.0

93.4

61.0

-

-

50.0

145.2

-

36.5%

23.0%

--

-

37.0%

2016

-

102.8

-

-

-

-

-

100.0

39.8%

-

--

-

-

Note: (1) ages 12-65; use an hour per day or more; (2) individuals of anyage who use the internet from any location via any device at least onceper month; (3) ages 15+; home and work locations; (4) ages 15+; data is for Aug; (5) ages 18+; urban population only; ever usedSource: eMarketer, Feb 2012; various, as noted, 2012152511 www.eMarketer.com

Other estimates vary due to different methodologies. For example, some estimates do not include usage outside

of the home or office, which may discount a large number of users accessing the internet in shared places such as internet cafes. Accounting for variations such as this and the age ranges studied, other firms figures are in line with eMarketers.

August 2012 data from Gallup and the Broadcasting Board of Governors (BBG), an independent agency of the US government responsible for all US-sponsored nonmilitary broadcasting conducted overseas, showed that internet penetration was highest among those ages 15 to 24, at 51%. It then declined sharply to 25% among those ages 25 to 54, with the trend continuing as users got older. Internet use also increased as the education levels of respondents went up: 72% of those with a university-level education reported going online in the week prior to the poll.

% of respondents in each group

Demographic Profile of Internet Users in Indonesia,Aug 2012

Age15-24 51%

25-34 25%

35-54 11%

55+ 2%

LocationLarge city 30%

Small town 23%

Rural 13%

Education levelNone 1%

Primary 3%

Secondary 21%

High school 40%

Vocational 46%

University 72%

Total 21%Note: used in the past weekSource: Broadcasting Board of Governors (BBG) and Gallup, "Media Use inIndonesia 2012," Oct 16, 2012150271 www.eMarketer.com

Internet penetration remains most prevalent in the countrys largest cities, which include Jakarta and its metropolitan area, often referred to as Jabodetabek; Surabaya in the province of East Java; Bandung in West Java; Medan in North Sumatra; and Semarang in Central Java. Because internet use in these cities is already more widespread, smaller cities are expected to host much of the growth in penetration over the next few years. As would be expected, Indonesias population as a whole is shifting from rural to urban. According to Indonesias 2010 census, the urbanized population increased from 41.9% in 2000 to 49.8% in 2010.


A MarkPlus Insight survey released in November 2012 estimated that, out of a total internet user population of 61.1 million in 2012, 56.4 million lived in urban areas.

millions and % of population

Urban and Total Internet Users in Indonesia,2010-2012

2010 2011 2012

Urban internet users 37.6 50.5 56.4

Total internet users 42.2 55.2 61.1

Internet users % of population 17.0% 22.4% 23.5%

Source: MarkPlus Insight, "Netizen Survey 2012" as cited by DailySocial,Nov 14, 2012148986 www.eMarketer.com

Yahoo! and TNS Global data showed that internet use among city dwellers was higher among males in 2012. Penetration was especially high among those ages 15 to 19, at 89%.

% of population in each group

Internet User Penetration in Urban Indonesia*, byDemographic, 2009-2012

2009 2010 2011 2012

GenderMale 36% 45% 54% 63%

Female 21% 30% 38% 50%

Age15-19 64% 74% 87% 89%

20-24 42% 57% 65% 78%

25-29 28% 50% 49% 63%

30-34 16% 27% 33% 54%

35-39 13% 24% 38% 52%

40-50 9% 9% 15% 24%

Socioeconomic statusA 51% 54% 66% 75%

B 32% 46% 51% 64%

C 20% 25% 36% 48%

Total 28% 37% 46% 57%Note: in the past month; *Bandung, Botabek, Denpasar, Jakarta, Makassar,Medan, Palembang, Semarang, Surabaya and YogyakartaSource: Yahoo! and TNS, "Net Index - Indonesia," June 27, 2012150300 www.eMarketer.com

MOBILE INTERNET WINS OVER BROADBAND

Fixed broadband remains a rarity in Indonesia, with a

penetration rate of about 1.6% households, or 800,000

homes. eMarketer does not project significant growth

of broadband penetration over the next four years.

