Alibaba, Analysis, Buzz, ecommerce, Fintech, Indonesia, Lazada, Mergers and Acquisitions, payments, Paytm, Startups, tokopedia

Opinion: To understand Alibaba’s Tokopedia investment, look at Paytm


Image credit: The map of ecommerce in Indonesia. by Iprice.

Two of the strongest performing ecommerce companies in Indonesia – Lazada and Tokopedia – can be seen forging an alliance through shared investor Alibaba. Comparison site Iprice lists both on top ranks in several metrics.

Indonesian ecommerce players will have to adapt to this new reality. Consolidation is already taking place, with conglomerates like Salim and Djarum bundling their resources through acquisitions. The Alibaba-Lazada-Tokopedia trio won’t just affect Indonesia’s ecommerce landscape. It’s also set to crank up the heat on startups in payments and financial services, taking a leaf from Paytm’s playbook.

Cornering Indonesia

Alibaba already controls Lazada, which has presences in Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam. By getting Tokopedia on its side in Indonesia, Alibaba has set itself up to corner the country’s market. It’s deemed hard to navigate due to its size, diversity, and limited infrastructure – but promises high rewards. The Southeast Asian digital economy is projected to be worth US$200 billion by 2025, with Indonesia taking the largest chunk.

Tokopedia and Lazada won’t necessarily fully align their goals just because they share Alibaba DNA. The ecommerce firms overlap in many accounts – both sell a vast variety of goods like fashion, electronic devices, household products, and cosmetics. Yet they’re different enough to complement each other well. An alliance, or even just a neutral position towards each other, would allow them to focus on their strengths rather than battling for dominance on all fronts.

Lazada’s strengths:

  • It’s a regionally known brand. It has access to the majority of Southeast Asia’s [up-and-coming consumer class](https://qz.com/591380/southeast-asias-middle-class-is-diverse-confident-and-growing-richer-by-the-day/).
  • Lazada is part online retailer, part managed marketplace, which means it has – to some extent – control over sellers, product quality, and reliability. Sellers need to provide a business license and ID.
  • It operates warehouses and in-house logistics, now with the help of Alibaba’s logistics arm.
  • It offers cash-on-delivery – a payment option risky for business but convenient for customers.
  • It acquired Redmart, an online retailer specializing in the groceries segment.

Tokopedia’s strengths:

  • Tokopedia is a marketplace without its own warehouses and logistics, which means it has lower operational costs.
  • Consumers sell directly to one another, resulting in high product diversity. Registration is instant.
  • It’s been focused on growth in Indonesia and understands the local market well.
  • It has branched out into offering non-physical goods like tickets, prepaid phone vouchers, digital subscriptions, bill payments, and insurances.

Possible synergies

In a shopping street in the East Java city of Surabaya. Photo credit: John Ragai.

When Alibaba acquired Lazada, CEO Max Bittner gave some insight into how the companies planned to combine their strengths.

An important piece of the puzzle: merging Alibaba’s logistics arm, Cainiao Network, into Lazada to form an international logistics backbone for cross-border trade.

One immediate impact this has had is that Lazada now handles deliveries for Taobao in Malaysia, Bittner told Tech in Asia. Taobao is Alibaba’s C2C marketplace – similar to Tokopedia.

Logistics support is one area in which Tokopedia could benefit from working more closely with Lazada. Another is the opportunity for merchants to access consumers and products internationally. Alibaba itself benefits, as its merchants now have access to the fast-growing markets of Southeast Asia.

Another change for Lazada that Bittner hinted at is Alipay, saying that it will eventually merge with his company’s own internal payment system Hellopay.

Tokopedia also has a platform credit point system and wallet called TokoCash. Right now, wallets like these are of limited use to shoppers because they can’t spend the currency anywhere but on the site. Working towards interoperability – where TokoCash can be used to shop on Lazada and vice versa – could be a desirable move to increase the attractiveness of both wallets.

How much is Tokopedia worth?

william-tokopedia-featured

Tokopedia CEO and co-founder William Tanuwijaya. Photo credit: Tokopedia.

When Tokopedia co-founder and CEO William Tanuwijaya announced Alibaba’s investment last week, many questions were left unanswered.

We know the Chinese firm holds a “minority stake” and that the overall investment sat at a whopping US$1.1 billion.

But what chunk of that round came from Alibaba and how much does it own? Which previous investors doubled down? Did any early investors sell their shares in the now eight-year-old startup?

How much is Tokopedia worth? Tanuwijaya didn’t mention.

For US$1 billion, Alibaba acquired a 51 percent stake in Lazada last year and then paid the same amount to raise its ownership to 83 percent. Given the many unknown variables in Tokopedia’s latest fundraise, we can’t draw a definite conclusion on its valuation.

We contacted Tokopedia, Lazada, as well early and later stage Tokopedia investors to learn more about the deal and expected synergies between the companies, but haven’t heard back with further insights.

The only thing certain is that Tokopedia is part of the billion-dollar valuation club, and that it’s not becoming part of Alibaba’s Chinese rival JD, as some had speculated.

Paytm in reverse

Tokopedia’s latest innovations haven’t been about selling physical goods and it may have ambitions that eventually turn it into a new beast – which could help explain Alibaba’s interest in it.

Like Lazada, Tokopedia already offers loans to its sellers, but the Indonesian company moved well beyond that with its vast non-physical goods category – something Lazada hasn’t spent too much time on, though it does offer some digital vouchers.

Next to bill payments, tickets, and so on, Tokopedia also offers comparison features, letting shoppers see the benefits of different types of insurances or credit cards and apply for them online.

Tokopedia’s section for non-physical goods and financial services. Image credit: Tokopedia.

There are some parallels in Tokopedia’s development and Paytm’s in India – only that it’s happening in reverse here.

Paytm started out as a bill payments specialist and more recently added ecommerce features, its development fuelled by multiple investments from different Alibaba Group entities. It split into two separate companies – one for ecommerce, Paytm Mall, and the other one now operating as a licensed payments bank. With the most recent investment, Alibaba took a controlling stake in Paytm Mall.

Tokopedia was rooted in ecommerce and is now exploring a wide variety of new payments and financial services products. A formal banking license for Tokopedia is probably still years away, if it will happen at all in Indonesia. But the startup has hired many former Paytm executives, including CTO Qasim Zaidi and VP of business Amit Lakhotia, supporting the theory that it’s paying close attention to Paytm’s development.
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By betting on Lazada and Tokopedia, Alibaba isn’t funding rivals, but two companies with distinct strengths and the opportunity to complement each other. Startups outside of the Tokopedia-Lazada-Alibaba alliance will have to brace for a period of adaptation and clever strategizing.

This post Opinion: To understand Alibaba’s Tokopedia investment, look at Paytm appeared first on Tech in Asia.



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