Shopee now has undeniable proof that TikTok’s e-commerce push in Southeast Asia is a force to reckon with, thanks to eye-opening data from research firm Momentum Works.
In a report released this month, Momentum Works found that TikTok Shop’s annual gross merchandise value (GMV) nearly quadrupled from USD 4.4 billion in 2022 to USD 16.3 billion in 2023. This net growth of USD 11.9 billion surpasses the USD 7.2 billion GMV gain by Shopee in Southeast Asia during the same period.
The latest results indicate that TikTok Shop is on the verge of overtaking Lazada for second place, potentially having already done so when factoring in TikTok’s majority stake in Indonesian e-commerce player Tokopedia. In 2023, after encountering regulatory troubles, TikTok acquired approximately 75% of Tokopedia, subsequently merging it with its Indonesian operations under the unified brand ShopTokopedia.
TikTok Shop: The unforeseen disruptor of the Shopee-Lazada duopoly
TikTok Shop’s results signal an inflection point as, for the first time in a long while, conversations about e-commerce in Southeast Asia are not confined to the duopoly of Shopee and Lazada, which has dominated the industry in the region for the past decade.
After Shopee began showing signs of overtaking Lazada as the market leader in 2019, it leveraged the exponential growth of online shopping spurred by the pandemic to consolidate its lead. By 2020, Shopee had become the most visited e-commerce platform in Southeast Asia, attracting approximately 281.3 million visits, more than double Lazada’s 137.1 million, according to an iPrice report based on Similarweb data.
In addition, a survey by AppsFlyer for iPrice revealed a significant rise in the uninstallation rate of organically downloaded shopping apps on Android devices between Q1 and Q2 2020 across Singapore, Malaysia, Indonesia, Thailand, and Vietnam. This statistic, viewed alongside Shopee’s outperformance of Lazada across various metrics, suggested that consumers were solidifying their e-commerce preferences, with Shopee firmly in the lead.
These insights led analysts and observers to believe that Shopee would secure its crown and stabilize the competitive landscape of Southeast Asian e-commerce. This confidence was mirrored in the stock market. Sea, Shopee’s parent company, which listed in 2017, started 2020 with a stock price of USD 41. By the time Shopee’s market leadership numbers were released, Sea’s stock price had tripled to over USD 120 and peaked in October 2021 at around USD 370, nine times its early 2020 price.
Numerous case studies have illustrated how Sea’s aggressive growth strategies led to severe cost-cutting measures once the extent of its cash burn became evident. What was less discussed at that time was the idea of a new entrant shaking up the industry. While it was well known that Shopee struggled with profitability due to high marketing and growth costs, discussions often revolved around when it would become profitable or which existing competitors—primarily Lazada, and to a lesser extent, more localized players like Tokopedia and Bukalapak—would overtake it. Few anticipated that TikTok, mainly seen as a social media platform, would become that disruptor.
Content and live commerce: TikTok Shop’s moat?
TikTok officially delved into live streaming in 2019, inspired by the success of Taobao, an e-commerce platform run by Chinese internet giant Alibaba that pioneered live commerce with the launch of Taobao Live in May 2016. With exposure to the Chinese market, Douyin, TikTok’s sister company under ByteDance, gave TikTok an advantage in introducing live commerce to Southeast Asia and beyond.
This initiative gained momentum after TikTok appointed Shou Zi Chew as CEO in May 2021, just two months after he was hired to be its CFO. Under Chew, TikTok saw live commerce as a way to monetize its massive user base, speeding up the rollout of in-app shopping features to let users make purchases through the platform. Over the next two years, it advanced this strategy by introducing TikTok Shop, integrating it into TikTok to allow users to sell products directly, supported by discovery and curation features and seller support initiatives.
Structuring TikTok Shop as an extension of its highly popular platform rather than a separate e-commerce entity proved advantageous in two ways. First, it avoided the need to develop the business from scratch, leveraging TikTok’s existing user base of over a billion users, with a significant portion from Southeast Asia. Second, it made the integration of content and commerce seamless, allowing the platform to seed buyer intent through short videos and live streams before directing users to TikTok Shop to complete purchases.
TikTok Shop also embraces an omnichannel approach, allowing redirection of users to other platforms or websites to complete purchases, or even offline and pop-up stores. This contrasts with Shopee and Lazada, which prefer to keep users on their platforms. This stems partly from their digital wallet strategies—ShopeePay and Lazada Wallet—that offer usage incentives while leveraging unspent deposits for financial activities and reducing fees paid to third-party payment service providers.