Fixed Broadband Households and Subscriptions in Indonesia, 2010-2016

Households (millions)% change

Household penetration

Subscriptions (millions)% change

2010

0.610.5%

1.3%

1.69.5%

2011

0.79.8%

1.4%

1.78.9%

2012

0.89.2%

1.5%

1.98.3%

2013

0.86.0%

1.6%

2.05.1%

2014

0.82.5%

1.6%

2.02.3%

2015

0.91.8%

1.6%

2.01.0%

2016

0.91.8%

1.6%

2.00.9%

Note: includes connections with permanent access to the internet viacable modem, DSL and wireless/satellite technologies; excludes mobileSource: eMarketer, April 2012139005 www.eMarketer.com

A significant impediment to fixed broadband access is that many people in Indonesia simply cant afford it. An Accenture report from June 2012 found that fixed broadband could cost almost $36 per month.

Another cause of the low penetration rate is the obvious logistical problem that arises from attempting to provide internet to a geographically fractured area. The government is in the midst of building out the Palapa Ring, a fixed broadband network consisting of submerged cable laid along the coasts of the countrys major islands. Although the latest estimates put the Palapa Rings completion date sometime in 2014, this massive investment in infrastructure has been plagued by delays. And the question of who will build last mile infrastructure to link local governments and rural areas to the Palapa Ring remains unanswered.

Internet cafes known as warnetsa portmanteau of warung, the Indonesian word for cafe, and internetstill play a significant role in providing rural users with internet access. However, their popularity has waned among city dwellers, who are more likely than those in less-developed areas to be able to afford a PC and a fixed broadband plan or an internet-enabled mobile phone. But warnets in urban areas have not yet completely disappeared, and many use them as gathering spots for online gaming. The prominence of warnets in rural areas is likely to erode as mobile phones begin to penetrate these markets.


September 2012 data from Roy Morgan Research showed that the use of warnets began to decline in late 2009 as home access increased. However, its important to note that the data does not specify whether those going online at home were using mobile devices or fixed broadband.

% of respondents

Internet Users in Indonesia, by Access Location, Sep 2007-Sep 2012

Warnet/internet cafe

Home

Work

Educational institution

Wireless hotspot

Sep2007

55%

7%

17%

14%

0%

Sep2008

55%

8%

18%

14%

2%

Sep2009

64%

13%

17%

14%

3%

Sep2010

60%

23%

15%

9%

5%

Sep2011

55%

32%

13%

9%

4%

Sep2012

46%

45%

18%

10%

4%

Note: ages 14+; ever accessed the internetSource: Roy Morgan Single Source Indonesia, Feb 1, 2013151468 www.eMarketer.com

As in most developing economies, growth in internet access will largely come through the adoption of internet-enabled mobile phones. eMarketer estimates that there will be 160.5 million mobile phone users in Indonesia by the end of the year, representing a 64% penetration rate.

millions, % of population and % changeMobile Phone Users in Indonesia, 2010-2016

2010

106.944.0%

43.5%

2011

130.2

53.0%

21.8%

2012

148.9

60.0%

14.4%

2013

160.5

64.0%

7.8%

2014

169.7

67.0%

5.7%2015

179.0

70.0%

5.5%2016

185.9

72.0%

3.8%

Mobile phone users % of population % change

Note: mobile phone users are individuals of any age who own at least onemobile phone and use the phone(s) at least once per monthSource: eMarketer, April 2012139308 www.eMarketer.com

Smartphone adoption is still in its early phase, with eMarketer projecting that smartphone users will account for 24% of all mobile phone users by the end of 2013. But the mobile landscape is changing quickly; cheap smartphones made in China have substantially lowered entry costs for many consumers seeking regular internet access for the first time. According to eMarketer estimates, smartphone penetration among mobile

phone users will climb to 47% by 2016a total of 87.4 million users.

Smartphone Users and Penetration in Indonesia,2010-2016

2010 2011 2012 2013 2014 2015 2016

Smartphoneusers (millions)

4.3 11.7 23.8 38.5 57.7 71.6 87.4

% change 474.1% 174.0% 103.4% 61.6% 49.8% 24.1% 22.0%

% of mobilephone users

4.0% 9.0% 16.0% 24.0% 34.0% 40.0% 47.0%

% of population 1.8% 4.8% 9.6% 15.4% 22.8% 28.0% 33.8%

Note: smartphone users are individuals of any age who own at least onesmartphone and use the smartphone(s) at least once per monthSource: eMarketer, April 2012139339 www.eMarketer.com

Using data from consulting firm Canalys, eMarketer calculates that smartphone shipments in Indonesia will hit 15.7 million units in 2013a year-over-year increase of 51.7%.

millions of units and % change

Smartphone Shipments in Select Developing Countries,2012 & 2013

2012 2013 % change

China 185.7 239.8 29.1%

India 16.4 26.5 61.4%

Russia 14.4 18.8 30.7%

Brazil 12.3 17.2 40.0%

Indonesia 10.3 15.7 51.7%

Source: Canalys as cited in press release; eMarketer calculations, Jan 17,2013150413 www.eMarketer.com

These devices are already more commonly owned by those in younger age groups. An August 2012 survey conducted by BBG and Gallup found that more than one-quarter of consumers ages 15 to 24 owned a smartphone. The ownership rate fell to 16% for those ages 25 to 34 and was only 7% among those ages 35 to 54.

