The Three-Way Rivalry for Southeast Asia's Internet Economy

(This is the English translation of a news story written for Caixin Weekly magazine.

It was originally in Chinese with another summarized English version published for Caixin Global.

The Chinese version is as follows:

https://weekly.caixin.com/2021-06-05/101723237.html;

The summarized English version is as follows:

https://www.caixinglobal.com/2021-07-09/in-depth-tech-giants-combine-to-thrive-in-southeast-asias-rapidly-consolidating-market-101738162.html)

Mergers driven by the pursuit of economies of scale are reshaping the competitive landscape of Southeast Asia's Internet industry.

Southeast Asia’s internet industry is following a path similar to what China experienced in its early days: a move toward market oligopoly and the rise of platform-based economies. The two decades of fierce competition among Chinese internet companies have become an invaluable source of reference for Southeast Asian “unicorns,” enabling them to grow more efficiently and with greater clarity.

The merger of Gojek, an online ride-hailing company, and Tokopedia, an e-commerce giant, announced in May 2021, marks the latest chapter of the region’s growing internet oligopoly. Both companies were already leaders in their respective fields, but as competition intensified, they opted to join forces. The combined platform created Indonesia’s largest internet technology platform, with operations spanning multiple sectors.

This strategy is easy to understand. Companies risk being outpaced or even swallowed by larger rivals without achieving scale quickly. Just a month before the merger, Grab — Southeast Asia’s first unicorn, best known for ride-hailing and food delivery — announced plans to go public in the US, with a valuation of up to US$40 billion, a move that set a new valuation benchmark among Southeast Asian firms.

Meanwhile, SEA, a group that started out in gaming, has quietly become a formidable player. Its e-commerce platform saw its fastest growth in nearly two years during the pandemic, cementing its place as a market leader.

After a decade of rapid expansion, Southeast Asia’s internet sector has settled into an oligopolistic landscape. By learning from China’s experience, these companies built a platform-based ecosystem in less than half the time it took China. The global push for digitalization, accelerated by the COVID-19 pandemic, has only further accelerated this transformation.

Southeast Asia is a complex and diverse region. People here often identify more with their own country than as a collective, given the significant differences between nations. Indonesia, the most populous country in the region, has naturally become the main battleground for these internet giants. The big question now is: where will the next battleground emerge? Should companies focus on developing a single market deeply or expand quickly across borders? For these new giants, Southeast Asia’s vast internet economy presents both challenges and opportunities.

The three-way jockeying between SEA, Grab, and GoTo is redefining the future of the internet industry in Southeast Asia.

The New Oligarch

On May 17, Gojek and Tokopedia announced their merger, forming a new entity called “GoTo,” a name that combines the initials of both companies. This deal constitutes the largest merger in Indonesia’s history and the biggest among Asian internet firms.

GoTo has yet to disclose the deal's precise value as it awaits regulatory approval. According to Bloomberg, the merger values GoTo at US$18 billion. The company plans to list in both Indonesia and the US, aiming for a valuation between US$35 billion and US$40 billion, benchmarking itself against the publicly traded Grab.

Southeast Asia’s unicorns have been anticipating public listings for years. Before the merger, both Gojek and Tokopedia had publicly expressed intentions to go public. A GoTo spokesperson affirmed the company's eagerness for an IPO, stating the merger should expedite the process. Many analysts expect GoTo to debut on the public market as early as the end of 2021.

Both headquartered in Indonesia, Gojek began as a motorcycle ride-hailing app and later diversified into food delivery, while Tokopedia is the country’s largest e-commerce platform. The market anticipates their merger will unlock tremendous synergies, uniting two firms with minimal prior business overlap and establishing Indonesia’s largest and most versatile online platform.

The scale achieved by this consolidation is underscored by several key metrics. As of 2020, GoTo reported a gross transaction value (GTV) exceeding $22 billion, attracting more than 100 million monthly active users, over 2 million registered motorcycle drivers, and 11 million merchants, collectively contributing approximately 2% to Indonesia’s GDP.

For context, Meituan, GoTo’s Chinese counterpart, serves a population of 1.4 billion and commands a GTV of RMB500 billion (about US$78 billion) in food delivery, with 300 million monthly users. Didi, China’s ride-hailing giant, operates with over 10 million drivers and more than 400 million monthly users. While GoTo’s figures may appear modest compared to China’s giants, they are highly significant for Indonesia, a nation of 270 million people. With the Southeast Asian population exceeding 670 million, GoTo’s growth potential is clear.

