With a scale of over 40 billion US dollars and favored by SoftBank, how can brands take advantage of the "east wind" of Southeast Asian social e-commerce?

By pridecheung

According to Pinduoduo's Q4 2020 financial report released on March 17, Beijing time, the number of annual active buyers on Pinduoduo reached 788 million, surpassing Taobao's 779 million, making it the largest e-commerce platform in China. Pinduoduo's model has gained a large number of user groups in China, and this model of focusing on low prices, social networking, and sinking markets is also being replicated in the Southeast Asian market, where social media penetration is high and per capita income is relatively low.

However, in fact, the concept of social e-commerce may have appeared in Southeast Asia even earlier than in China. According to Krasia, in 2012, the total transaction volume of social e-commerce business of Indonesian forum platform "Kaskus" reached 575 billion rupiah (about 40.6 million US dollars), while in contrast, China's "Pinduoduo" was only established in 2015. (The business model of "Kaskus" social e-commerce will be discussed below)

Southeast Asia is also the region with the highest acceptance of social e-commerce in the world. According to the Boston Consulting Group's 2019 data forecast, the scale of social e-commerce in Southeast Asia will reach 47 billion US dollars in 2025. Due to the impact of the 2020 epidemic, it is likely that this goal will be achieved ahead of schedule in 2023.

In general, the development trajectory of social e-commerce in Southeast Asia is opposite to that in China. In China, e-commerce platforms such as Taobao and JD.com developed first, and Pinduoduo appeared only after users formed a strong awareness of e-commerce shopping. However, in Southeast Asia, it is the opposite. Social e-commerce appeared first, and then e-commerce platforms such as Lazada and Shopee rose.

In addition, according to The Ken's report, in the next five years, the market share of social e-commerce in Southeast Asia will account for 60% to 80% of the total e-commerce share.

In this context, the data of some social e-commerce projects must be relatively good. In the past year, many Southeast Asian social e-commerce projects have obtained financing.

Overview of social e-commerce in Southeast Asia

Unlike the social e-commerce projects that have recently received financing in the United States, which focus on verticals, brands, and live broadcasts, the social e-commerce projects that have received financing in the Southeast Asian market over the past year or so are more similar to the "WeChat business" in China. In fact, "social e-commerce" is a complex and vague concept. Before introducing social e-commerce projects in Southeast Asia, I would like to quote the classification of social e-commerce models in a report by Redseer.

In this report, social e-commerce is divided into four types:

According to Redseer's description, among the four types of social e-commerce, only the first type does not have a platform, which is more like C2C transactions in FB groups. The other three models all have platforms, but the degree of their presence varies.

1. Direct sales: The seller owns the goods and publishes product information through social media, but payment and logistics do not go through social media. It is mostly used for local transactions, and social media plays a greater role in publishing product information.

2. "Unnoticeable backend support": In this model, the platform connects suppliers and sellers on social platforms . Suppliers upload product catalogs to the platform, and after the platform processes them, social sellers can choose suitable products to share on social media; consumers purchase products from social media, and the entire process is completed on social media. Consumers cannot feel the existence of the e-commerce platform, but in fact, logistics and payment services are provided by the social e-commerce platform. The Indian social e-commerce platform "Meesho" invested by Facebook in 2019 adopts this model. As a social media ecosystem and a payment method, Facebook is an excellent investor.

Compared with community group buying and KOL sales, the first and second types are actually similar to "WeChat business", except that they are divided into stockpiling/not stockpiling, and whether there is backend technical support. So for the time being, 1 and 2 are counted as "WeChat business" models.

3. Community e-commerce: Sellers collect the commodity demands of people in the local community and submit these demands to the platform; the platform sends the goods people need to the sellers, and the sellers are responsible for the last mile delivery and payment. The social e-commerce platform "Super" that recently received financing belongs to this type. However, community e-commerce does not necessarily have group buying attributes, and group buying is not necessarily based on communities. These two models have already appeared in Southeast Asia.

4. KOL promotion: KOL obtains product resources of various beauty and fashion brands through the platform, and promotes and sells products through social media; buyers discover products and obtain product information through social platforms, and logistics and payment are the responsibility of the brand.