% of respondents in each group

Smartphone Ownership Among Consumers inIndonesia, by Age, Aug 2012

15-24 26%

25-34 16%

35-54 7%

55+ 2%

Total 13%

Source: Broadcasting Board of Governors (BBG) and Gallup, "Media Use inIndonesia 2012," Oct 16, 2012150269 www.eMarketer.com


Although the mobile device trend is clearly shifting toward smartphones, internet-capable feature phones remain an incredibly popular means of getting online. When Yahoo! and TNS Global asked mobile internet users in urban Indonesia which devices they used to go online, 86% said they used feature phones, compared with 20% who used a smartphone and 7% who used a tablet. (The total exceeds 100% because respondents were able to choose more than one answer.)

% of respondents

Mobile Devices Used to Access the InternetAccording to Mobile Internet Users in UrbanIndonesia*, Q1 2012

Feature phones 86%

Smartphones 20%

Tablets7%

Handheld gaming devices2%

Portable media players1%

Note: ages 15-50; *Bandung, Botabek, Denpasar, Jakarta, Makassar, Medan,Palembang, Semarang, Surabaya and YogyakartaSource: Yahoo! and TNS, "Net Index - Indonesia," June 27, 2012150303 www.eMarketer.com

Deregulation has led to increased competition among mobile service providers, resulting in lower costs for both data and voice plans. A January 2013 report from Credit Suisse found that the average monthly bill for mobile phones had decreased to about $8.22 per month, down from roughly $8.54 the previous year. There are packages for surfing the web on mobile that are semi-unlimited or so-called unlimited, all-you-can-eat packages on mobile networks for less than $5 a month. These are fueling internet usage in Indonesia, said Nanda Ivens, COO at digital agency XM Gravity. I think in the battle between feature phones and smartphones, the feature phones are losing because you can pay almost the same amount of money for a smartphone, and that is a massive shift in rural areas. Chinese-made smartphones rule. Theyre selling so many units its unreal, he added.

Cheaper devices and plans will have a disproportionate impact in rural areas, which have historically been underserved by access to both fixed broadband infrastructure and power grids. The reduction of entry costs is especially important in Indonesia since, unlike in the US, carriers dont subsidize devices and then recoup their initial outlays over the life of a service contract. Instead, consumers usually pay the full cost of the phones up front and then acquire service through a prepaid model.

Although competition has increased, the provision of mobile services is still concentrated in a handful of companies that control most of the market: Telkomsel, a subsidiary of the majority state-owned Telkom Indonesia; XL Axiata, commonly referred to as XL; and Indosat. According to Credit Suisses report, Telkomsel remained the dominant service provider with a 43% market share in 2012, a slight decline from 2011. Meanwhile, Indosat controlled 23% of the market, and XL had 12%; however, Credit Suisse reported that both companies had slightly increased their market share over the past year.

But providing consumers with access to mobile broadband remains somewhat of a challenge. In December 2012, the governments Ministry of Communications and Information Technology announced that it would auction off more spectrum as part of efforts to improve 3G services. However, the government has not made significant investments in mobile infrastructure, leaving telecoms and other third parties to foot the bill.

Although Googles Android has quickly become the operating system (OS) of choice for smartphone owners, Indonesias mobile market is somewhat unusual in that it is one of the few left in which BlackBerry remains a significant player. Projections from International Data Corp. (IDC), published by The Jakarta Post in January 2013, expected Android to lead OS market share in 2013 with 53% of smartphones running the software. IDC projected that BlackBerry would control a respectable 35% market share, and that the Windows Phone OS would have a 9% sharea significant increase from 2% in 2012.