TikTok’s openness to omnichannel sales could be a critical factor in its rapid growth. For one, it acknowledges the uneven penetration rate for digital payments in the region and caters to consumers who still prefer to interact physically with products they discover online before making a purchase.
The industry’s response thus far is a clear validation of TikTok Shop’s impact. Shopee and Lazada have ventured into live commerce with Shopee Live and LazLive, respectively, aiming to counter TikTok Shop’s advantage. Both have committed significant sums toward vouchers, discounts, and support programs to encourage seller adoption.
Shopee, Lazada, and TikTok are now in a race for the attention of Southeast Asian consumers, with live commerce rapidly growing in the region. Milieu Insight forecasts that, from 2020–2027, around 48% of Southeast Asian consumers will watch live streams at least once a week. Meanwhile, Momentum Works estimates current live commerce penetration at around 30%, highlighting significant room for further growth.
Having solidified its market leadership, Shopee has been implementing drastic cost-cutting measures to help Sea chase profitability, initiating layoffs and transitioning toward in-house logistics fulfillment. However, Shopee ramped up marketing spending again in early 2023, seemingly to counter TikTok Shop’s advances. While this investment helped Shopee defend its market share, it could not withhold TikTok Shop’s momentum, which more than tripled its share from 4.4% to 14.2%. This figure also does not account for Tokopedia’s GMV despite its merger with TikTok’s Indonesia business.
Don’t just be good, be different and add value
TikTok Shop’s emergence signals a new phase of competition centered on differentiation rather than just fundamentals, contrasting from the rivalry between Shopee and Lazada. Shopee initially won over consumers by addressing several key considerations: Did enough consumers know about its platform? Did they trust the products from its sellers and brands? And did they feel confident in Shopee’s ability to deliver products reliably?
Shopee’s rise to the top was also aided by strategic execution and a bit of luck. Despite starting later than Lazada, Shopee caught up by being shrewd while Lazada grew sluggish from grappling with internal strife, caused by a cultural mismatch between its Chinese and regional executives after Alibaba’s acquisition. For example, to enhance the perceived authenticity and reliability of goods, Shopee launched Shopee Mall in 2017 as a portal dedicated to featuring products from endorsed brands and retailers. Lazada needed an extra year to follow suit with LazMall in 2018.
Shopee also, ironically, borrowed tactics from Lazada’s playbook, such as addressing delivery issues with subsidies. LatePost noted this was an old Lazada tactic that got suspended after Alibaba’s takeover. To tackle expensive deliveries, Shopee offered subsidies while partnering with localized service providers like JNE and J&T Express. This substantial investment paid off. The growth spurred by these subsidies expanded delivery networks, improving speed and lowering long-term costs through economies of scale.
Today, with widespread e-commerce adoption, concerns about platform and seller trustworthiness have diminished, and robust delivery networks ensure timely fulfillment. Consolidation in Southeast Asia’s e-commerce industry is thus likely to hinge on adding value beyond the basics.
Shopee, recognizing it has secured half of the regional market, seems to understand that further advances might be hard to achieve or too costly. Instead, it is focusing on building new growth engines adjacent to e-commerce, such as SeaMoney, which offers financing options for consumers and sellers along with other digital financial services.
Lazada, aligning with Alibaba’s digital transformation, is refining its user experience by integrating new technologies like generative artificial intelligence. Among its latest initiatives is LazzieChat, an AI-powered chatbot built on ChatGPT, designed to handle shopping inquiries in a conversational and personalized manner. Pressure to succeed is ramping up for Lazada, with Alibaba having injected massive sums of capital to sustain the business over the past few years and TikTok Shop on the cusp of overtaking.
TikTok Shop’s immediate focus is on solidifying its advantage in Indonesia, Southeast Asia’s largest market, where Tokopedia holds a major presence. Following their merger, backend integration was completed by April, with a headcount reduction announced last month. TikTok’s strength in content, particularly short videos and live streams, continues to be a significant advantage, supported by TikTok for Business, a suite of advertising and marketing solutions.
Meanwhile, TikTok is exploring other regional opportunities, piloting local services in Indonesia and Thailand, as reported by 36Kr this month. It remains to be seen whether this new business will synergize with TikTok Shop if it comes to fruition.