Now that we have divided the models of social e-commerce, let's take a look at the social e-commerce projects that have received financing in Southeast Asia over the past year. Combining IT Juzi's public data and overseas reports, there have been a total of 7 social e-commerce related projects in Southeast Asia that have received financing over the past year. (The actual number of projects that have received financing may be more than 7)

If we simply analyze the above projects, some of them may have jumped out of Redseer's definition of social e-commerce. The two projects that do KOL sales, one is a vertical beauty platform, and the other connects sellers and creators, which are relatively conventional. The two projects that do "micro-business model" have built their own platforms, which is a relatively clear difference. Finally, the community project does not use group buying, and the group buying "Pinduoduo" is completely self-operated. Southeast Asian social e-commerce platforms have their own style.

Therefore, social e-commerce in Southeast Asia can actually be roughly divided into: 1. WeChat business model or traditional WeChat business "endorsed" by e-commerce platforms; 2. KOL sales; 3. E-commerce based on communities; 4. Group buying.

In addition to the above-mentioned projects that have received financing, there are also several social e-commerce projects that have already had a certain influence in Southeast Asia. For example, "Kaskus" opened a social e-commerce business in the forum, "Woobiz" is a social e-commerce platform for women, and "Evermos" sells Muslim products. Combining the projects that have recently received financing and the social e-commerce projects that have already reached a certain scale in the Southeast Asian market, we can summarize the following rules.

From the perspective of model, most social e-commerce in Southeast Asia adopts a model similar to "WeChat business", establishing a platform to connect sellers and C-end consumers. However, there are other ways to play besides the mainstream model.

The first is an e-commerce model based on social networks. "Kaskus" is an Indonesian forum platform founded in 1999. According to Wikipedia, "Kaskus" is the largest online community in Indonesia.

In the Kaskus platform, posts, videos and other information streams are the main components of the platform, but on the basis of forming a community, Kaskus has also established an e-commerce network for users to trade with each other. Currently, there is a "buy and sell" section in the Kaskus platform. After entering this section, you will find that it is more like an online second-hand trading market like OfferUp and Facebook Marketplace.

At the same time, in order to facilitate users' transactions on "Kaskus", "Kaskus" also launched the online payment service Kaskus Pay in 2019.

The "Kaskus" model seems to have a certain market among the Indonesian user group. For example, in the mobile phone category, the transaction information has reached 217,000 pages, and the number of views of some products can reach tens of thousands.

However, the model of "Kaskus" requires the establishment of a complete social network first, which has a relatively high threshold. In addition to "Kaskus", "Super", which recently received financing, adopts the group buying method. According to Crunchbase, Super is the first group buying social e-commerce platform in Indonesia.

According to Insignia Ventures Partners, Indonesia's "Super" was founded in 2018. It is an imitator of Pinduoduo in China. It focuses on the sinking market in Indonesia's second- and third-tier cities, and mainly uses group buying as the gameplay. However, the group buying gameplay of "Super" is different from that of Pinduoduo. Combined with the backward national conditions of Indonesia's sinking market logistics and other infrastructure, "Super" adopts the form of group buying based on the community. "Super" cooperates with many mom-and-pop stores in Indonesia's second- and third-tier cities to set up SuperCenter. Users in a community can join the group if their total consumption exceeds US$70 at a time.

In addition, "Super" has established a nationwide agent network called SuperAgen. Each "Super" agent point is operated and managed by a community leader, who sells fast-moving consumer goods to users in the community and earns the difference. It is reported that SuperAgen community leaders can earn more than $200 in price difference every month.

It can be seen that although "Super" is said to be an imitator of Pinduoduo, it is actually more like an e-commerce business based on the community. The reason why it cannot copy Pinduoduo is that Indonesia's infrastructure is still imperfect and there is no way to efficiently solve the last-mile delivery problem. There is no way to achieve expansion on social media like Pinduoduo through group buying and "cutting a knife" and other gameplay . Many investors told Baijing Chuhai that the platform-based business of e-commerce is not doing well enough, because the fulfillment costs in Southeast Asia are too high, and payment and logistics have raised costs. This problem still exists in 2021. "Super", which was established in 2018, is likely to have chosen this route out of necessity, but from this perspective, community group buying also first appeared in Southeast Asia, which is very interesting.