% of total

Smartphone OS Market Share in Indonesia, 2012 & 2013

Source: International Data Corporation (IDC) Indonesia as cited in TheJakarta Post, Jan 5, 2013149852 www.eMarketer.com

2012 2013

Symbian2%

Windows2%

iOS3%

Android56%

BlackBerry37%

Windows9%

iOS3%

Android53%

BlackBerry35%


Part of BlackBerrys appeal among device users in Indonesia results from cheaper handsets and low-cost service packages. BlackBerry Messenger (BBM) also has a strong user base, but new messaging services running on Android, such as WhatsApp, have begun to erode BlackBerrys appeal. At the same time, some higher-end users have come to consider the brand a discount option. Perhaps in a tacit acknowledgement of the loss of market share elsewhere, BlackBerry in late 2012 signaled the continued importance of the Indonesian market when it announced that the country would be the first place it would roll out a new peer-to-peer mobile payment system built into BBM, known as BBM Money. In late February 2013, the company announced that it had started testing the program in Indonesia.

INTERNET USAGE IN INDONESIA

Internet use in Indonesia is still in the early phase of

usagecommunication and information gathering

with social media figuring strongly into the online

behavior of internet users.

In a February 2013 poll, Roy Morgan Research found that the most popular online activity among internet users was socializing/entertainment, named by more than eight in 10 respondents. That was followed by accessing general information (57%), email (48%) and website browsing (37%). Online shopping and bill payments barely registered, with only 8% of respondents listing those activities.

% of respondents

Online Activities of Internet Users in Indonesia, Sep 2012

Socializing/entertainment 82%

General information 57%

Email 48%

Visiting websites 37%

Academic/business research18%

Promotion/publishing11%

Shopping/paying bills8%

Note: ages 14+ who accessed the internet in the past four weeksSource: Roy Morgan Single Source Indonesia, Feb 1, 2013151469 www.eMarketer.com

BBG and Gallups similar August 2012 survey of internet users underscored just how important social media was to the online activities of those in Indonesia. Ninety-six percent of respondents said they used social networking services when online. The next most common activity was accessing the news, named by 72% of respondents. (The next section of this report will take a closer look at social medias place in Indonesia.)


% of respondents

Online Activities of Internet Users in Indonesia, Aug 2012

Social network services96%

Latest news72%

Find information about a specific topic50%

Send or receive email44%

Read a blog38%

Share videos or photos online35%

Watch online videos32%

Listen to online audio29%

Post a comment to a blog28%

Download or watch podcasts27%

Note: in the past week; n=433 ages 15+Source: Broadcasting Board of Governors (BBG) and Gallup, "Media Use inIndonesia 2012," Oct 16, 2012150272 www.eMarketer.com

Thus far, internet users in Indonesia have strongly favored Western websites for online activities. comScore data from August 2012 found that the top four websites ranked by unique visitors were all foreign-owned. Google sitesamong them Google.com, Google.co.in, Blogger.com and YouTubewere at the top of the list, attracting 12.5 million unique visitors and recording a 91.6% reach. Facebook was in second, with 11.1 million visitors and a reach of 81.6%, followed by Yahoo! sites in third. It should be noted, however, that many of these sites are offered and often used in the Indonesian language. Media conglomerate Kompas Gramedia, which operates a number of newspapers and magazines, was in fifth, ranking as the site in Indonesia with the highest number of unique visitors and a reach of 32.6%. The online forum Kaskus came in at 11th place. Students from Indonesia studying abroad created Kaskus in 1999 for fellow expatriates, but users living in Indonesia have come to embrace the site, which claims to be the largest online community for the country.

thousands and % reach

Top 20 Sites Among Internet Users in Indonesia,Ranked by Unique Visitors, Jan 2013

Uniquevisitors

% reach

1. Google sites 12,487 91.6%

2. Facebook 11,127 81.6%

3. Yahoo! sites 8,518 62.5%

4. WordPress 5,646 41.4%

5. Kompas Gramedia 4,446 32.6%

6. Twitter 3,724 27.3%

7. Microsoft sites 3,702 27.2%

8. 4shared.com 3,637 26.7%

9. Wikimedia Foundation sites 3,579 26.3%

10. Detik.com 3,421 25.1%

11. Kaskus.us 2,837 20.8%

12. Tokobagus.com 2,718 19.9%

13. Portal VIVA 2,436 17.9%

14. Kapanlagi.com sites 2,395 17.6%

15. Ask Network 2,381 17.5%

16. Glam Media 2,368 17.4%

17. AOL 2,238 16.4%

18. Berniaga.com 2,172 15.9%

19. CBS Interactive 1,908 14.0%

20. Zynga 1,837 13.5%

Source: comScore Inc., Feb 28, 2013152871 www.eMarketer.com

The number of languages and ethnic groups found in Indonesia complicates the countrys online landscape. While English has served as something of a common language for the internet in Indonesia, growth in internet use will be sped along by the creation of content in Indonesian, the countrys official language, as well as languages such as Javanese. Without localized content creationin the form of tweets, YouTube videos, blog posts and other social contentIndonesias internet use probably wouldnt have grown so fast, said Pandu Truhandito, president of GrowMint, a digital marketing agency.