The working relationship between Gojek and Tokopedia is well-established. Since 2015, Gojek’s drivers have been handling last-mile deliveries for Tokopedia, boosting the operating efficiency of both companies. A GoTo spokesperson noted that the management teams have maintained close partnerships, friendships, and professional ties for years.

GoTo’s comprehensive business scope covers transportation, logistics, food delivery, e-commerce, entertainment, finance, and more. According to the company, the merger is expected to bring further synergies, such as utilizing Gojek’s drivers to accelerate deliveries from Tokopedia’s warehouses, providing merchants with enhanced business tools, enabling one-click logins across both applications, and offering more personalized services. However, Gojek and Tokopedia will maintain independent branding and operations, each led by their original executives.

GoTo did not directly comment on the rationale for merging without full integration but noted the deal had unanimous shareholder support from both sides. Many Southeast Asian investors and analysts view this as a pragmatic outcome. “Mergers are never easy, given complex shareholder interests and the challenge of blending different corporate cultures, or their DNAs,” commented Dan Chong, chief operating officer for Southeast Asia at Gobi Ventures.

According to a filing with Indonesian regulators cited by The Nikkei Asian Review, Gojek will own 58% of GoTo, while Tokopedia will hold 42%. Japan’s SoftBank Group is poised to become the largest shareholder with a 15.3% stake, followed by Alibaba at 12.6%. While these are the only two shareholders with double-digit stakes, special voting arrangements mean their voting rights may not align proportionally with their shareholdings.

Teruhide Sato, founder and CEO of Singapore-based venture capital firm Beenext, commented that Gojek and Tokopedia are highly complementary, and the merger will create an ecosystem that touches many aspects of daily life—from shopping to payments and even banking. Sato, an early investor in Tokopedia and founder of Japan’s e-commerce firm Beenos, expressed excitement about GoTo’s future potential.

A long-time observer of Southeast Asia told Caixin that maintaining both brands helps preserve user loyalty and brand recognition, which may be more beneficial than launching an entirely new brand. Mergers also carry the risk of internal competition over leadership roles; even long-time partners may be hesitant to reorganize established teams and brands. “Ultimately, it’s a people issue.”

According to official statements, Andre Soelistyo, Gojek’s co-CEO, will assume the role of CEO for the new group, overseeing GoTo’s overall strategy. Patrick Cao, Tokopedia’s president and a former investment banker, will serve as GoTo’s president, responsible for finance, corporate development, investor relations, and investments. Kevin Aluwi, Gojek’s founder and co-CEO, will continue as CEO of Gojek, while William Tanuwijaya, Tokopedia’s founder and CEO, will remain CEO of the e-commerce platform.

In addition to group strategy, Soelistyo will also oversee GoTo Finance, the third sub-brand alongside Gojek and Tokopedia. This new entity, formed by consolidating the few overlapping areas between the two companies, is strategically positioned to help them better understand customers and compete effectively with other giants across Southeast Asia.

After a decade of aggressive expansion, Southeast Asia’s internet sector has settled into an oligopolistic landscape. By leveraging China’s experience, these companies constructed a platform-based ecosystem in less than half the time required by their Chinese counterparts.

Triggers Behind the Scenes

The merger still needs regulatory approval in Indonesia. The country’s competition authority, KPPU, stated it will closely review the deal. KPPU encourages other market players to report any anti-competitive concerns, and if it finds any, GoTo may be required to adjust its business model. However, KPPU has not precluded approving the merger.

“Although Gojek and Tokopedia’s businesses don’t overlap much, the Indonesian government looks at the internet industry as a whole during antitrust reviews, and the boundaries between sectors are not always clear,” said Chong. Regulators will consider whether a "superapp" could monopolize the market. Even without significant business overlap, the companies will face scrutiny, and mergers between firms with highly analogous businesses would face even tougher resistance.

However, it was paradoxically antitrust concerns that led to GoTo’s formation. Gojek initially considered merging with Grab, its primary rival in ride-hailing and food delivery. Grab, originally from Malaysia, quickly grew by acquiring the Southeast Asian operations of Uber, the US e-hailing giant, and has long been targeting the Indonesian market.

Talks between Gojek and Grab progressed but ultimately collapsed. While neither side explained why, many believe their overlapping businesses would have made regulatory approval prohibitively difficult. Disagreements over control of the new company may have also been a contributing factor.

