E marketer indonesia_online-a_digital_economy_emerges_fueled_by_cheap_mobile_handsets

INDONESIAONLIN

EA Digital EconomyEmerges, Fueled byCheap Mobile HandsetsMARCH 2013

Rahul Chadha

Contributors: Tobi Elkin, Jennifer Jhun, Monica Peart

EXECUTIVE SUMMARYAmong emerging markets, Indonesia often falls into the long shadow cast by Brazil, Russia, Indiaand China—also known as the BRIC countries. But Indonesia—with the fourthlargest population inthe world—is growing rapidly, as is its online population.

Indonesia’s economic engine will help create a new and considerable digital class of consumers. eMarketerprojects about 29% of the population—or 72.7 million people—will have access to the internet by the end of2013. That penetration rate is expected to climb to 39.8% by 2016, accounting for 102.8 million internetusers.

Internet use remains heavily concentrated in Indonesia’s largest cities, where people are more able to affordboth internetenabled devices and service plans. Mobile internet is making gains, aided by the proliferation ofcheap feature phones and smartphones manufactured in China, along with more affordable data packages.

KEY QUESTIONS

Who makes up Indonesia’s online population?

Will internet users leapfrog fixed broadband in favor of mobile internet?

What is shaping Indonesia’s peertopeer economy?

INDONESIA ONLINE: A DIGITAL ECONOMY EMERGES, FUELED BY CHEAP MOBILE HANDSETS ©2013EMARKETER INC. ALL RIGHTS RESERVED 2

Internet Users and Penetration in Indonesia, 20112016 millions, % of population and % change

2011

102.8

39.8%

10.1%

Internet users % of population % change

Note: individuals of any age who use the internet from any location via any device at least once per month Source:eMarketer, Feb 2012

136985 www.eMarketer.com

CONTENTS2 Indonesia’s Online Population

6 Internet Usage in Indonesia

8 Social Society, Social Media

11 Advertising

12 eMarketer Interviews

93.4

83.6

72.7

40.4%

43.0

59.6

38.6%

29.0%

33.0%

36.5%

24.0%

22.1% 17.5%

14.9%

11.7%

2012

2013

2014

2015

2016

INDONESIA’S ONLINE POPULATIONIndonesia is sometimes overlooked as an emerging market, with more attention paid to the BRICcountries. But its size and economic growth are increasing its profile.

In September 2012, McKinsey & Company estimated that Indonesia could grow from the 16thlargesteconomy in the world to the seventh largest by 2030. The International Monetary Fund (IMF) estimated thatIndonesia’s GDP will grow 6.3% this year—well higher than the global average (3.6%) and the average foremerging market and developing economies (5.6%). The IMF also predicted that Indonesia’s growth rate willincrease over the next several years and continue to outpace that of developing markets in general.

Not surprisingly, internet usage is rapidly expanding in the country, with growth reaching almost 20% thisyear. eMarketer estimates that Indonesia’s online population will reach 72.7 million in 2013 and 102.8 millionin 2016.

Comparative Estimates: Internet Users and Penetration in Indonesia, 20112016

Internet users (millions)

APJII, Dec 2012 (1) eMarketer, Feb 2012 (2) IDC, June 2012 Jefferies, Sep 2012 comScore Inc., Nov 2012 (3) BCG,April 2012 Frost & Sullivan, Feb 2012 McKinsey & Company, Dec 2012 Internet user penetration (% of population)eMarketer, Feb 2012 (2) IDC, June 2012 BBG, Oct 2012 (4) Roy Morgan Research, June 2012 (5) ITU, July 2012Frost & Sullivan, Feb 2012

2011

55.0 43.0

39.0

31.0

17.5%

15.0% 22.1%

18.0%

2012

63.0 59.6

45.0 55.0 47.0

24.0%

17.0% 27.0%

2013

82.0 72.7

50.0

29.0%

19.0%

2014

107.0 83.6

56.0

33.0%

21.0%

2015

139.0 93.4

61.0

50.0 145.2

36.5%

23.0%

37.0%

2016

102.8

100.0

39.8%

Note: (1) ages 1265; use an hour per day or more; (2) individuals of any age who use the internet from anylocation via any device at least once per month; (3) ages 15+; home and work locations; (4) ages 15+; data is forAug; (5) ages 18+; urban population only; ever used Source: eMarketer, Feb 2012; various, as noted, 2012


Other estimates vary due to different methodologies. For example, some estimates do not include usageoutside


of the home or office, which may discount a large number of users accessing the internet in shared placessuch as internet cafes. Accounting for variations such as this and the age ranges studied, other firms’figures are in line with eMarketer’s.

August 2012 data from Gallup and the Broadcasting Board of Governors (BBG), an independent agency of

the US government responsible for all USsponsored nonmilitary broadcasting conducted overseas, showedthat internet penetration was highest among those ages 15 to 24, at 51%. It then declined sharply to 25%among those ages 25 to 54, with the trend continuing as users got older. Internet use also increased as theeducation levels of respondents went up: 72% of those with a university level education reported goingonline in the week prior to the poll.