SOCIAL SOCIETY, SOCIAL MEDIA

If theres one lesson to learn about the behavior of

internet users in Indonesia, its that they love social

media. Social networks are an indelible element of

the online world in Indonesia and a reflection of the

social nature of the countrys culture.

Internet users in Indonesia are leapfrogging PCs and going straight to mobile devices for access, and the smartphones and internet-enabled feature phones theyre snapping up often come with social media apps pre-installed. On feature phones, these apps have been simplified in order to work within the limitations of both feature phone screens and slower 2G networks.

eMarketer estimates that social networks had an 87.5% penetration rate among internet users in Indonesia in 2012.

% of internet users

Comparative Estimates: Social Network UserPenetration in Indonesia, 2012

BBG, Oct 2012

comScore Inc.*,June 2012

eMarketer, Aug 2012

Ipsos**, March 2012

2012

96.0%

92.6%

87.5%

83.0%

Age

15+

15+

All ages

16-64

Usage

Used in the past week

Unique visitors

Use via any device at least once per month

Visited in past 3 months

Note: *data is for April; **visitors to social network sites, forums or blogsSource: eMarketer, Aug 2012; various, as noted, 2012152551 www.eMarketer.com

eMarketers figure falls comfortably between estimates provided by comScore and Ipsos. While comScore did not define a social network user in its report, its figure relied on data culled from only one month. Meanwhile, Ipsos number considered only those ages 16 to 64 who visited a network over the past three months. BBGs data pulled from respondents older than 15 and included those who had used a social network in the past week. In comparison, eMarketer assessed users of all ages who accessed their account by any device.

eMarketer projects that social network use in Indonesia will continue to speed up in 2013 and 2014.

Social Network Users and Penetration in Indonesia,2010-2014

Social network users (millions)% change

% of internet users

% of population

2010

22.754.8%

74.2%

9.3%

2011

34.451.4%

80.0%

14.0%

2012

52.151.6%

87.5%

21.0%

2013

67.128.8%

92.3%

26.8%

2014

79.218.0%

94.8%

31.3%

Note: internet users who use a social network site via any device at leastonce per monthSource: eMarketer, Aug 2012143778 www.eMarketer.com

Similar to website browsing behavior, social media users in Indonesia are turning to Western platforms in large numbers. According to Socialbakers.com, there were 47.2 million Facebook users in the country as of mid-February, making it the social networks fourth-largest user base behind only the US, Brazil and India. BBG and Gallups poll found that 95.7% of social network users in Indonesia were on Facebook, compared with 47.6% for YouTube, 37.6% for Google+ and 29.4% for Twitter.

% of respondents

Social Networks Used by Social Network Users inIndonesia, Aug 2012

Facebook 95.7%

YouTube 47.6%

Google+ 37.6%

Twitter 29.4%

Note: in the past weekSource: Broadcasting Board of Governors (BBG) and Gallup, "Media Use inIndonesia 2012," Oct 16, 2012150275 www.eMarketer.com

However, anecdotal evidence suggests that Facebooks popularity may be declining, at least among the digitally savvy users in the countrys larger cities who are turning to Twitter and Path, a US-based network. Part of Paths strong appeal in Indonesia may lie in the fact that it was originally designed as a mobile app and not as a counterpart or evolution to an older iteration created for use on a PC. Its rise neatly coincides with mobiles rise as the default platform for internet use.


ECOMMERCE: BUILDING A PEER-TO-PEER ECONOMY

Ecommerce has not taken root in Indonesia yet. The

country suffers from the same problems as many

emerging economies: a lack of delivery infrastructure

(exacerbated by the fact that the country is spread

across multiple, often distant, islands), as well as

internet users unfamiliarity with online payment

methods, worries about security and widespread

inability to make online payments at all.

