JAKARTA - Indonesia is set to lead a boom in online shopping across Southeast Asia as Internet access explodes and investors pour money into a rapidly growing host of retail startups, analysts say.
Much like China several years ago, the region is enjoying a rapid increase in web access that observers say is starting to drive a fundamental shift in shopping habits among the emerging middle class.
According to a recent report by investment bank UBS, business-to-consumer e-commerce in Southeast Asia will increase at least five-fold by 2020, and could reach as much as US$35 billion (S$45.9 billion) a year.
It cited strong growth in Thailand and the Philippines but said Indonesia, the region's biggest economy, was the most promising market despite currently having modest online sales and low Internet penetration.
This hope is based on an expected rapid increase in web users, with consultancy Redwing saying that 125 million people are expected to be online by the end of 2015, from 55 million in 2012, coupled with an increasingly affluent middle class.
"There is huge opportunity," Daniel Tumiwa, head of the Indonesian e-commerce association, told a recent startup conference in Jakarta. "The middle class is a major, major, major driving force."
E-commerce growth across Southeast Asia has been given a kickstart by an explosion in the availability of cheap smartphones, analysts say, with many getting their first taste of the Internet on handsets that come loaded with social media and popular retail sites.
The past two years has seen a noticeable shift in Indonesia with many starting to shop online, for everything from fashion to electronics, and consumers putting aside initial worries about fraud to opt for the convenience of "e-tail", Tumiwa said.
Biggest startup investment
The current star of Indonesia's nascent e-commerce scene is Tokopedia, a marketplace that allows users to set up online shops and handles transactions. In October, the site won a US$100 million investment from Japan's SoftBank and US firm Sequoia Capital.
It was the biggest startup investment in Indonesia to date and the first in the country by Sequoia, a Silicon Valley venture capital firm that has been an early backer of success stories such as WhatsApp and Apple.
Numerous online shopping websites have also proven popular, from those that host classifieds, such as Kaskus and OLX, to retail sites including the Indonesian branch of Lazada, which bills itself as Southeast Asia's answer to Amazon.
Lazada, founded in 2012 and with operations in six Southeast Asian countries, has also attracted investor interest. At the weekend it secured US$250 million in a fresh round of funding led by Singapore state investment giant Temasek.
The new government of President Joko Widodo is taking an interest, with Information Technology Minister Rudiantara, who goes by one name, saying that they are looking at ways of supporting the sector.
But while there is much optimism, the e-commerce sector in Southeast Asia - home to 10 countries and a population of about 600 million people - still has long way to go, according to analysts.
E-commerce currently accounts for just 0.2 per cent of retail sales in the region, compared with 8.0 per cent in China and 8.7 per cent in the United States, according to the UBS report.
And huge challenges remain in the most promising market, Indonesia, not least due to the government's decision earlier this year to block foreigners from investing in e-commerce, critics say.
However, Kuo-Yi Lim, from venture capital firm Monk's Hill Ventures, said the Chinese government had taken a similar approach, adding: "People figure out ways to work with it, or work around it." Tokopedia managed to secure its recent investment despite the government ban, as the site does not make any direct sales.
Even the firm's CEO, William Tanuwijaya, admits he faced problems getting initial funding, highlighting the challenge for newcomers trying to enter an still underdeveloped market.
"People didn't even call it a 'startup', people called it 'I want to build a website'," he said.
"Indonesia is not Silicon Valley."