Demographic Profile of Internet Users in Indonesia, Aug 2012 % of respondents in each group

Age 1524 51% 2534 25% 3554 11% 55+ 2% Location Large city 30% Small town 23% Rural 13% Educationlevel None 1% Primary 3% Secondary 21% High school 40% Vocational 46% University 72% Total 21% Note: usedin the past week Source: Broadcasting Board of Governors (BBG) and Gallup, "Media Use in Indonesia 2012," Oct16, 2012


Internet penetration remains most prevalent in the country’s largest cities, which include Jakarta and itsmetropolitan area, often referred to as Jabodetabek; Surabaya in the province of East Java; Bandung inWest Java; Medan in North Sumatra; and Semarang in Central Java. Because internet use in these cities isalready more widespread, smaller cities are expected to host much of the growth in penetration over thenext few years. As would be expected, Indonesia’s population as a whole is shifting from rural to urban.According to Indonesia’s 2010 census, the urbanized population increased from 41.9% in 2000 to 49.8% in2010.

A MarkPlus Insight survey released in November 2012 estimated that, out of a total internet user population

of 61.1 million in 2012, 56.4 million lived in urban areas.

Urban and Total Internet Users in Indonesia, 20102012 millions and % of population

2010 2011 2012

Urban internet users 37.6 50.5 56.4 Total internet users 42.2 55.2 61.1 Internet users % of population 17.0%22.4% 23.5% Source: MarkPlus Insight, "Netizen Survey 2012" as cited by DailySocial, Nov 14, 2012


Yahoo! and TNS Global data showed that internet use among city dwellers was higher among males in2012. Penetration was especially high among those ages 15 to 19, at 89%.

Internet User Penetration in Urban Indonesia*, by Demographic, 20092012 % of population in each group

2009 2010 2011 2012

Gender Male 36% 45% 54% 63% Female 21% 30% 38% 50% Age 1519 64% 74% 87% 89% 2024 42% 57%65% 78% 2529 28% 50% 49% 63% 3034 16% 27% 33% 54% 3539 13% 24% 38% 52% 4050 9% 9% 15%24% Socioeconomic status A 51% 54% 66% 75% B 32% 46% 51% 64% C 20% 25% 36% 48% Total 28% 37%46% 57% Note: in the past month; *Bandung, Botabek, Denpasar, Jakarta, Makassar, Medan, Palembang,Semarang, Surabaya and Yogyakarta Source: Yahoo! and TNS, "Net Index Indonesia," June 27, 2012



MOBILE INTERNET WINS OVER BROADBANDFixed broadband remains a rarity in Indonesia, with a penetration rate of about 1.6% households,or 800,000 homes. eMarketer does not project significant growth of broadband penetration overthe next four years.

Fixed Broadband Households and Subscriptions in Indonesia, 20102016

Households (millions) —% change —Household penetration Subscriptions (millions) —% change

2010

0.6 10.5% 1.3% 1.6 9.5%

2011

0.7 9.8% 1.4% 1.7 8.9%

2012

0.8 9.2% 1.5% 1.9 8.3%

2013

0.8 6.0% 1.6% 2.0 5.1%

2014

0.8 2.5% 1.6% 2.0 2.3%

2015

0.9 1.8% 1.6% 2.0 1.0%

2016

0.9 1.8% 1.6% 2.0 0.9% Note: includes connections with permanent access to the internet via cable modem, DSLand wireless/satellite technologies; excludes mobile Source: eMarketer, April 2012


A significant impediment to fixed broadband access is that many people in Indonesia simply can’t afford it.An Accenture report from June 2012 found that fixed broadband could cost almost $36 per month.

Another cause of the low penetration rate is the obvious logistical problem that arises from attempting toprovide internet to a geographically fractured area. The government is in the midst of building out the PalapaRing, a fixed broadband network consisting of submerged cable laid along the coasts of the country’s majorislands. Although the latest estimates put the Palapa Ring’s completion date sometime in 2014, thismassive investment in infrastructure has been plagued by delays. And the question of who will build “lastmile” infrastructure to link local governments and rural areas to the Palapa Ring remains unanswered.

Internet cafes known as “warnets”—a portmanteau of warung, the Indonesian word for cafe, and internet—still play a significant role in providing rural users with internet access. However, their popularity has wanedamong city dwellers, who are more likely than those in lessdeveloped areas to be able to afford a PC and afixed broadband plan or an internetenabled mobile phone. But warnets in urban areas have not yetcompletely disappeared, and many use them as gathering spots for online gaming. The prominence ofwarnets in rural areas is likely to erode as mobile phones begin to penetrate these markets.

September 2012 data from Roy Morgan Research showed that the use of warnets began to decline in late

2009 as home access increased. However, it’s important to note that the data does not specify whetherthose going online at home were using mobile devices or fixed broadband.