Still, eMarketer estimates that business-to-consumer ecommerce sales in the country will total $1.79 billion in 2013 and reach $4.49 billion in 2016. Annual growth is hardly eye-popping for such an early stage market.

billions and % changeB2C Ecommerce Sales in Indonesia, 2011-2016

2011

$0.56

15.4%

2012

$1.04

13.3%

2013

$1.79

9.8%

2014

$2.60

7.1%

2015

$3.56

6.7%

2016

$4.49

5.6%

B2C ecommerce sales % change

Note: includes travel, digital downloads and event tickets purchased viaany digital channel (including online, mobile and tablet); excludes gambling;converted at the exchange rate of US$1=IDR9,364.91Source: eMarketer, Jan 2013150108 www.eMarketer.com

eMarketer projects that there will be 4.6 million digital buyers in Indonesia by the end of 2013 and 8.7 million by 2016, a figure equal to only 10.6% of internet users.

Digital Buyers in Indonesia, 2011-2016

Digital buyers (millions)% change

% of internet users

% of population

2011

2.069.7%

6.0%

1.1%

2012

3.154.8%

6.7%

1.7%

2013

4.647.5%

8.0%

2.4%

2014

5.930.1%

9.0%

3.1%

2015

7.424.8%

10.0%

3.8%

2016

8.717.4%

10.6%

4.4%

Note: ages 14+; internet users who have made at least one purchase viaany digital channel within the past year, including online, mobile and tabletpurchasesSource: eMarketer, Jan 2013150109 www.eMarketer.com

A poll conducted in July 2012 by Asosiasi Penyelenggara Jasa Internet Indonesia (APJII), an association of internet service providers, cited a fear of fraud as the top concern internet users had about making a purchase online. But respondents also expressed trepidation about the inability to see and touch online products firsthand in order to gauge their quality and to make sure they were getting what they paid for. High prices also concerned shoppers, an indication that ecommerce has not yet developed to the point where consumers see it as a valuable tool for price comparison shopping.

% of respondents

Reasons that Internet Users in Indonesia Do Not BuyOnline, July 2012

Fear of fraud34.6%

Items cannot be seen directly21.5%

High prices13.8%

Not interested/not needed12.7%

Quality of items not guaranteed9.3%

Don't know how6.0%

Not practical5.2%

Items don't match the offer4.7%

Items are not in accordance to anyone's liking4.1%

Items don't match the picture4.0%

Process is long2.4%

Source: Asosiasi Penyelenggara Jasa Internet Indonesia (APJII), "IndonesiaInternet Profiles 2012," Dec 12, 2012151157 www.eMarketer.com

Hesitant to embrace a more traditional ecommerce model, online shoppers in Indonesia have instead developed a peer-to-peer model aided by the popularity of both mobile devices and social networks, which effectively serve as marketplaces for consumers seeking to sell goods to other consumers. April 2012 data from online payment processor Veritrans and tech media and research blog DailySocial found that Facebook was the most popular site for ecommerce, used by half of buyers making an online purchase in Indonesia.


% of respondents

Ecommerce Sites Used to Make an Online Purchaseby Online Buyers in Indonesia, April 2012

Facebook50.0%

Kaskus49.2%

Disdus*19.5%

Tokobagus13.6%

Dealkeren*11.9%

Amazon8.9%

eBay8.5%

Bhinneka5.5%

Multiply4.7%

Blibli.com4.7%

Tokopedia3.8%

Other22.5%

Note: ages 15+; *numbers may be inflated for these group buying sites asDisdus assisted with survey distributionSource: veritrans and DailySocial, "eCommerce in Indonesia," Aug 16, 2012148992 www.eMarketer.com

While sites founded in Indonesia figure prominently on the list, many of them are now foreign-owned. Groupon acquired group-buying site Disdus, and LivingSocial absorbed DealKeren and rebranded it as LivingSocial Indonesia. DailySocial and Veritrans also noted that the response rates for group-buying sites might be inflated because they distributed their survey through Disdus mailing list.

The homegrown Kaskus, used by 49.2% of online buyers in Indonesia according to Veritrans and DailySocials study, operates a popular peer-to-peer marketplace known as Forum Jual Beli, or FJB, which simply translates to buying and selling forum. Rahmat Harlyadie, vice president of marketing for DailySocial, said that estimates for the daily volume of transactions on Kaskus were around $54,000. But sellers use any number of networks to alert prospective customers that they have goods available for purchase, including Facebook, BBM and WhatsApp groups and Twitter. Inventory can include just about anythingfrom a car to a pair of shoes. Buyers and sellers connect via SMS or phone call to negotiate prices, and payments often take place offline through bank transfers.

The April 2012 study conducted by Veritrans and DailySocial showed that 70% of online buyers surveyed used bank transfers, making it the most popular payment system. That method was followed by a proprietary electronic payment system provided by the bank Klik BCA (41%), credit cards (30%), cash on delivery (24%) and a payment service provided by Bank Mandiri (15%).

