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Indonesia

Indonesia's Bukalapak signs up family businesses as it seeks to connect offline and online shopping

  • With just over half of Indonesians connected to the internet, Bukalapak see the offline space as an important channel to bring more consumers online
  • After its funding round last November the company declared it was a unicorn with a valuation exceeding US$1 billion
PUBLISHED : Thursday, 01 November, 2018, 7:00am
UPDATED : Thursday, 01 November, 2018, 5:46pm

Indonesia, with its population of 240 million, is a key battleground for e-commerce players looking to cater to the country’s growing middle-class. But local e-commerce company Bukalapak is eyeing growth by targeting offline consumers – some of whom may not even own smartphones.

The Jakarta-based company, whose name translates as “open a stall”, is banking on a network of over 300,000 family-run stores to help bring more customers onto its platform.

Bukalapak, which started out as a consumer-to-consumer e-commerce platform similar to Alibaba’s Taobao, is one of several e-commerce companies in Indonesia competing for the wallets of customers. Bukalapak allows users to register and open a shop online, and also works with brands to sell products to its consumers.

However, with only 55 per cent of the Indonesian population connected to the internet, companies like Bukalapak see the offline space as an important channel to bring more consumers online – even if they do not know how to make payments online or have never engaged in e-commerce before.

Offline, Bukalapak works with some 300,000 warungs, which are small, family-owned convenience kiosks that sell daily necessities, or restaurants selling local food. Customers without internet experience who want to buy something on Bukalapak can approach warung owners for help in placing their orders online. The buyers then pay cash to the warung for the ordered item.

“We’re taking the ‘e’ out of e-commerce by expanding into the offline space,” said Muhamad Fajrin Rasyid, co-founder and president of Bukalapak. “In reality, only about 10 per cent of Indonesia’s population have bought something online before.”

“This method is one of the ways we’re approaching the 90 per cent of the population who have never bought something online,” he said. It is also a win-win situation for the warungs who work with Bukalapak as they receive a small commission for each transaction they help close.

Indonesia, which accounts for about 40 per cent of the population in Southeast Asia, is often seen as a key market by technology companies looking to expand regionally. The large population of mobile-first users – Indonesia has the fourth-highest number of Facebook users in the world and fifth-highest when it comes to Twitter – and its rising affluence makes it an attractive market for technology companies looking to engage users.

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Fajrin estimates that Bukalapak has about 15 to 20 per cent of the e-commerce market in Indonesia, where it is locked in a battle with other players like Indonesia’s Tokopedia, Lazada and Shopee for market share. After its funding round last November, Bukalapak chief executive Achmad Zaky declared that the company was a unicorn with a valuation exceeding US$1 billion.

The company declined to reveal the investors which led its latest round, apart from stating they are local and that Bukalapak will not fall into foreign hands. In August last year Tokopedia raised US$1.1 billion in a funding round led by Alibaba Group, the parent company of the South China Morning Post. Meanwhile, its other rival Lazada became an Alibaba subsidiary after the Hangzhou-based company pumped in US$4 billion and became a controlling shareholder.

“Bukalapak plays the long game. It recognises that it’s still early days in Indonesia and there are still literally millions of people to engage in daily commerce,” said Khailee Ng, managing partner of the 500 Startups’ Southeast Asia fund, which was an early investor in Bukalapak.

“They’ve raised less money [than competitors] but their traffic and numbers are comparable,” Ng said.

Bukalapak was founded in 2010 after its three co-founders saw how technology could transform the shopping landscape by helping small and medium enterprises sell online. The country’s e-commerce industry is still largely classifieds-based where sellers advertise their wares on social media platforms like Facebook and Instagram, with payment being done by bank transfers from the buyer, Fajrin said.

To encourage sellers and buyers to use Bukalapak, the company offers an escrow service where it holds a buyer’s payment until the item has been shipped and received, before releasing the money to the seller. Fajrin said this approach was inspired in part by Alipay which offered escrow services to improve the trust among Taobao users.

Fajrin identified payments as the biggest hurdle in e-commerce in Indonesia. While logistics was also a challenge it is not a “stopper” for e-commerce, he added. Instead, the larger discrepancy lies between the number of e-commerce customers versus the larger Indonesian population that are online and on social media platforms, but have yet to make an online purchase.

“People understand that Indonesia is an archipelago and to deliver to the different islands will take a few days,” Fajrin said. On the other hand, the low credit card penetration in Indonesia means that many people often have to pay for purchases offline and that is when many e-commerce transactions tend to drop off, he said.