In addition to "Super", the Philippine social e-commerce platform "Resellee" has also launched a community group buying function in the Philippines, mainly selling fruits and vegetables. It is worth mentioning that "Resellee" has also launched a way to earn commissions by sharing on social media. After users buy a product, they can also share the product with friends on the social platform. If the friend successfully purchases it, the user can also get a part of the commission.

But the project "KitaBeli" that completed a $10 million Series A financing this month is more like Pinduoduo. The difference is that this platform is completely self-operated, but capital is beginning to be optimistic about this direction. And considering China's development path (the hot community group buying war in 2020), it is not known whether Southeast Asia's "Pinduoduo Road" has improved or regressed.

It can be seen that in 2019, in Indonesian social e-commerce, the most purchased items were Fashion, followed by Beauty (cosmetics, personal care, etc.), and fast-moving consumer goods accounted for a very small proportion. There was a big change in 2020. However, it is expected that there will still be some differences after the epidemic is over.

Although the financing of fast-moving consumer goods-related e-commerce projects is fast, it is largely related to the epidemic, just like the sudden popularity of "Daily Fresh" in China. However, domestic logistics facilities can support the transformation and development of people's consumption habits. Southeast Asia is a different story, so we will see many community-oriented projects. It has to be said that the giants who fought each other to sell vegetables are very powerful, so it is better to do it overseas. Maybe, in the end, community group buying failed, and a solution was found for the pain point of the last mile of logistics.

For example, Woobiz is a platform mainly for Indonesian female sellers. According to the introduction on the official website of Woobiz, Woobiz helps Indonesian women to do micro-business, thereby providing these women with job opportunities. At the same time, Woobiz has also launched a project similar to the "TikTok" Seller University, with the aim of providing guidance and training for micro-business sellers on Woobiz. At the same time, Woobiz has also launched a forum for these sellers to provide them with a place to exchange experiences.

In addition to targeting sellers at vertical groups, Indonesia has also seen the emergence of social e-commerce platforms targeting vertical consumer groups.

Evermos, a social e-commerce platform founded in Indonesia in 2018, is a social e-commerce platform for the Muslim community. The platform connects sellers, brands and consumers of halal products, and sells goods through social media such as WhatsApp.

The Muslim community is a very large group in Southeast Asia. According to statistics, the Muslim community in Southeast Asia accounts for 39%, and in Indonesia, the largest e-commerce market, the Muslim community accounts for about 80%. During the peak day of Ramadan in 2020, the sales volume of goods on Shopee Indonesia even climbed to 4 times that of normal days.

Being a "bridge" between content and e-commerce is not limited to KOLs

Social e-commerce, if we take the word literally, social media plays a relatively important role in promoting e-commerce transactions, mainly playing the role of product display and dissemination. Therefore, there are many platforms focusing on this link, and the above table also lists two of them, "Desty" and "Raena". Among them, "Desty" was founded by the former head of operations of Alibaba International Station as CEO and co-founder. The above two platforms have also recently completed their A round of financing.

"Desty" mainly helps sellers sell goods with the help of social media. On the one hand, "Desty" provides sellers with landing page creation and optimization services, and on the other hand, "Desty" also helps online sellers establish connections with KOLs.

Another project that has recently received financing, "Raena", focuses more on MCN. "Raena" was founded in 2019. In fact, its initial business was to help local beauty KOLs in Indonesia build their own personal brands, but starting last year, "Raena" decided to transform its business to provide inventory management services for KOLs in Indonesia. Obviously, the former needs to cooperate with very top KOLs, and the business difficulty and risk are higher. Transforming to the latter may focus more on mid- and long-tail traffic.

Currently, "Raena" has reached cooperation with more than 1,500 small and medium-sized Internet celebrities. These KOLs are mainly Indonesian women aged 18 to 34. They will display products through platforms such as "TikTok" and "Instagram". If users want to buy these products, they can order them from "Raena".

As content and e-commerce become more and more closely integrated, creators will become more and more valuable resources. According to China Investment Network, Raena's revenue increased 50 times between January and December 2020.

The trend of pure MCN agencies has passed. If you want to find opportunities in this wave, you need to think more realistically about the integration of e-commerce and content. "Desty" starts from the perspective of merchants, and "Raena" considers KOLs.

