Max headroom: SEA's growth potential in ads, streaming, ecommerce and more

As internet penetration in Southeast Asia has rapidly increased, so has the value of the online advertising industry. It has more than quadrupled since 2015 to become a US$9.4 billion economy, and will more than double by 2025 to $20 billion.

This is according to the ‘e-Conomy Southeast Asia’ 2019 report by Google, Temasek and new partner, Bain & Company, which analyses the current and future potential of the Southeast Asian internet economy across its six largest markets: Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam.

The report found that online media—which includes advertising, gaming, subscription music and video on demand—has grown four-fold in gross merchandise value (GMV) in the last four years to reach $14.2 billion in 2019. It is expected to triple to $32 billion by 2025.

One of the biggest factors underpinning this growth is more widespread internet penetration; with around 100 million new internet users having come online between 2015 and 2019. The total number of people connected to the internet in Southeast Asia is 360 million, which equates to 63% of the population. More than 90% of internet access in the region is happening over a mobile device.

But there is still “a lot of headroom for growth”, noted Google Southeast Asia managing director Stephanie Davis at an event on Thursday. There are still 200 million more Southeast Asians who have yet to come online, and the region has a uniquely young population, Davis said.

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Meanwhile, some 150 million Southeast Asians will turn 15 over the next 15 years, which works out to 10 million people joining the “mobile age” every year, the report said.

There’s also a lot of headroom for growth in converting internet users to the ‘internet economy’, which is those that make financial transactions, subscribe to services, or make purchases online. Only half of Southeast Asia’s current internet users—or 180 million people—are using services of the internet economy.

This is largely due to the fact that of the nearly 400 million adults in Southeast Asia, only 104 million are fully ‘banked’ and enjoy full access to financial services. Another 98 million are ‘underbanked’, with a bank account but insufficient access to credit, investment and insurance, while 198 million remain ‘unbanked’ and do not own a bank account.

Overall, the Southeast Asian internet economy—which includes online travel, ecommerce, online media and ride-hailing sectors—is now valued at $100 billion, a growth of 40% from 2018. It is expected to hit $300 billion by 2025.

Of the six countries included in the report, the biggest growth is coming from Indonesia and Vietnam.

Indonesia has the largest and fastest growing internet economy in the region. Estimated at $40 billion in 2019, Indonesia’s internet economy has more than quadrupled in size since 2015 at an average growth rate of 49% a year.

Vietnam’s internet economy, which is predicted to be $12 billion in 2019, is set to account for over 5% of the country’s GDP in 2019, making it the most digital of all economies in the region.

Of the six Southeast Asian countries, the Philippines has the most room for growth, particularly in online media and financial services. Thailand has one of the largest online travel sectors in the region, while Singapore has a much stronger spending power than many of its neighbours.

In the internet economy sectors, ecommerce is the largest and fastest growing sector. In four years the sector has increased its value seven times from $5.5 billion in 2015 to over $38 billion in 2019.

Google’s Davis said its stronger-than-anticipated growth is due to the expansion of online shopping festivals (9.9, 11.11, 12.12, BFCM), the “gamification” of the shopping experience and a broadening of goods available online.

Ride-hailing is the region’s second best performer, more than quadrupling in value from $3 billion in 2015 to almost $13 billion in 2019, as a result of the booming food delivery sector. Food delivery is estimated to account for just over $5 billion of the ride-hailing sector currently, and is estimated to grow to 50% by 2025.

The report also found that music and video streaming services have garnered unprecedented interest in Southeast Asia. According to Google Trends, queries for subscription video streaming brands like Hooq, Iflix, Netflix and Viu have grown more than five times in Malaysia and seven times in the Philippines and Singapore over the last four years, hitting all-time peaks in 2019.