“It’s not just about regulations, but also about people,” said Julien Mialaret, operating partner at European venture capital Eurazeo. Whether the merger succeeded or failed, issues like market dominance, teamwork, and company culture would inevitably come into play. “Ultimately, it’s the entrepreneurs who decide. Do you really want to merge with your competitor?”

Grab and Gojek have long been competitors, starting as ride-hailing services and expanding into "superapps." Gojek operates in four Southeast Asian countries, but its core strength remains rooted in Indonesia. Grab, meanwhile, has expanded more aggressively into more sectors and now operates in eight countries.

According to Chong, Grab’s multi-market operations experience and stronger financing history helped it outpace Gojek. “When Grab announced its IPO, GoTo was formed immediately. If Gojek and Tokopedia had remained passive, Grab would have swallowed them eventually.”

But the competition is no longer just between two giants. Compared to five years ago, when Gojek and Grab fought head-to-head, they and Tokopedia now face an even more potent challenger: SEA, Singapore’s gaming and e-commerce powerhouse. “Both Grab’s IPO and GoTo’s merger were primarily motivated by SEA’s phenomenal success,” said Mialaret.

SEA was founded by Li Xiaodong, a Tianjin native who once worked as a game agent for Tencent and received investment from the Chinese tech giant in 2013. Spotting opportunities in Southeast Asia’s e-commerce and mobile internet sectors, Li launched Shopee, an online shopping platform in 2015, utilizing cash flow from the gaming business Garena to fund the new venture of e-commerce. After rebranding as SEA, Li also launched a digital finance platform, SeaMoney, which has since become the group’s third business pillar.

With a nimble team and a strong focus on mobile internet, SEA quickly seized market share in six Southeast Asian countries, becoming the leading e-commerce platform. It is now neck-and-neck with Tokopedia in Indonesia and is expected to soon overtake it. In 2017, SEA became the first Southeast Asian unicorn to go public in the US, significantly boosting its fundraising ability.

The pandemic accelerated the shift to mobile internet globally, compressing what might have been a three-to-five-year transition for Southeast Asia into just one year. SEA benefited tremendously, with total revenue in 2020 growing 101% year-on-year. Shopee’s revenue jumped 160%. Its total gross merchandise volume also doubled. The company maintained this momentum into early 2021, with total revenue up 147% and e-commerce revenue up 250% year-on-year.

“GoTo’s merger is mainly a defensive move, as both Gojek and Tokopedia needed strong partners to ensure survival in a rapidly changing and competitive market,” said Swarup Gupta, an analyst at the Economist Intelligence Unit. He believes GoTo will face tough competition from Grab and SEA, and this three-way rivalry will likely endure for some time.

SEA, the Singapore-based powerhouse in gaming and e-commerce, has quietly established a formidable regional presence, with operations spanning six Southeast Asian countries and extending into markets like Mexico and Brazil.

The Next Battleground

Southeast Asia’s internet unicorns were forged from the fierce ride-hailing battle between Grab and Gojek, a rivalry that gradually evolved into the development of all-in-one “super apps.” The pandemic’s social distancing measures significantly fueled the growth of food and grocery delivery. In 2020, for example, Grab’s food delivery business eclipsed its original ride-hailing operations—a clear indication that the region is building integrated platforms akin to a combination of China’s Didi and Meituan.

Gojek and Grab have followed similar business expansion strategies. The merger with Tokopedia created a Southeast Asian version of the "Taobao + Didi + Meituan" super platform in China. While further mergers and acquisitions are anticipated, the formation of GoTo has already enabled Gojek and Tokopedia to secure the necessary market share for survival and to realize economies of scale.

With three major players now dominating the landscape, Southeast Asia’s internet giants are pivoting toward the next big opportunity: financial services. Grab, GoTo, and SEA have all launched financial platforms offering credit, insurance, investment, and payment services.

Gupta notes that these payment platforms, though not yet profitable, are central to all three companies' future growth strategies. They generate valuable data that helps predict users’ creditworthiness. Sato from Beenext further points out that while "marketplace businesses" like e-commerce and ride-hailing attract large user bases and generate modest profits, financial services provide high-quality data, drive transactions, and build user habits. He likens e-commerce and payments to the "king and queen" of the internet sector and believes their integration is natural.