% of respondents

Payment Methods Used for Online PurchasesAccording to Online Buyers in Indonesia, April 2012

Bank transfer* 70%

Klik BCA** 41%

Credit card 30%

CoD 24%

Mandiri internet**15%

Note: ages 15+; *includes ATM payments, cashier payments or transfer offunds electronically to a specified bank account; **transfer of money usingthe bank's proprietary electronic payment networkSource: veritrans and DailySocial, "eCommerce in Indonesia," Aug 16, 2012148993 www.eMarketer.com

Clearly customers still feel uneasy about making payments online, instead preferring to use bank transfers and other methods to complete their purchases. As a customer, even if I dont know you, Im more comfortable sending you money through transfer than I am using a payment gateway to pay for something, said XM Gravitys Ivens. But he sees that practice changing in the near future as various players compete to provide new shoppers with online payment services. There are a lot of local companies in Indonesia that are starting up payment gateways. Its gaining trust and traction in terms of usage, he noted.

Those efforts to develop online and mobile payment methods are also taking place among foreign firms, with BlackBerrys new BBM Money payment system serving as an example of this trend.


ADVERTISING

Advertising spending in Indonesia still remains

wedded to traditional forms of mass media. Television,

especially, commands a large share of advertising

budgets, but digital spending is beginning to ramp up

as media buyers adjust to the online world.

A December 2012 study by GroupM projected that TV ad spending would total $1.6 billion in 2013, with newspapers commanding the second-highest ad budget ($501 million). At $147 million, internet ad spending was expected to exceed magazines, outdoor, radio and cinema advertising.

millions and % changeAd Spending in Indonesia, by Media, 2011-2013

2011 2012 2013

TV $1,172 $1,413% change 22.0% 20.5%

Newspapers $411 $462% change 21.2% 12.5%

Internet $47 $97% change 200.0% 105.0%

Magazines $77 $84% change 6.6% 8.4%

Outdoor $61 $68% change 10.0% 11.4%

Radio $54 $59% change 7.5% 9.1%

Cinema $9 $9% change 5.0% 10.7%

Total $1,832 $2,192% change 21.9% 19.7%

$1,62815.2%

$5018.5%

$14751.5%

$907.8%

$7814.8%

$659.6%

$1112.5%

$2,52014.9%

Note: numbers may not add up to total due to rounding; converted at anexchange rate of US$1=9,631 Indonesian rupiahsSource: GroupM, "This Year, Next Year: December 2012," Dec 17, 2012149342 www.eMarketer.com

eMarketer estimates that total ad spending growth will jump from 12% in 2013 to 15% in 2014and then slow to 9% by 2016. Total ad spending will reach $7 billion this year and climb to $9.6 billion in 2016.

Comparative Estimates: Total Media Ad Spending in Indonesia, 2011-2016

Total ad spending (millions)PPPI, Jan 2013 (1)

PwC, June 2012 (2)

ZenithOptimedia, June 2012 (3)

eMarketer, Dec 2012 (4)

GroupM, Dec 2012 (5)

SPS, Jan 2012 (4)

Total ad spending growth (% change)ZenithOptimedia, June 2012

PPPI, Jan 2013

GroupM, Dec 2012

eMarketer, Dec 2012MAGNAGLOBAL, June 2012

Media Partners Asia, April 2012

SPS, Jan 2013

Nielsen, April 2012

2011

-

$7.1

$5.3

$5.5$1.8

$9.1

18.9%

-

21.9%

10.0%-

-

-

25.2%

2012

$9.8

$8.3

$6.3

$6.2$2.2

$10.5

19.6%

-

19.7%

13.0%16.8%

15.0%

14.7%

-

2013

$12.1

$9.7

$7.5

$7.0$2.5

-

19.1%

18.0%

14.9%

12.0%-

-

-

-

2014

-

$10.9

$9.3

$8.0-

-

22.6%

-

-

15.0%-

-

-

-

2015

-

$12.0

-

$8.8-

-

-

-

-

10.0%-

-

-

-

2016

-

$13.2

-

$9.6-

-

-

-

-

9.0%-

-

-

-

Note: (1) converted at the exchange rate of US$1=IDR9,364.91; (2)converted at the exchange rate of US$1=IDR8,779.0; (3) converted at theexchange rate of US$1=IDR8,770.40; (4) converted at the exchange rate ofUS$1=IDR8,767.81; (5) converted at the exchange rate of US$1=IDR9,631.0Source: eMarketer, Dec 2012; various, as noted, 2012 & 2013150296 www.eMarketer.com

Digital ad spending, unlike overall ad spending, will see significantly higher growth rates over the next two years as advertisers move to establish themselves online for the first time. eMarketer projects that digital ad spending will hit $231.8 million in 2013 and grow to $1.2 billion by 2016.

