Despite a challenging economic environment, Southeast Asia’s Internet sectors continue to see strong growth, hitting US$100bn in 2020, and are on track to cross US$300bn by 2025, according to a new report by Google, Temasek and Bain & Company.

The fifth edition of the e-Conomy SEA Report highlighted a major shift in the verticals contributing to the region’s digital economy. E-commerce has emerged as the largest vertical, growing 63% to reach US$62bn in 2020, and is expected to continue its growth trajectory, reaching US$172bn by 2025. On the other hand, and not surprisingly, travel was the most affected segment, contracting 58% to US$14bn.

The study reported that 40 million people in the region came online for the first time this year, bringing the total number of Internet users to 400 million. In addition, more than one in three digital service consumers started using a new online service due to COVID-19 and, of these, 94% intend to continue using the service beyond the pandemic. A large number of the new digital consumers are from non-metropolitan areas, specifically in Malaysia, Indonesia and the Philippines.

Other key insights from this year’s report:

1) Resilience in times of crisis

Southeast Asia’s digital economy remains strong and resilient despite the headwinds. The adoption and usage of e-commerce, food delivery, and online media have surged. Digital financial services are set for a tailwind in the long run as consumers and small- and medium-sized enterprises (SMEs) have become more receptive to online transactions.

Owing to the surge in digital adoption by customers and businesses, digital payments continue to see growth from US$600bn in 2019 to US$620bn in 2020, and is expected to reach US$1.2 trillion by 2025.

Online media has grown 22% to US$17bn in 2020. This was boosted by a surge in search interest in video-streaming providers, with an 18 times spike in Thailand and a 12 times spike in Vietnam.

2) Online travel and transport will take time to recover

The hardest-hit sector in the region is online travel. There are, however, signs of recovery in domestic tourism, particularly among hotels and holiday rentals within driving distance from major metropolitan areas. Online travel is expected to bounce back to US$60bn by 2025.

Similarly, while lockdowns and restrictions have eased in several countries in SEA, the continued work-from-home arrangements and reduced confidence in shared transportation will likely see muted resurgence through the first half of 2021. The transport and food sector is expected to bounce back to US$42bn in gross merchandise value by 2025.

3) New frontiers in the Internet economy of Southeast Asia

The pandemic has brought about the growth in adoption of nascent sectors such as HealthTech and EdTech. Leading digital health apps were used four times more than before the pandemic, while leading education apps were used three times more. This has prompted growing investment in the HealthTech and EdTech sectors.

4) Ecosystem challenges are being resolved

Southeast Asia continues to make progress in overcoming the initial challenges of the Internet economy by making Internet access more affordable and strengthening consumers’ trust in digital services.

The average number of cash transactions declined from 48% pre-COVID-19 to 37% post-COVID-19, while the exponential spike in e-commerce prompted numerous logistical improvements across the region. However, talent constraints remain a pressing concern as companies look for skilled workers who are critical enablers to a fast-growing digital economy.

Sourced from Google, Temasek and Bain & Company