The creation of GoTo Finance underscores how seriously the group views the financial sector. Although finance is one of the few areas of overlap between Gojek and Tokopedia, integrating their operations has been challenging, and this entity will be crucial to the merger’s long-term success.

Gojek operates its own payment platform, GoPay, while Tokopedia holds an Indonesian payment license through its investment in OVO, a third-party payment system. However, Indonesian banking regulations limit each entity to controlling only one e-wallet license, preventing GoTo from completing the merger while controlling both GoPay and OVO. Furthermore, Tokopedia agreed in 2018 when it invested in OVO that a merger with Gojek would necessitate selling its stake in OVO.

Tokopedia, as an e-commerce platform, is understandably reluctant to divest OVO. Yet, to complete the merger, it may have no choice. The company is currently seeking a third party to acquire its stake, with reports indicating that Grab, which is also a major OVO shareholder, may be interested in the purchase.

Grab’s ambitions in financial services are clear: its transaction volume in this area now surpasses that of its ride-hailing and food delivery businesses. According to its IPO prospectus, Grab’s financial services recorded $8.9 billion in total payment volume (TPV) in 2020, growing at an annualized rate of 102% over the past three years. Grab projects this TPV to reach $19.1 billion by 2023. Concurrently, SEA’s SeaMoney platform handled more than $7.8 billion in mobile payments in 2020, serving over 23 million users in the fourth quarter alone.

Digital finance entrepreneurs and investors in Southeast Asia note that these platforms largely replicate the model of China’s Ant Group: attracting users through payment services before cross-selling additional financial products. While optimism among investors persists, China’s recent crackdown on Ant has fueled concerns in Indonesia that similar regulations might be introduced to safeguard the traditional banking sector, potentially curtailing the growth of internet finance platforms.

Capturing market share remains a top priority for these industry leaders. Indonesia, the world’s fourth-most populous country and Southeast Asia’s largest economy, serves as the primary battleground. SEA has quietly matched Tokopedia in transaction volume, co-leading the e-commerce sector. Grab has operated in Indonesia since 2014 and relies on the country as its main revenue source. GoTo, being deeply rooted in Indonesia, benefits from a broader reach into smaller cities, granting it an edge in understanding local culture and consumer habits.

“When we talk about Southeast Asia, we can’t ignore Indonesia. It’s a hugely important market, representing over 40% of the region’s population,” said Sato.

Sato, an early venture capitalist in Southeast Asia, recalls visiting Indonesia a decade ago when simple black cell phones dominated street shops. This convinced him that mobile internet would soon become the primary communication tool. Since most people work for small, decentralized businesses, connecting them through mobile internet could greatly empower the economy.

Indonesia’s subsequent growth has validated Sato’s foresight. According to a 2020 report by Google, Temasek, and Bain & Company, e-commerce alone accounted for 54% of Indonesia’s economic growth. In 2020, the country’s digital economy contributed $44 billion in gross merchandise value (GMV), projected to reach $124 billion by 2025, representing an annualized growth rate of 23%. “The impact of these internet companies on Southeast Asia is immense. We shouldn’t just view them as businesses—they are driving the digital transformation of entire economies,” said Mialaret.

Indonesia, however, represents only one of Southeast Asia’s diverse markets. Companies and investors are also exploring other emerging markets, such as Vietnam and India. The decision to focus on deepening their presence in Indonesia versus pursuing a multi-country strategy will fundamentally shape the future landscape of the region’s internet industry.

Grab, which is the most aggressive in regional expansion, now commands significant market share across Southeast Asia: 72% of ride-hailing gross merchandise value (GMV), 50% in food delivery, and 23% of total payment value in e-wallets. Singapore-based SEA has established e-commerce operations in six Southeast Asian countries and extended its reach into markets like Mexico and Brazil. GoTo, conversely, remains focused on Indonesia while operating in Vietnam, Thailand, and Singapore. A GoTo spokesperson confirmed the group will continue investing in Indonesia’s digital economy while expanding in its other existing markets.

Although Indonesia still presents enormous opportunities, its largest cities are nearing saturation, notes Chong. He suggests the key to success lies in capturing users in smaller cities where mobile internet infrastructure is still developing. GoTo’s slower pace of expansion outside Indonesia has made it challenging to penetrate overseas markets while simultaneously grappling with fierce domestic competition from Grab and SEA. “Localization is crucial for market expansion in Southeast Asia. Even with strong financial backing, success is elusive without a dedicated localized team and strategy,” said Chong.