As mentioned above, the categories with the highest share in Indonesian social e-commerce are fashion and beauty, which are also the two main categories of Chinese brands going overseas to Southeast Asia , especially beauty brands . According to data from the General Administration of Customs of China in 2019, among the top five countries in terms of the amount of cosmetics exported by China, two are from Southeast Asia, namely Indonesia and Singapore. Therefore, for beauty brands going overseas, combining with social media may be a way to achieve business growth in the Southeast Asian market.

According to the author's observation, currently in Southeast Asia, beauty brands mainly enter social e-commerce in three ways.

First, it is to cooperate with social e-commerce platforms, but it may take a "cost-effective strategy". The platforms mentioned above, such as "Resellee" and "KitaBeli" ("self-operated Pinduoduo"), have special "beauty" sections. Although the brand positioning of the beauty products sold on the two platforms "Resellee" and "KitaBeli" is different, overall, "low price" is their common feature.

"Resellee" is a C2C social e-commerce platform. Most of the beauty products sold on this platform are from less well-known beauty brands that are more practical than fashionable. For example, a "Beauche" brand moisturizer sold on the "Resellee" platform is priced at 200 pesos, which is only 26 yuan in RMB. On Wikipedia, you can't even find an introduction to the brand "Beauche", and from the overall "retro" color and style of the brand's official website, it can be seen that the positioning of this brand is very different from most fashion beauty brands that have gone to Southeast Asia and are mainly aimed at young people.

The "KitaBeli" platform adopts a self-operated model. The brand awareness of the beauty products in the "KitaBeli" section is higher than that of "Resellee". In the beauty section of "KitaBeli", I saw international brands such as L'Oreal and Maybelline. However, due to the introduction of group buying, the prices of beauty products of international brands on "KitaBeli" have been compressed to very low levels. Take a Maybelline lipstick as an example. The price on "KitaBeli" is 42.5 rupees, while the lowest price of the same product in Lazada Indonesia is 59 rupees, and most of the prices are 88 rupees.

Considering that in Southeast Asia, social e-commerce platforms target users in second- and third-tier cities, it can be inferred that the cost-effectiveness of beauty brands may be the most important factor for this group.

The second way for beauty brands to combine with social e-commerce is for brands to reach consumers through social media with the help of KOLs, which is also the way many brands going global to Southeast Asia are currently adopting. Take the overseas beauty brand "Première Beauté" that received angel round financing some time ago as an example. On Instagram, there are 6,474 posts under the topic #premierebeaute, many of which show that the sponsor is premierebeaute.id. Obviously, these are all KOLs who are officially cooperating with "Première Beauté". Take the post in the picture below as an example. This KOL recommended a lipstick from "Première Beauté" and attached a link to a discounted product on Shopee.

Finally, there are brands that focus on Southeast Asia. They have neither joined social e-commerce platforms nor used KOLs to spread through social media. Instead, they chose to introduce social e-commerce directly on their official websites. This is very interesting because in Southeast Asia, the Internet economy of most countries started in the mobile Internet era. Independent websites are not popular, and people are more inclined to shop through e-commerce platforms such as Shopee or social media. But in fact, this works very well, but it may be easier to play in the mature stage of brand development.

For example, the Indonesian fashion brand "Sophia Paris" has adopted the social e-commerce model on its official website. After users recommend a product to friends through social media, if the friend successfully purchases it, the user can get a 10% cashback reward. At the same time, "Sophia Paris" has expanded its business from the fashion field to personal health care categories, such as moisturizers.

According to data from ecommerceDB, Sophia Paris had a revenue of 56.9 million U.S. dollars in 2020, which is almost the same as that of Vova, an overseas e-commerce platform that focuses on the European lower-tier markets. However, the first step in this social e-commerce game is that users will take the initiative to share. In this sense, if Sophia Paris does not require users to have purchased before sharing, it will be difficult to distinguish it from vertical social e-commerce platforms.

But in any case, since someone has already made it work, companies that are expanding their brands overseas in Southeast Asia can try this model. Whether it is directing traffic to their own website for social e-commerce conversion, or doing social fission after accumulating to a certain stage, there are already successful cases to learn from.