4. Cross-Border E-Commerce Will Be Driven By Silk Road 2.0, Not AEC
Despite all the media hype and lofty expectations (even our own predictions last year), the ASEAN Economic Community (AEC) will not have a significant impact on e-commerce in 2016.
Governments are too fragmented on policy; coupled with the immediate growth opportunity within the domestic markets, it doesn’t make sense to focus on cross-border within ASEAN, as evidenced by companies such as Lazada and MatahariMall doubling-down on Indonesia’s e-commerce opportunity.
Cross-border e-commerce in 2016 will be driven mainly by what we call “Silk Road 2.0.” These are Greater China-based companies that will bring their products into Southeast Asia, laying the foundation for our generation’s version of the Silk Road and attempting to expand China’s soft power and hegemony through commerce and digital.
China’s JD is a classic example. The No. 2 online retailer in China just recently set up shop in Indonesia and will be expected to leverage their 40+ million SKU product assortment and China-Southeast Asia supply chain to compete with the likes of MatahariMall and Lazada. Alibaba investing almost half a billion into SingPost clears the way for Alibaba, Tmall and Taobao packages to smoothly enter Southeast Asia.
5. Payments: COD Will Continue Its Reign While Third-Party Payments Struggle
The next double-digit billion dollar opportunity in Southeast Asia e-commerce is the third-party online payment space. U.S. has PayPal and China has AliPay; what does Southeast Asia have?
Contrary to what many people believe, building a successful payment product isn’t about technology, it’s about distribution. Payment technology is a commodity; everyone’s building the same thing, including banks (SCB UP2ME), telcos (TrueMoney, PAYSBUY), media (Line Pay, AirPay by Garena), retailers (helloPay by Lazada) and payment-focused startups (2C2P, Omise).
The hard part is distribution. How do you reach critical mass in order to cruise off network effects? Until this happens, COD will remain the dominant payment method in Southeast Asia. Based on aCommerce’s latest aggregated numbers, COD made up 74 percent of transactions in Southeast Asia, up from 53 percent the year prior. This validates the importance of COD to e-commerce in our region, and already exceeds the COD penetration rate at the height of its popularity in China back in 2008.
Eventually, COD will naturally reach its shelf life and be replaced by a “modern” third-party online payment product. Even then, the most likely scenario will be one leading payment product per country in Southeast Asia due to the region being fragmented.
Until then, good luck “killing off” cash on delivery, Mr. Jon Sugihara.
6. The Fizzle Of Fast Fashion E-Tailers
We’ll see mass, fast-fashion players like Zalora struggle and either fizzle out or be rolled into cousin Lazada. People familiar with the history of e-commerce in China will see similarities between Zalora and VANCL. VANCL, a mono-brand fast-fashion retailer founded by Chen Nian (who sold his previous business, Joyo, to Amazon), rose to prominence in 2009, raised up to $570 million and even planned for an IPO, but then gradually faded away. Selling your own fashion products is less about retail economics and much more about brand building.
In addition, VANCL suffered from competition from Taobao merchants who sold similar products for higher quality at lower prices. Replace Taobao with Instagram and Facebook and you’ll understand the pain that Zalora and other mono-brand, mass-fashion retailers are going through in Southeast Asia.
Following the natural progression of e-commerce, fashion will start becoming a more popular category for online shoppers, especially with the rise of richer female consumers in Southeast Asia. Fashion brands currently have the choice of selling on the many marketplaces in Southeast Asia and/or selling via their own brand sites. We’ll expect them to set up shop on their own brand sites or specialized, fashion-friendly marketplaces.
However, premium fashion brands may be hesitant to set up shop on mass marketplaces like Lazada and Rakuten because of the risk of being perceived as a mass brand. After many years of courting fashion and luxury brands, Amazon is still struggling. Don’t forget, most of Amazon’s premium fashion sales today are generated via Shopbop, a fashion-only destination that the company acquired in 2006.
7. New Channels Will Emerge To Challenge Google And Facebook’s Dark Side
When you’re digging for gold in the remaining e-commerce gold rush on the planet, you better be equipped with the best picks and shovels available. Unfortunately for e-commerce players in our market, the range of weapons available is quite limited due to historical and socio-economic factors unique to Southeast Asia. The appearance of a “no-tail” landscape in terms of publishers severely hampers the effectiveness of traditional tools, such as affiliate marketing and programmatic display.
In Southeast Asia, players are already exhausting the “usual suspect” channels, such as Google Search, Facebook and Criteo, with the result being CPCs rising to all-time highs and companies tapping into offline marketing to seek better returns. This is Andrew Chen’s “Law of Shitty Clickthroughs” in full effect.
Companies and savvy entrepreneurs will start addressing this gap by designing and building new demand-generation platforms to offer an alternative to the Googles and Facebooks out there. Expect to see more e-commerce firms adding channels such as price comparison, coupon sites and cash-back sites, as well as innovative affiliate marketing solutions to balance their media mix. 2016 will give us the excavators and bulldozers to complement today’s picks and shovels.
8.The Battle For The Last Mile Continues As 3PLs Fail To Adapt
In 2016, we will see companies like Lazada (LEX), MatahariMall and aCommerce investing in building out their own delivery fleet in order to help relieve the industry-wide capacity issues and serve the anticipated record-breaking transaction volume. The pressure will only become bigger in 2016 as transaction volume is expected to hit record highs in Southeast Asia.
Challenges with last-mile delivery in Southeast Asia, if not addressed properly, will become the biggest bottleneck to e-commerce growth in the region. The industry is currently witnessing industry-wide capacity bottlenecks beyond what the JNEs, Kerry Logistics and DHLs of this world are able to handle.
Part of this is the poor infrastructure to begin with. China, the world’s largest e-commerce market, never really had this issue because of the socialist and central government mindset of prioritizing infrastructure investments. By the time e-commerce took off, the infrastructure was already there, which resulted in last-mile delivery becoming a commodity service.
Also, many existing delivery companies were never built for B2C deliveries to begin with. Their core competencies are in B2B deliveries, which typically don’t face B2C headaches, like returns management, reverse logistics, pre-calling, multiple delivery attempts and cash on delivery.
2016 will see the emergence and adoption of next-generation channel management platforms, which are essentially “e-commerce DSPs.” These products will help brands enable omni-channel retailing across all major marketplaces, while also offering traditional programmatic benefits such as a dynamic optimization engine and plug-and-play integration with multiple first- and third-party data sources for better targeting, personalization and optimization.
10. The Talent War Will Inflate Salaries Faster Than Uber’s Valuation
One of the biggest issues faced by all e-commerce players in Southeast Asia is the lack of talent. In 2015, it was common to see employees being poached left and right with new salaries of 1.5-3x. Obviously, this isn’t sustainable, but it is the current foundation of the talent war in Southeast Asia.
Opportunistic professionals, often young, jump to roles where their skills, experience and leadership don’t match the package and title. “The most important thing to optimize for on your first job is growth. Growth is king, queen, and emperor combined. Optimize for growth above compensation, above location, above lifestyle, and above anything else,” says Auren Hoffman, former LiveRamp CEO who founded and sold five companies.
E-commerce companies need to understand that despite all of us being in the midst of a Gold Rush, this is a long-term game. To attract and retain the best talent, more and more e-commerce companies will be buckling down on culture and building an appealing work environment. aCommerce in 2016 will be relocating its headquarters to the E-commerce Valley of Bangkok — Emquartier (also home to Lazada’s regional headquarters).