Internet Users in Indonesia, by Access Location, Sep 2007Sep 2012 % of respondents

Warnet/internet cafe Home Work Educational institution Wireless hotspot

Sep 2007

55% 7% 17% 14% 0%

Sep 2008

55% 8% 18% 14% 2%

Sep 2009

64% 13% 17% 14% 3%

Sep 2010

60% 23% 15% 9% 5%

Sep 2011

55% 32% 13% 9% 4%

Sep 2012

46% 45% 18% 10% 4% Note: ages 14+; ever accessed the internet Source: Roy Morgan Single Source Indonesia,Feb 1, 2013


As in most developing economies, growth in internet access will largely come through the adoption ofinternet enabled mobile phones. eMarketer estimates that there will be 160.5 million mobile phone users inIndonesia by the end of the year, representing a 64% penetration rate.

Mobile Phone Users in Indonesia, 20102016 millions, % of population and % change

2010

160.5

169.7

179.0

185.9

148.9

106.9 44.0%

53.0% 130.2

60.0%

64.0%

67.0%

70.0%

72.0%

43.5%

21.8%

14.4%

7.8%

5.7%

5.5%

3.8% 2011

2012

2013

2014

2015

2016

Mobile phone users % of population % change

Note: mobile phone users are individuals of any age who own at least one mobile phone and use the phone(s) atleast once per month Source: eMarketer, April 2012


Smartphone adoption is still in its early phase, with eMarketer projecting that smartphone users will accountfor 24% of all mobile phone users by the end of 2013. But the mobile landscape is changing quickly; cheapsmartphones made in China have substantially lowered entry costs for many consumers seeking regularinternet access for the first time. According to eMarketer estimates, smartphone penetration among mobile


phone users will climb to 47% by 2016—a total of 87.4 million users.

Smartphone Users and Penetration in Indonesia, 20102016

2010 2011 2012 2013 2014 2015 2016

Smartphone users (millions)

4.3 11.7 23.8 38.5 57.7 71.6 87.4

—% change 474.1% 174.0% 103.4% 61.6% 49.8% 24.1% 22.0% —% of mobile phone users

4.0% 9.0% 16.0% 24.0% 34.0% 40.0% 47.0%

—% of population 1.8% 4.8% 9.6% 15.4% 22.8% 28.0% 33.8% Note: smartphone users are individuals of any agewho own at least one smartphone and use the smartphone(s) at least once per month Source: eMarketer, April2012


Using data from consulting firm Canalys, eMarketer calculates that smartphone shipments in Indonesia willhit 15.7 million units in 2013—a yearoveryear increase of 51.7%.

Smartphone Shipments in Select Developing Countries, 2012 & 2013 millions of units and % change

2012 2013 % change

China 185.7 239.8 29.1% India 16.4 26.5 61.4% Russia 14.4 18.8 30.7% Brazil 12.3 17.2 40.0% Indonesia 10.3 15.7 51.7% Source: Canalys as cited in press release; eMarketer calculations, Jan 17, 2013


These devices are already more commonly owned by those in younger age groups. An August 2012 surveyconducted by BBG and Gallup found that more than onequarter of consumers ages 15 to 24 owned asmartphone. The ownership rate fell to 16% for those ages 25 to 34 and was only 7% among those ages 35

to 54.

Smartphone Ownership Among Consumers in Indonesia, by Age, Aug 2012 % of respondents in each group

1524 26%

2534 16%

3554 7%

55+ 2%

Total 13%

Source: Broadcasting Board of Governors (BBG) and Gallup, "Media Use in Indonesia 2012," Oct 16, 2012


Although the mobile device trend is clearly shifting toward smartphones, internetcapable feature phonesremain an incredibly popular means of getting online. When Yahoo! and TNS Global asked mobile internet

users in urban Indonesia which devices they used to go online, 86% said they used feature phones,compared with 20% who used a smartphone and 7% who used a tablet. (The total exceeds 100% becauserespondents were able to choose more than one answer.)

Mobile Devices Used to Access the Internet According to Mobile Internet Users in Urban Indonesia*, Q1 2012 % ofrespondents

Feature phones 86%

Smartphones 20%

7% Tablets 2% Handheld gaming devices 1% Portable media players Note: ages 1550; *Bandung, Botabek,Denpasar, Jakarta, Makassar, Medan, Palembang, Semarang, Surabaya and Yogyakarta Source: Yahoo! andTNS, "Net Index Indonesia," June 27, 2012


Deregulation has led to increased competition among mobile service providers, resulting in lower costs forboth data and voice plans. A January 2013 report from Credit Suisse found that the average monthly bill formobile phones had decreased to about $8.22 per month, down from roughly $8.54 the previous year. “Thereare packages for surfing the web on mobile that are semi unlimited or socalled unlimited, allyoucaneatpackages on mobile networks for less than $5 a month. These are fueling internet usage in Indonesia,” saidNanda Ivens, COO at digital agency XM Gravity. “I think in the battle between feature phones andsmartphones, the feature phones are losing because you can pay almost the same amount of money for asmartphone, and that is a massive shift in rural areas. Chinesemade smartphones rule. They’re selling somany units it’s unreal,” he added.

