Thomas White Global Investing
Indonesia
Indonesia Stamp
May 6, 2011
A Postcard from Asia Pacific
Indonesia: The new buddy on your Facebook page

Conservative Indonesia is making a mark in the social networking space

Indonesia has sprung a surprise as the second-largest market for Facebook and the third-largest user-base for Twitter

Indonesia, it seems, never ceases to surprise. Over the last decade or so, the South-East Asian archipelago’s remarkable transition from the clutches of dictatorship to a thriving democracy has been the stuff that legends are made of. Now, it turns out that the most populous Muslim country in the world is also Facebook’s second-biggest market and Twitter’s third-largest user base.

The Facebook page created by young cyber-activists in Egypt provided the fodder for the popular uprising that followed. Their counterparts in Indonesia have now demonstrated that they are on the same page by accomplishing a revolution of sorts in the social-networking space. Comparisons apart, another eye-popping statistic from the largely conservative nation has drawn the attention of young tech entrepreneurs. Status update: less than 20% of Indonesians are hooked to the Internet.

Many foreign firms such as Yahoo! have taken a cue from the stupendous growth to some 30 million Facebook users in the country, to dip their toes into this lucrative market. Last year, the Internet giant acquired Koprol, a social network based in Indonesia. Demographics also back the aggressive expansion plans of these networking companies: about 45% of the country’s population of 240 million is under 25.

So what makes Indonesians spend their spare time online? The booming resource-rich economy is slated to grow at the rate of 6.4% this year. Despite occasional bouts of religious intolerance and sectarian violence, the country is officially secular where different ethnic groups co-exist peacefully. The perception that the U.S. sees Indonesia as a counter-balance to the growing influence of China in the region also boosts the morale of the country’s citizens. Apart from the favorable economic and political situation, Internet usage in the country has also benefited from increasing competition among the country’s three major telecoms companies, which pushed down rates to practical, affordable levels.

Notably, the country’s netizens prefer to stay connected with each other through cheap Chinese-made handsets that flood the local markets, rather than via personal computers. Indonesians who roam the cyber world also proved that there is much more to social networking than sending messages and having fun, when they tweeted to organize timely relief for victims of tsunami and volcanic eruptions, which ravaged the nation in October 2010.

The challenge for these companies trying to gain a toehold in the untapped Indonesian market is how to make money out of the country’s zooming Internet traffic. Google and Facebook may generate online revenues in the U.S. and Europe via clickthroughs from display advertising. However, the ground situation in Indonesia is entirely different; users having credit cards and bank accounts are few and far between, which makes it hard for them to purchase something online. Mig33, which has a mobile social-networking application, is probably the only firm operating in Indonesia that is close to making profits. The company’s modus operandi is somewhat unique however. The firm has arrangements with merchants in some 150 countries, including its largest market Indonesia, to sell “credits” to its prospective users for hard cash. The Internet users can make use of these “credits” to play online games, or buy goods on the Internet without a credit card or bank account. Social networking firms such as Mig33 make a commission for each business transaction carried out online from these merchants who display their wares on their platforms. Mig33, which was founded in 2005, has succeeded in raising $34 million in funding so far.

Like Indonesia’s rapid transformation from a sleepy Asian backwater to its membership in the exclusive G-20 group of nations, Facebook too has come a long way from its humble origins in a Harvard University dormitory in 2004. Together with its planned IPO next year, the firm’s growing earnings, which some estimates place above $2 billion in 2011, have attracted investors worldwide, ranging from Goldman Sachs Group to companies based in Russia, not to mention other venture capital firms and high net worth individuals. For the world’s premier Internet social network with more than 500 million users, together with many of its counterparts such as Twitter, Indonesia may yet prove to be the launch pad to spread out to other social-networking markets in the booming Asian region.

 

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