A new research study on the digital economy of Southeast Asia has shown that the Covid-19 pandemic has led to big shifts across the region, with e-commerce particularly driving the growth of the Philippine digital economy in 2020.
The “e-Conomy SEA 2020” report from Google, Temasek and Bain & Company revealed that 40 million people came online for the first time this year, bringing the total number of Internet users in the region to 400 million.
In 2020, more than one in three digital service consumers started using a new online service due to Covid-19, and of these, 94% intend to continue using the service beyond the pandemic. A large number of the new digital consumers are from non-metropolitan areas, specifically in Malaysia, Indonesia, and the Philippines.
Despite a challenging economic environment, Southeast Asia’s Internet sectors continue to see strong growth, hitting $100 billion in 2020, and are on track to cross $300 billion by 2025.
However, there has been a major shift in the verticals contributing to the region’s digital economy. E-commerce has emerged as the largest vertical, growing 63% to reach $62 billion in 2020, and is expected to continue its growth trajectory, reaching $172 billion by 2025.
On the other hand, and not surprisingly, travel was the most affected segment, contracting 58% to $14 billion.
The report shed light on the Internet economy in the region, covering Singapore, Indonesia, Malaysia, the Philippines, Thailand and Vietnam. The report studied the trends across seven Internet economy sectors — e-commerce, online media, transport and food, online travel, digital financial services, and the newly added healthtech and edtech.
The report also reviewed the tech investment landscape across the region and revealed what investors are looking for in the current environment.
Here are some key insights from this year’s report with a Philippine market perspective:
- Flight to digital — Internet usage in Southeast Asia (SEA) continues to grow, with 40 million new users this year alone (400 million year-to-date versus 360 million in 2019). In the Philippines, given the extensive Covid-19 lockdown periods, people went online searching for answers to their sudden, new challenges. A significant number tried new digital services: 37% of all digital service consumers were new (slightly higher than the SEA average), with 95% of these new consumers intending to continue their behavior post-pandemic.
- Resilience in times of crisis — E-commerce has driven significant growth in the Philippines, at 55%. This ascendance has largely offset declines in travel, transport, and food delivery. Overall, in 2020, Gross Merchandise Value (GMV) is expected to reach a total value of $7.5 billion, having grown at 6% year-on-year. Looking at 2025, the overall digital e-Conomy will likely reach $28 illion in value, re-accelerating to ~30% Compound Annual Growth Rate (CAGR).
- Online with a purpose — Southeast Asians spent on average an hour more per day on the Internet during lockdowns, while Filipinos were spending 4.0 hours online (for personal use) pre-Covid-19, which spiked to 5.2 hours at the height of lockdowns — the highest across the region — and now rests at 4.9 hours per day. With 8 out of 10 people viewing technology as very helpful during the pandemic, it has become an indispensable part of people’s daily lives.
- On the path to profitability — Since peaking in 2018, funding for unicorns in mature sectors (e-commerce, transport and food, travel, and media) has slowed. Platforms are now refocusing on their core business to prioritize a path to profitability, and are addressing consumers’ broad range of needs through partnerships. The emerging Digital Financial Services (DFS) battleground is one of the few spaces where the super-services do collide, and though it’s too early to tell the outcome, we expect that continued funding and a strong cash-generating core business to be key.
- New frontiers — Healthtech and edtech have played a critical role during the pandemic, with impressive adoption rates to match. While these sectors remain nascent and challenges need to be addressed, the boost in adoption, compounded with fast growing funding, is likely to propel innovation in this space over the coming years.
- Cautiously optimistic — Deal activity across the region continued to grow unabated in the first half 2020. Investors are remaining cautiously optimistic and are doing fewer deals at more attractive valuations, in hope for higher returns in the long run. Where the goal of years prior has been “blitzscaling”, investors are now looking for sustainable, profitable growth.
- What’s ahead — This year’s seismic consumer and ecosystem shifts have advanced the Internet sector in unimaginable ways, putting it in a stronger position than ever. In the 2019 report, six key barriers to growth were identified — Internet access, funding, consumer trust, payments, logistics and talent–and this year has seen significant progress on most (payments and consumer trust, especially). Talent, however, remains a key blocker that all parties will need to keep working on to ensure the momentum gained this year is sustained.
Bernadette Nacario, country director of Google Philippines said, “The country’s e-commerce growth is a mirror of both the resilience and vast potential of our digital economy. We will continue to help the country further realize this potential by helping more businesses move online, equipping our workforce with digital skills, and enabling the new generation of startups with training and technology. Google is a partner of the Philippines in taking the progressive steps towards a digital future.”