Cheaper devices and plans will have a disproportionate impact in rural areas, which have historically beenunderserved by access to both fixed broadband infrastructure and power grids. The reduction of entry costsis especially important in Indonesia since, unlike in the US, carriers don’t subsidize devices and then recouptheir initial outlays over the life of a service contract. Instead, consumers usually pay the full cost of thephones up front and then acquire service through a prepaid model.


Although competition has increased, the provision of mobile services is still concentrated in a handful ofcompanies that control most of the market: Telkomsel, a subsidiary of the majority stateowned TelkomIndonesia; XL Axiata, commonly referred to as XL; and Indosat. According to Credit Suisse’s report,Telkomsel remained the dominant service provider with a 43% market share in 2012, a slight decline from2011. Meanwhile, Indosat controlled 23% of the market, and XL had 12%; however, Credit Suisse reportedthat both companies had slightly increased their market share over the past year.

But providing consumers with access to mobile broadband remains somewhat of a challenge. In December2012, the government’s Ministry of Communications and Information Technology announced that it wouldauction off more spectrum as part of efforts to improve 3G services. However, the government has not madesignificant investments in mobile infrastructure, leaving telecoms and other third parties to foot the bill.

Although Google’s Android has quickly become the operating system (OS) of choice for smartphoneowners, Indonesia’s mobile market is somewhat unusual in that it is one of the few left in which BlackBerryremains a significant player. Projections from International Data Corp. (IDC), published by The Jakarta Postin January 2013, expected Android to lead OS market share in 2013 with 53% of smartphones running thesoftware. IDC projected that BlackBerry would control a respectable 35% market share, and that theWindows Phone OS would have a 9% share—a significant increase from 2% in 2012.

Smartphone OS Market Share in Indonesia, 2012 & 2013 % of total

Symbian 2%

Windows 2%

Windows 9%

iOS

iOS 3%

3%

BlackBerry

Android 37%

56%

BlackBerry 35%

Android 53%

2012 2013

Source: International Data Corporation (IDC) Indonesia as cited in The Jakarta Post, Jan 5, 2013


Part of BlackBerry’s appeal among device users in Indonesia results from cheaper handsets and lowcostservice packages. BlackBerry Messenger (BBM) also has a strong user base, but new messaging services

running on Android, such as WhatsApp, have begun to erode BlackBerry’s appeal. At the same time, somehigherend users have come to consider the brand a discount option. Perhaps in a tacit acknowledgement ofthe loss of market share elsewhere, BlackBerry in late 2012 signaled the continued importance of theIndonesian market when it announced that the country would be the first place it would roll out a newpeertopeer mobile payment system built into BBM, known as BBM Money. In late February 2013, thecompany announced that it had started testing the program in Indonesia.


INTERNET USAGE IN INDONESIAInternet use in Indonesia is still in the early phase of usage—communication and informationgathering— with social media figuring strongly into the online behavior of internet users.

In a February 2013 poll, Roy Morgan Research found that the most popular online activity among internetusers was socializing/entertainment, named by more than eight in 10 respondents. That was followed byaccessing general information (57%), email (48%) and website browsing (37%). Online shopping and billpayments barely registered, with only 8% of respondents listing those activities.

Online Activities of Internet Users in Indonesia, Sep 2012 % of respondents

Socializing/entertainment 82%

General information 57%

Email 48%

Visiting websites 37%

18% Academic/business research 11% Promotion/publishing 8% Shopping/paying bills Note: ages 14+ whoaccessed the internet in the past four weeks Source: Roy Morgan Single Source Indonesia, Feb 1, 2013


BBG and Gallup’s similar August 2012 survey of internet users underscored just how important social mediawas to the online activities of those in Indonesia. Ninetysix percent of respondents said they used socialnetworking services when online. The next most common activity was accessing the news, named by 72%of respondents. (The next section of this report will take a closer look at social media’s place in Indonesia.)

