On the internet,Asia punches below its weight
Asia has close to 50 per cent of the worlds internet users,some of the fastest broadband speeds globally and the most rapid growth in mobile broadband of any region worldwide. Yet,where are the Asian internet giants that should be competing in the global arena with the likes of Amazon,eBay,Twitter and Facebook?
The Economist Intelligence Unit has tried to find the answer to this question by interviewing local internet content providers and platforms across the region. Do Asias internet businesses want to build up their presence in Western markets,or are they focused on dominating within Asia? What do they see as their highest potential path for growth? What is holding them back? The findings are published in a white paper released this week.
It is difficult to generalise across a region as vast as Asia. Indeed,the research identifies a clear north-south divide in terms of the inclination of consumers to buy goods and services notably content online,as well as the sophistication of companies in monetising their businesses.
Generally,though,we found that Asian internet businesses remain focused on their home markets,either because these markets are potentially huge or because they feel they need to build scale before venturing abroad. Owing to the sheer size and market opportunity available in India and China,there is little incentive for home-grown entrepreneurs from these countries to look outside. For example,Hari Nair,the CEO of Indian online travel startup HolidayIQ,points out that there are 500 million leisure-related domestic trips made in the country each year. This makes developing an internationally focused service targeting foreign holidaymakers (of which India received only about 6.6 million last year) seem far less exciting. Others with overseas ambitions tend to remain regionally focused,believing Western markets to be too competitive and difficult to navigate.
The issue certainly isnt a lack of demand for Asian content and platforms. The most obvious example is Gangnam Style,the Korean rap song that became a worldwide sensation and garnered an unprecedented 1.5 billion YouTube views. But those Asian internet companies that have built an international business have done so almost by accident theyve launched a product in the home market and it has been discovered by users overseas through viral traffic or rankings on app stores. Line,a messaging service,was created for the Japanese market by a Korean company. But it found unexpected demand from the Middle East and South America and has since launched a major international expansion strategy. StepOut.com,an India-based dating site,started out as a venture called Ignighter.com in New York,run by two Americans. The take-up in the US was slow but the site began attracting droves of customers in India,where there were many matrimonial sites but few focused on dating. StepOut.com has since shifted its operations to Mumbai. Now,10 per cent of its customers are in Southeast Asia.
What hinders these businesses from growing larger? The number-one answer across most of the region is the payments infrastructure. There are several challenges credit card penetration is low,there is limited ability to use debit cards online and there is a general reluctance to conduct transactions online. In some markets,such as India,some businesses continue to rely on offline channels for revenue collection,such as through ATM machines or convenience stores,or even in-person collection of payments.
In many markets,the payments situation compounds the more general difficulties of monetisation. Online advertising budgets while growing remain small and skewed towards the larger players. While e-commerce is growing rapidly,finding the winning business model remains difficult in many markets. Outside of north Asia,entrepreneurs report that internet users are reluctant to pay for intangible items such as content. This is particularly so when there is pirated content easily available. Some larger foreign players,such as music-streaming service Spotify,are convinced that consumers will pay if more content is made available at a reasonable cost. They have recently launched their services in some of the most piracy-prone markets in the region.
Regulation of internet business is also proving a challenge. It is on the rise in many countries and governments are focusing more on control than enablement,failing to understand the negative impact on the sector. In some markets,such as Vietnam,regulation is mostly undeveloped,which can be seen as a blessing since it allows companies to move quickly and freely. In others,such as South Korea and Taiwan,there are stricter regulations,which operators say hamper their businesses. In South Korea,for example,online games companies are expected to block access to under 16s between midnight and 6 am,while the government has simultaneously introduced a law prohibiting online sites from collecting personal data,which leaves gaming sites with no way to verify the age of their users. In India and Thailand,poorly worded and confusingly interpreted laws on liability for carrying illegal or even merely controversial content cause a great deal of uncertainty for businesses as well as high administrative costs.
One ironic upside to the surge in regulation is that it is encouraging companies in the industry to become more collaborative,if only in the name of protecting their interests. In many countries,internet entrepreneurs who would normally be suspicious of each other,are banding together to push the industrys agenda.
The writer is Asia director,industry and management research,The Economist Intelligence Unit Good to grow? The environment for Asias internet businesses,is an Economist Intelligence Unit report sponsored by the Asia Internet Coalition. It is available free of charge at http://www.managementthinking.eiu.com/good-grow.html