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As millions come online each year, rural Indonesia is in for monumental changes

Written by Khamila Mulia Published on     6 mins read

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Services built for urbanites may not fit the needs of people living in smaller cities, so new hyperlocal services are being created.

Jakarta is a city of juxtapositions. Alongside its many mosques is a vibrant nightlife, although many neighborhoods shut down after dark too. Just a little over half a decade ago, if you felt like having a late-night snack, options were limited—get creative in your own kitchen or wait until daybreak. But things have changed. Now, you can get a meal delivered to your door at nearly any hour with just a few taps on your phone. Smartphones and steady internet connections have fundamentally changed our expectations and how we spend our money. Urbanites, in particular, are spoiled with convenience.

A similar transformation is now taking place in less dense areas of the country. With the pandemic dragging on and a continued buildout of new infrastructure, this development is only gaining speed in emerging economies. Around 40 million people in six countries across Southeast Asia—Singapore, Malaysia, Indonesia, the Philippines, Vietnam, and Thailand—came online for the first time in 2020, according to a report by Google, Temasek Holdings, and Bain & Company. This is far higher than 2018’s count of 10 million, or the 100 million total between 2015 and 2019. Seven metropolitan areas, including Jakarta, account for more than 50% of the region’s internet economy, but areas outside of major cities have the potential to grow twice as fast, the report’s authors said.

With all of these new developments set in motion, the people of Southeast Asia will be more connected than ever. What exactly are the expectations of cyberspace’s newcomers?

Social media is king

In 2019, Amalia, who works in a government agency, was transferred to Indonesia’s easternmost province, Papua. Born and raised in Jakarta, the move required many adjustments. “The internet connection is fairly stable during the day, but it often drops suddenly at night,” she told KrASIA.

In Q2 2020, the number of internet users in Indonesia reached 196.7 million, or 73.7% of the population. The country saw 25.5 million people go online for the first time between 2019 and 2020, according to a report by the Indonesian internet providers association.

New internet users on Java Island made up 56.4%, followed by Sumatra (22.1%), Sulawesi Island (7%), Kalimantan (6.3%), Bali and Nusa Tenggara (5.2%), and Maluku-Papua (3%), the report said.

As is common in emerging economies, many Indonesians have bypassed personal computers and are accessing the internet chiefly through their smartphones. The primary motivation is to access social media, messaging apps, as well as information and leisure content.

“There are some public hotspots available in urban areas. Many people hang out around the hotspots for free internet. People mostly use the internet for entertainment, such as music streaming, and to access social media platforms. People also started using online learning tools a lot during the pandemic,” said Amalia.

In line with Amalia’s observations, East Ventures’ operating partner David Fernando Audy said that the needs of first-time internet users are certainly different from those of tech-savvy people in metro areas. Typically, they seek access to new information, absorbing text and images through queries on search engines before they join social media networks.

“Once they have enough internet speed to search and share images, they’ll become active users of social media platforms like Facebook or Instagram. They’ll also want to consume audio-visual content from platforms like YouTube. After becoming familiar with using the internet and social media, they will start exploring online commerce, which is a more advanced service,” said Audy.

However, digital service providers tend to design and create products based on the needs of urban communities because they are often first adopters with higher disposable income, and the market is much denser and larger. For instance, it is easy to look up information about restaurants in Jakarta, and there are often numerous event listings, which are all searchable on food delivery or event ticketing apps. Leave the metro area, though, and that is no longer the case.

“We have Gojek and Grab here, but they are not as ubiquitous as in Jakarta,” Amalia said. “To get the latest information, we usually follow local community accounts like Info Jayapura on Facebook and Instagram—these are two must-have apps here.”

Beyond the larger cities, even though people are no longer strangers to online shopping, they still prefer to use Facebook rather than Tokopedia or Shopee. “Based on my experience and observations, people like to buy goods online through Facebook’s Marketplace because they have plenty of local selections, and it is easier to contact sellers there,” Amelia added. Broadly, social media is the first gateway for micro, small, and medium enterprises (MSMEs) when they take their business online. They start with Facebook and WhatsApp and may eventually transition to e-commerce platforms to extend their market reach.

Read this: Bukalapak adapts beyond metro areas to face off with Tokopedia and Shopee ahead of IDX listing

Specific services for new internet users

The most competitive arena—one that barely exists in urban cities—will be hyperlocal services built for lower-tier cities. This will likely manifest in group-buying and social commerce, where community networks move people’s spending habits online, often with locals who act as group leaders or representatives. The human touch in these arrangements dissolves some hesitancy that some people may have about making online transactions.

Investors are already cutting checks for hyperlocal service providers in anticipation of hockey-stick business growth. Social commerce provider Super recently raised USD 28 million in a Series B round led by SoftBank, and KitaBeli snagged USD 10 million from AC Ventures and East Ventures in April. Both platforms sell fast-moving consumer goods in areas outside of Indonesia’s major cities and often serve people who have never shopped online before. Elsewhere in the region, social commerce is still a new sector, with a few platforms emerging in recent years, like Webuy in Singapore and Mio in Vietnam, which raised seed funding in May.

Aside from the vast consumer appetite, the digitization of small businesses will also reshape Indonesia’s commercial landscape. Through its digital competitiveness report, East Ventures projects that all regions of the country will be connected to the internet next year, and 18.4 million MSMEs will go digital by the end of 2022.

A handful of startups are already making that happen. Bookkeeping startups such as BukuWarung and BukuKas are also on the rise. They have raised huge investments recently, and both claim to have digitized millions of MSMEs in smaller cities across the country. Meanwhile, Mitra Tokopedia, Mitra Bukalapak, GrabKios by Kudo, Warung Pintar, and Ula have developed platforms for store owners to digitally manage their inventories and orders. So far, many of these services are limited to Java, but East Ventures’ Audy believes their footprint may spread as MSMEs are handed down to younger people who are mobile-first.

“Small businesses like neighborhood kiosks and eateries are usually owned by families, and now there has been a regeneration where millennials manage these kiosks, and they are more open to using digital services,” said Audy. “More MSMEs are willing to sell online, but they often face difficulties in managing several online shops at the same time, especially since most micro and small businesses don’t have employees. Therefore, there will be more demand for e-commerce enablers. For example, there is Sirclo, which allows small business owners to conveniently open and manage multiple online shops.”

Rural technology matters

The consequences of the rapid acceleration of digital transformations during the pandemic are manifold—better access to education and even stronger engagement in broader society beyond their immediate environs. Yet, while this population now has access to new pathways for information exchange, they still need higher internet speeds, stable connections, and localized services.

In a speech given last year, Indonesian President Joko Widodo said the pandemic is a catalyst for rural economic transformation. He promised the government would provide more access to technology, capital, and capacity building. One public effort is the construction of a fiber optic cable network, the Palapa Ring, especially in eastern Indonesia.

The pandemic has forced businesses and public organizations to let their employees work from home. The many productivity and collaboration tools that are available, coupled with fast internet speeds, make this possible. Many people who lived and worked in urban areas returned to their hometowns to save on rent and living expenses. If this arrangement continues after the pandemic, urbanization may slow, and people living in smaller towns will be able to work remotely for businesses anywhere in the country. This opens up new opportunities for people in tier-2 and tier-3 cities and may even change how offices and corporate headquarters will operate in the near future.

Read this: The race to digitize neighborhood stores in India and Indonesia

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