Online Activities of Internet Users in Indonesia, Aug 2012 % of respondents

Social network services

96%

Latest news

72%

Find information about a specific topic 50%

Send or receive email

44%

Read a blog

38%

Share videos or photos online

35%

Watch online videos

32%

Listen to online audio

29%

Post a comment to a blog

28%

Download or watch podcasts

27%

Note: in the past week; n=433 ages 15+ Source: Broadcasting Board of Governors (BBG) and Gallup, "Media Use inIndonesia 2012," Oct 16, 2012


Thus far, internet users in Indonesia have strongly favored Western websites for online activities. comScoredata from August 2012 found that the top four websites ranked by unique visitors were all foreignowned.Google sites—among them Google.com, Google.co.in, Blogger. com and YouTube—were at the top of thelist, attracting 12.5 million unique visitors and recording a 91.6% reach. Facebook was in second, with 11.1million visitors and a reach of 81.6%, followed by Yahoo! sites in third. It should be noted, however, thatmany of these sites are offered and often used in the Indonesian language. Media conglomerate KompasGramedia, which operates a number of newspapers and magazines, was in fifth, ranking as the site inIndonesia with the highest number of unique visitors and a reach of 32.6%. The online forum Kaskus camein at 11th place. Students from Indonesia studying abroad created Kaskus in 1999 for fellow expatriates, butusers living in Indonesia have come to embrace the site, which claims to be the largest online community forthe country.


Top 20 Sites Among Internet Users in Indonesia, Ranked by Unique Visitors, Jan 2013 thousands and % reach

Unique visitors

% reach

1. Google sites 12,487 91.6% 2. Facebook 11,127 81.6% 3. Yahoo! sites 8,518 62.5% 4. WordPress 5,646 41.4% 5. Kompas Gramedia 4,446 32.6% 6. Twitter 3,724 27.3% 7. Microsoft sites 3,702 27.2% 8. 4shared.com 3,637

26.7% 9. Wikimedia Foundation sites 3,579 26.3% 10. Detik.com 3,421 25.1% 11. Kaskus.us 2,837 20.8% 12. Tokobagus.com 2,718 19.9% 13. Portal VIVA 2,436 17.9% 14. Kapanlagi.com sites 2,395 17.6% 15. Ask Network 2,381 17.5% 16. Glam Media 2,368 17.4% 17. AOL 2,238 16.4% 18. Berniaga.com 2,172 15.9% 19. CBS Interactive 1,908 14.0% 20. Zynga 1,837 13.5% Source: comScore Inc., Feb 28, 2013


The number of languages and ethnic groups found in Indonesia complicates the country’s online landscape.While English has served as something of a common language for the internet in Indonesia, growth ininternet use will be sped along by the creation of content in Indonesian, the country’s official language, aswell as languages such as Javanese. “Without localized content creation—in the form of tweets, YouTubevideos, blog posts and other social content—Indonesia’s internet use probably wouldn’t have grown so fast,”said Pandu Truhandito, president of GrowMint, a digital marketing agency.

SOCIAL SOCIETY, SOCIAL MEDIAIf there’s one lesson to learn about the behavior of internet users in Indonesia, it’s that they lovesocial media. Social networks are an indelible element of the online world in Indonesia and areflection of the social nature of the country’s culture.

Internet users in Indonesia are leapfrogging PCs and going straight to mobile devices for access, and thesmartphones and internetenabled feature phones they’re snapping up often come with social media appspreinstalled. On feature phones, these apps have been simplified in order to work within the limitations ofboth feature phone screens and slower 2G networks.

eMarketer estimates that social networks had an 87.5% penetration rate among internet users in Indonesiain 2012.

Comparative Estimates: Social Network User Penetration in Indonesia, 2012 % of internet users

BBG, Oct 2012 comScore Inc.*, June 2012 eMarketer, Aug 2012 Ipsos**, March 2012

2012

96.0% 92.6%

87.5%

83.0%

Age

15+ 15+

All ages

1664

Usage

Used in the past week Unique visitors

Use via any device at least once per month Visited in past 3 months

Note: *data is for April; **visitors to social network sites, forums or blogs Source: eMarketer, Aug 2012; various, asnoted, 2012


eMarketer’s figure falls comfortably between estimates provided by comScore and Ipsos. While comScoredid not define a social network user in its report, its figure relied on data culled from only one month.Meanwhile, Ipsos’ number considered only those ages 16 to 64 who visited a network over the past threemonths. BBG’s data pulled from respondents older than 15 and included those who had used a socialnetwork in the past week. In comparison, eMarketer assessed users of all ages who accessed their accountby any device.

eMarketer projects that social network use in Indonesia will continue to speed up in 2013 and 2014.


Social Network Users and Penetration in Indonesia, 20102014

Social network users (millions) —% change —% of internet users —% of population

2010

22.7 54.8% 74.2% 9.3%

2011

34.4 51.4% 80.0% 14.0%

2012

52.1 51.6% 87.5% 21.0%

2013

67.1 28.8% 92.3% 26.8%

2014

79.2 18.0% 94.8% 31.3% Note: internet users who use a social network site via any device at least once per monthSource: eMarketer, Aug 2012


Similar to website browsing behavior, social media users in Indonesia are turning to Western platforms inlarge numbers. According to Socialbakers.com, there were 47.2 million Facebook users in the country as ofmidFebruary, making it the social network’s fourthlargest user base behind only the US, Brazil and India.BBG and Gallup’s poll found that 95.7% of social network users in Indonesia were on Facebook, comparedwith 47.6% for YouTube, 37.6% for Google+ and 29.4% for Twitter.

