Could Indonesia Be an Internet Powerhouse?

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Could Indonesia Be an Internet Powerhouse?

The potential is enormous, but a change in mindset will be needed.

Could Indonesia Be an Internet Powerhouse?
Credit: REUTERS/Edgar Su

Indonesia’s government plans to roughly double the number of people online to 150 million by 2015. If the country’s tech sector can tap into that enormous market, it could dramatically boost the Internet economy. But the government, the private sector, and entrepreneurs will all have to be on board to make it happen.

The world’s fourth largest country by population boasts 70 million Faceboook users and is one of the world’s most active Twitter markets. Indonesia’s middle class is expected to double by 2020, according to The Boston Consulting Group, creating a potentially massive pool of online shoppers and other Internet consumers among the 250 million-strong population. The archipelago last month grabbed worldwide business headlines after Japanese investment firm SoftBank Corp. and Sequoia Capital invested $100 million into leading Indonesia-based e-commerce company PT Tokopedia, providing a glimpse of the possibilities that may lie ahead.

Does all this mean the country will see more $100 million investments like the Tokopedia deal?

“More large investments in the millions of dollars range for Internet-oriented companies are possible within the next few years if the stakeholders want it bad enough to happen,” Aulia Masna, former editor of Daily Social, Indonesia’s leading tech blog, told The Diplomat.

Back in 2010 the country saw much of the same buzz it is seeing now over Tokopedia, although then it was about Yahoo’s acquisition of local social network Koprol. But the hype fizzled out because neither the market nor tech entrepreneurs were ready and the government was not interested. This time, things are better, but it is unclear whether enough has changed, said Masna, who has been quoted in the Wall Street Journal on tech issues.

Some signs are encouraging, however. Telecoms have set up tech incubation centers for startups in recent years. The website hub.id, a database for tech startups and investors, was announced some weeks ago, and will receive some funding from the country’s communications ministry. Telkom Indonesia just set aside $200 million for tech investment through a joint effort with Fenox VC, a Silicon Valley-based venture capital firm.

Thanks to major Internet companies like Rocket Internet, Yahoo and Google, which have hired locally and brought their work cultures to the country, many Indonesians are now willing to venture out on their own, having accumulated enough experience and knowledge to work on their own products. Additionally, as global investments previously earmarked for China are now being redirected to Southeast Asia, Indonesia is in a good position to grab a piece of the pie, although it must compete with other Southeast Asian countries, Masna said.

Moreover, Facebook CEO Mark Zuckerberg last month visited Indonesia in a bid to promote Internet.org, a program to boost Internet connectivity, and the 30-year-old billionaire said expanding Internet access could benefit the nation’s economy. Some have expressed hopes that Zuckerberg’s visit will encourage the government to fast track Internet expansion plans.

Speaking at a joint press conference with President Joko Widodo, the Facebook founder said growing Internet access in Indonesia is one of the best ways to rev up the economy. Widodo added that the two spoke about how to “use Facebook to push the micro-economy.”

But perseverance has always been an issue in Indonesia, and it remains unknown whether tech entrepreneurs will hang in there during the lean times before their businesses blossom.

“Fact of the matter is Indonesians are good at starting something but have a tendency to abandon their projects at the first sign of failure. Few have the willingness to learn from failures or the tenacity to keep going, but if there are enough of these few, then we’re on to something,” Masna said.

“Like in many sectors, Indonesia has always been considered a sleeping tiger but it’s been proven more as a lethargic tiger that hasn’t really bothered to get up,” he said.

Ben Hourigan, a Bangkok-based communications consultant and writer who works regularly for The Economist Group, said there is likely to be another major obstacle: lack of access to computers. While smart phones can be used for basic Internet surfing, emailing and texting, they lack the capacity to store massive amounts of data.

To build a truly world-class technology sector, Indonesia needs to make sure children have access to computers, not just phones and iPads. It also needs to make sure that people are getting educated – particularly in computer science and programming, as well as engineering. If they are not already at this level, it might take a generation to change, he said.

“The poor might bootstrap their way up with keyboard-equipped tablets, (but) in general you can’t code or design or write or edit video at a commercial level without a computer,” Hourigan told The Diplomat. “To reach Silicon Valley levels, you need at least a whole generation of Indonesians who grew up with computers in the home and then went on to get a higher education, or equivalent practical training, in relevant disciplines.”

Moreover, none of Indonesia’s universities rank among the world’s top 50 higher education institutions, many of which have strong technology programs, such as U.S. colleges Stanford, Georgia Tech and Massachusetts Institute of Technology.

Still, some education can be had relatively cheaply, such as that offered by Khan Academy and Codecademy, which are both free. Most such online tech education services are based in the United States, so Indonesians will need either good English or similar resources in local languages to benefit from this online learning boom, Hourigan said.

Masna said Indonesia’s tech industry is adopting everything at once, bypassing all the stages necessary to achieve more solid development of the market. As a result, many efforts are crumbling because they don’t recognize the stage they’re in and don’t realizing that consumers aren’t ready for certain products.

Trust is also an issue, as 60 percent of Indonesians say providing their credit card information online is a key concern. And while Filipinos, Vietnamese and Singaporeans are most inclined to purchase items online, consumers in Indonesia, Malaysia and Thailand are more likely to go online to browse, according to a Nielson report released in August. Some Indonesians avoid shopping online because they do not trust their postal service to deliver on time or even at all. And many roads are bad, which can result in delivery delays of items purchased online. Government clearly needs to iron out those issues for e-commerce to truly take off.

On the bright side, the previous government made a significant commitment to recognizing intellectual property rights, so Indonesia can expect to see more creative efforts making waves online and reaching more Internet users in the coming years. More Internet users means more people being able to sell and buy things online, more online media and entertainment consumption, more online discussions, and more government services being made accessible online, Masna said.

But the government must also make a greater commitment to ensure equal provision of electricity because half the country currently does not have access to electricity 24 hours a day, without which the Internet cannot exist, Masna added. Widodo’s administration recently said the plan to increase Internet access could see differences across regions, with the newly appointed communications minister saying the country’s more developed West will likely have better connections than other regions.

Although only around a third of its population is online, Indonesia is hardly alone: Billions of the planet’s inhabitants have no Internet access, and experts say bridging the digital divide is one of the world’s most crucial challenges.

Sadly, many Indonesians still view the Internet as a toy, and do not recognize the technology’s endless potential, with many referring to going online as “main Internet,” or “playing Internet,” Masna said.

“Realizing that the Internet isn’t just a playpen is still going to take quite some time,” Masna said.

Matt Rusling is the founder of Borderless News Online, which covers the intersection of business, politics, human rights and economics in Southeast Asia.