Comparative Estimates: Digital Ad Spending in Indonesia, 2011-2016

Digital ad spending (millions)

eMarketer,Dec 2012 (1)

GroupM, Dec 2012 (2) (3)

PwC, June 2012 (4)

ZenithOptimedia,June 2012 (3) (5)

SPS, Jan 2012 (6)

BCG, March 2012 -

Digital ad spending growth (% change)

eMarketer, Dec 2012GroupM, Dec 2012 (3)

PwC, June 2012

2011

$88.0

$47.0

$4.0

$1.0

-

-

50.0%200.0%

0.0%

2012

$136.4

$97.0

$5.0

$2.0

$114.1

55.0%105.0%

25.0%

2013

$231.8

$147.0

$5.0

$2.0

-

-

70.0%51.5%

0.0%

2014

$405.7

-

$6.0

$2.0

-

-

75.0%-

20.0%

2015

$697.8

-

$7.0

$2.0

-

-

72.0%-

16.7%

2016

$1,158.3

-

$9.0

-

-

$200.0

66.0%-

28.6%

Note: (1) converted at the exchange rate of US$1=IDR9,614.14; (2)converted at the exchange rate of US$1=IDR9,631.0; (3) excludes mobile;(4) converted at the exchange rate of US$1=IDR8,779.0; (5) converted atthe exchange rate of US$1=IDR8,770.40; (6) converted at the exchange rateof US$1=IDR8,767.81Source: eMarketer, Dec 2012; various, as noted, 2012150800 www.eMarketer.com


Many global research firms have difficulty measuring ad spendingespecially in emerging marketswithout a local office in the country or region. For example, PricewaterhouseCoopers relies heavily on figures from the Interactive Advertising Bureau, which doesnt have an office in Indonesia. eMarketer believes that such firms underestimate ad spending by accounting only for the local advertising market and failing to take into account overseas marketers who spend more heavily than local players do. The local sources that eMarketer uses, such as Serikat Perusahaan Pers (SPS), tally the spending of both domestic and international advertisers.

EMARKETER INTERVIEWS Marketing in Indonesia: Nation Enamored by Social Networks Reaches Internet via Mobile

Nanda Ivens COO

XM Gravity Interview conducted on January 30, 2013

Rahmat Harlyadie Vice President, Marketing

DailySocial Interview conducted on January 31, 2013

Tuhu Nugraha COO

Pingfans Interview conducted on January 31, 2013

Debnath Guharoy Regional Director, Asia

Roy Morgan Research Interview conducted on February 8, 2013

Pandu Truhandito Co-Founder

GrowMint Interview conducted on February 2, 2013


RELATED LINKS Asosiasi Penyelenggara Jasa Internet Indonesia (APJII)

BlackBerry

Boston Consulting Group (BCG)

Broadcasting Board of Governors (BBG)

Canalys

comScore

Credit Suisse

DailySocial

Disdus

Facebook

Frost & Sullivan

Gallup

Google Indonesia

GroupM

GrowMint

Ipsos

Indosat

International Data Corporation (IDC)

International Telecommunication Union (ITU)

Jefferies

Kaskus

LivingSocial Indonesia

MAGNAGLOBAL

MarkPlus Insight

McKinsey & Company

Media Partners Asia

Ministry of Communications and Information Technology

Nielsen Indonesia

Path

Persatuan Perusahaan Periklanan Indonesia (PPPI)

PricewaterhouseCoopers

Roy Morgan Research

Serikat Perusahaan Pers (SPS)

Socialbakers.com

Telkomsel

TNS Global

Twitter

Veritrans Indonesia

XL Axiata

XM Gravity

Yahoo!

ZenithOptimedia

EDITORIAL AND PRODUCTION CONTRIBUTORS

Cliff Annicelli Senior EditorKaitlin Carlin Copy EditorJoanne DiCamillo Senior Production ArtistStephanie Gehrsitz Senior Production ArtistDana Hill Director of ProductionNicole Perrin Associate Editorial DirectorAllie Smith Director of Charts

Indonesias Online Population Internet Usage in Indonesia Social Society, Social Media Advertising eMarketer Interviews