Social Networks Used by Social Network Users in Indonesia, Aug 2012 % of respondents

Facebook 95.7%

YouTube 47.6%

Google+ 37.6%

Twitter 29.4%

Note: in the past week Source: Broadcasting Board of Governors (BBG) and Gallup, "Media Use in Indonesia2012," Oct 16, 2012


However, anecdotal evidence suggests that Facebook’s popularity may be declining, at least among thedigitally savvy users in the country’s larger cities who are turning to Twitter and Path, a USbased network.Part of Path’s strong appeal in Indonesia may lie in the fact that it was originally designed as a mobile appand not as a counterpart or evolution to an older iteration created for use on a PC. Its rise neatly coincideswith mobile’s rise as the default platform for internet use.

ECOMMERCE: BUILDING A PEERTO PEER ECONOMYEcommerce has not taken root in Indonesia yet. The country suffers from the same problems asmany emerging economies: a lack of delivery infrastructure (exacerbated by the fact that thecountry is spread across multiple, often distant, islands), as well as internet users’ unfamiliaritywith online payment methods, worries about security and widespread inability to make onlinepayments at all.

Still, eMarketer estimates that businesstoconsumer ecommerce sales in the country will total $1.79 billionin 2013 and reach $4.49 billion in 2016. Annual growth is hardly eyepopping for such an early stage market.

B2C Ecommerce Sales in Indonesia, 20112016 billions and % change

2011

$4.49

5.6%

B2C ecommerce sales % change

Note: includes travel, digital downloads and event tickets purchased via any digital channel (including online,mobile and tablet); excludes gambling; converted at the exchange rate of US$1=IDR9,364.91 Source: eMarketer,Jan 2013


eMarketer projects that there will be 4.6 million digital buyers in Indonesia by the end of 2013 and 8.7 millionby 2016, a figure equal to only 10.6% of internet users.

Digital Buyers in Indonesia, 20112016

Digital buyers (millions) —% change —% of internet users —% of population

$3.56

$2.60

$1.79

15.4%

$1.04

$0.56

13.3%

9.8%

7.1%

6.7%

2012

2013

2014

2015

2016

2011

2.0 69.7% 6.0% 1.1%

2012

3.1 54.8% 6.7% 1.7%

2013

4.6 47.5% 8.0% 2.4%

2014

5.9 30.1% 9.0% 3.1%

2015

7.4 24.8% 10.0% 3.8%

2016

8.7 17.4% 10.6% 4.4% Note: ages 14+; internet users who have made at least one purchase via any digitalchannel within the past year, including online, mobile and tablet purchases Source: eMarketer, Jan 2013



A poll conducted in July 2012 by Asosiasi Penyelenggara Jasa Internet Indonesia (APJII), an association ofinternet service providers, cited a fear of fraud as the top concern internet users had about making apurchase online. But respondents also expressed trepidation about the inability to see and touch onlineproducts firsthand in order to gauge their quality and to make sure they were getting what they paid for. Highprices also concerned shoppers, an indication that ecommerce has not yet developed to the point whereconsumers see it as a valuable tool for price comparison shopping.

Reasons that Internet Users in Indonesia Do Not Buy Online, July 2012 % of respondents

Fear of fraud

34.6%

Items cannot be seen directly

21.5%

High prices

13.8%

Not interested/not needed

12.7%

Quality of items not guaranteed

9.3%

Don't know how 6.0%

Not practical

5.2%

Items don't match the offer

4.7%

Items are not in accordance to anyone's liking

4.1%

Items don't match the picture

4.0%

Process is long 2.4%

Source: Asosiasi Penyelenggara Jasa Internet Indonesia (APJII), "Indonesia Internet Profiles 2012," Dec 12, 2012


Hesitant to embrace a more traditional ecommerce model, online shoppers in Indonesia have insteaddeveloped a peertopeer model aided by the popularity of both mobile devices and social networks, whicheffectively serve as marketplaces for consumers seeking to sell goods to other consumers. April 2012 datafrom online payment processor Veritrans and tech media and research blog DailySocial found thatFacebook was the most popular site for ecommerce, used by half of buyers making an online purchase inIndonesia.

Ecommerce Sites Used to Make an Online Purchase by Online Buyers in Indonesia, April 2012 % of respondents

Facebook

50.0%

Kaskus

49.2%

Disdus*

19.5%

Tokobagus

13.6%

Dealkeren*

11.9%

Amazon

8.9%

eBay

8.5%

Bhinneka

5.5%

Multiply

4.7%

Blibli.com

4.7%

Tokopedia

3.8%

Other

22.5%

Note: ages 15+; *numbers may be inflated for these group buying sites as Disdus assisted with survey distributionSource: veritrans and DailySocial, "eCommerce in Indonesia," Aug 16, 2012


While sites founded in Indonesia figure prominently on the list, many of them are now foreignowned.Groupon acquired groupbuying site Disdus, and LivingSocial absorbed DealKeren and rebranded it asLivingSocial Indonesia. DailySocial and Veritrans also noted that the response rates for groupbuying sitesmight be inflated because they distributed their survey through Disdus’ mailing list.

