SINGAPORE: One of the fastest-growing economic areas in the world with high internet penetration, Southeast Asia’s internet economy will reach $50bn in 2017 and has the potential to exceed $200bn by 2025, according to a new study.

The e-Conomy SEA Spotlight 2017 report, by Google and Singapore’s sovereign wealth fund Temasek, found that the region’s digital economy is growing at a CAGR of 27%, an increase on the figure revealed by the same partnership in May 2016 which projected a 20% CAGR over ten years.

Based on “proprietary Google data, Temasek research, expert interviews, and secondary data sources”, the report covers four key sectors: travel, media, ride hailing, and e-commerce.

The key driver of the region’s internet potential is the widespread use of mobile internet. “Users in Southeast Asia are incredibly engaged, spending an average of 3.6 hours per day on mobile internet, more than in any other region in the world”, the report said. Such engagement constitutes a serious market opportunity.

Mobile internet is significantly more important to Southeast Asia than it is to other markets. In Thailand, world leader in mobile engagement, the average user spends 4.2 hours a day on their phone. This compares to the developed markets of the US and internet-friendly Japan, where users in spend an average of two and one hours per day, respectively, on mobile.

In addition, e-commerce is set to be particularly fruitful, despite continuing last-mile logistics issues and market fragmentation. The report estimates that “e-commerce sales of first-hand goods will reach $10.9bn in gross merchandise value … in 2017, up from $5.5bn in 2015, growing at 41% CAGR”.

The trend is fuelled by the surge of marketplaces such as Lazada and Tokopedia which enable small businesses to sell to consumers on mobile-first platforms.

Meanwhile, online media reached $6.9 bn this year, “driven by online ads and gaming,” the report stated.

However, the report added that serious investment is required to sustain this growth. In comments reported by Tech in Asia, Rohit Sipahimalani, head of Temasek’s India operation, noted the $13bn that has been invested into the region’s startups.

Despite $9bn going to seven unicorns – startups valued at over $1bn, including Go-Jek, Grab, Lazada, Razer, Sea, Traveloka, and Tokopedia – investment is spreading.

“What’s interesting though is that more money has gone to smaller companies, so clearly we are seeing an acceleration across the whole ecosystem,” Sipahimalani added.

Sourced from Google/Temasek, Tech in Asia; additional content by WARC staff