The homegrown Kaskus, used by 49.2% of online buyers in Indonesia according to Veritrans andDailySocial’s study, operates a popular peertopeer marketplace known as Forum Jual Beli, or FJB, whichsimply translates to “buying and selling forum.” Rahmat Harlyadie, vice president of marketing forDailySocial, said that estimates for the daily volume of transactions on Kaskus were around $54,000. Butsellers use any number of networks to alert prospective customers that they have goods available forpurchase, including Facebook, BBM and WhatsApp groups and Twitter. Inventory can include just aboutanything— from a car to a pair of shoes. Buyers and sellers connect via SMS or phone call to negotiateprices, and payments often take place offline through bank transfers.

INDONESIA ONLINE: A DIGITAL ECONOMY EMERGES, FUELED BY CHEAP MOBILE HANDSETS ©2013

EMARKETER INC. ALL RIGHTS RESERVED 11

The April 2012 study conducted by Veritrans and DailySocial showed that 70% of online buyers surveyedused bank transfers, making it the most popular payment system. That method was followed by aproprietary electronic payment system provided by the bank Klik BCA (41%), credit cards (30%), cash ondelivery (24%) and a payment service provided by Bank Mandiri (15%).

Payment Methods Used for Online Purchases According to Online Buyers in Indonesia, April 2012 % ofrespondents

Bank transfer* 70%

Klik BCA** 41%

Credit card 30%

CoD 24%

15% Mandiri internet** Note: ages 15+; *includes ATM payments, cashier payments or transfer offunds electronically to a specified bank account; **transfer of money using the bank's proprietary electronicpayment network Source: veritrans and DailySocial, "eCommerce in Indonesia," Aug 16, 2012


Clearly customers still feel uneasy about making payments online, instead preferring to use bank transfersand other methods to complete their purchases. “As a customer, even if I don’t know you, I’m morecomfortable sending you money through transfer than I am using a payment gateway to pay for something,”said XM Gravity’s Ivens. But he sees that practice changing in the near future as various players compete toprovide new shoppers with online payment services. “There are a lot of local companies in Indonesia that arestarting up payment gateways. It’s gaining trust and traction in terms of usage,” he noted.

Those efforts to develop online and mobile payment methods are also taking place among foreign firms, withBlackBerry’s new BBM Money payment system serving as an example of this trend.

ADVERTISINGAdvertising spending in Indonesia still remains wedded to traditional forms of mass media.Television, especially, commands a large share of advertising budgets, but digital spending isbeginning to ramp up as media buyers adjust to the online world.

A December 2012 study by GroupM projected that TV ad spending would total $1.6 billion in 2013, withnewspapers commanding the secondhighest ad budget ($501 million). At $147 million, internet ad spendingwas expected to exceed magazines, outdoor, radio and cinema advertising.

Ad Spending in Indonesia, by Media, 20112013 millions and % change

2011 2012 2013

TV $1,172 $1,413 % change 22.0% 20.5% Newspapers $411 $462 % change 21.2% 12.5% Internet $47 $97 % change 200.0% 105.0% Magazines $77 $84 % change 6.6% 8.4% Outdoor $61 $68 % change 10.0% 11.4% Radio $54 $59 % change 7.5% 9.1% Cinema $9 $9 % change 5.0% 10.7% Total $1,832 $2,192 % change 21.9% 19.7%

$1,628 15.2% $501 8.5% $147 51.5% $90 7.8% $78 14.8% $65 9.6% $11 12.5% $2,520 14.9% Note: numbersmay not add up to total due to rounding; converted at an exchange rate of US$1=9,631 Indonesian rupiahs Source:

GroupM, "This Year, Next Year: December 2012," Dec 17, 2012


eMarketer estimates that total ad spending growth will jump from 12% in 2013 to 15% in 2014—and thenslow to 9% by 2016. Total ad spending will reach $7 billion this year and climb to $9.6 billion in 2016.


Comparative Estimates: Total Media Ad Spending in Indonesia, 20112016

Total ad spending (millions) PPPI, Jan 2013 (1) PwC, June 2012 (2) ZenithOptimedia, June 2012 (3) eMarketer,Dec 2012 (4) GroupM, Dec 2012 (5) SPS, Jan 2012 (4) Total ad spending growth (% change) ZenithOptimedia,June 2012 PPPI, Jan 2013 GroupM, Dec 2012 eMarketer, Dec 2012 MAGNAGLOBAL, June 2012 Media PartnersAsia, April 2012 SPS, Jan 2013 Nielsen, April 2012

2016

$13.2 $9.6

9.0% Note: (1) converted at the exchange rate of US$1=IDR9,364.91; (2) converted at the exchange rateof US$1=IDR8,779.0; (3) converted at the exchange rate of US$1=IDR8,770.40; (4) converted at the exchange rate

of US$1=IDR8,767.81; (5) converted at the exchange rate of US$1=IDR9,631.0 Source: eMarketer, Dec 2012;various, as noted, 2012 & 2013


Digital ad spending, unlike overall ad spending, will see significantly higher growth rates over the next twoyears as advertisers move to establish themselves online for the first time. eMarketer projects that digital adspending will hit $231.8 million in 2013 and grow to $1.2 billion by 2016.

Comparative Estimates: Digital Ad Spending in Indonesia, 20112016

Digital ad spending (millions)

eMarketer, Dec 2012 (1) GroupM, Dec 2012 (2) (3) PwC, June 2012 (4) ZenithOptimedia, June 2012 (3) (5) SPS,Jan 2012 (6) BCG, March 2012 Digital ad spending growth (% change)

eMarketer, Dec 2012 GroupM, Dec 2012 (3) PwC, June 2012

2011

2012

2013

2014

2015

$9.8

$12.1

$7.1

$8.3

$9.7

$10.9

$12.0 $5.3

$6.3

$7.5

$9.3

$5.5

$6.2

$7.0

$8.0

$8.8 $1.8

$2.2

$2.5

$9.1

$10.5

18.9%

19.6%

19.1%

22.6%

18.0%

21.9%

19.7%

14.9%

10.0%

13.0%

12.0%

15.0%

10.0%

16.8%

15.0%

14.7%

25.2%

2011

$88.0

$47.0 $4.0 $1.0

50.0% 200.0% 0.0%

2012

$136.4

$97.0 $5.0 $2.0

$114.1

55.0% 105.0% 25.0%

2013

$231.8

$147.0 $5.0 $2.0

70.0% 51.5% 0.0%

2014

$405.7

$6.0 $2.0

75.0%

20.0%

2015

$697.8

$7.0 $2.0

72.0%

16.7%

2016

$1,158.3

$9.0

$200.0

66.0%

28.6% Note: (1) converted at the exchange rate of US$1=IDR9,614.14; (2) converted at the exchange rate ofUS$1=IDR9,631.0; (3) excludes mobile; (4) converted at the exchange rate of US$1=IDR8,779.0; (5) converted at

the exchange rate of US$1=IDR8,770.40; (6) converted at the exchange rate of US$1=IDR8,767.81 Source:eMarketer, Dec 2012; various, as noted, 2012


Many global research firms have difficulty measuring ad spending—especially in emerging markets—withouta local office in the country or region. For example, PricewaterhouseCoopers relies heavily on figures from

the Interactive Advertising Bureau, which doesn’t have an office in Indonesia. eMarketer believes that suchfirms underestimate ad spending by accounting only for the local advertising market and failing to take intoaccount overseas marketers who spend more heavily than local players do. The local sources thateMarketer uses, such as Serikat Perusahaan Pers (SPS), tally the spending of both domestic andinternational advertisers.


EMARKETER INTERVIEWSMarketing in Indonesia: Nation Enamored by Social Networks Reaches Internet via Mobile

Tuhu Nugraha COO

Pingfans

Interview conducted on January 31, 2013

Debnath Guharoy Regional Director, Asia Roy Morgan Research

Interview conducted on February 8, 2013

Pandu Truhandito CoFounder

GrowMint

Interview conducted on February 2, 2013

Nanda Ivens COO

XM Gravity


Rahmat Harlyadie Vice President, Marketing DailySocial


RELATED LINKSAsosiasi Penyelenggara Jasa Internet Indonesia (APJII)

BlackBerry

Boston Consulting Group (BCG)

Broadcasting Board of Governors (BBG)

Canalys

comScore

Credit Suisse

DailySocial

Disdus

Facebook

Frost & Sullivan

Gallup

Google Indonesia

GroupM

GrowMint

Ipsos

Indosat

International Data Corporation (IDC)

International Telecommunication Union (ITU)

Jefferies

Kaskus

LivingSocial Indonesia

MAGNAGLOBAL

MarkPlus Insight

McKinsey & Company

Media Partners Asia

Ministry of Communications and Information Technology

Nielsen Indonesia

Path

Persatuan Perusahaan Periklanan Indonesia (PPPI)

PricewaterhouseCoopers

Roy Morgan Research

Serikat Perusahaan Pers (SPS)

Socialbakers.com

Telkomsel


TNS Global

Twitter

Veritrans Indonesia

XL Axiata

XM Gravity

Yahoo!

ZenithOptimedia

EDITORIAL AND PRODUCTION CONTRIBUTORSCliff Annicelli Senior Editor Kaitlin Carlin Copy Editor Joanne DiCamillo Senior Production Artist StephanieGehrsitz Senior Production Artist Dana Hill Director of Production Nicole Perrin Associate Editorial DirectorAllie Smith Director of Charts

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