SINGAPORE - South-east Asia's Internet economy is on the brink of a meteoric takeoff, according to new research from Google and Singapore investment company Temasek Holdings.
The market for e-commerce, online travel, and online media in the region is expected to grow to about US$200 billion (S$275.8 billion) by 2025, from US$31 billion last year.
To capture these opportunities, US$40 to US$50 billion of investment must be injected over next 10 years, the study found.
The research, released on Tuesday, was carried out over five months and was based on macro-economic statistics, more than 50 interviews with entrepreneurs, investors and bankers, proprietary Google data, as well as Temasek research on venture capital and start-up activity by country.
It focused on six South-east Asian countries: Indonesia, Singapore, Malaysia, Philippines, Thailand and Vietnam.
South-east Asia is the world's fastest growing Internet region, with an existing internet user base of 260 million expected to grow to about 480 million users by 2020, said Mr Rajan Anandan, the vice president and managing director of Google in South-east Asia and India. Mr Anandan, who was speaking at an event built around the research, said this will give rise to significant opportunities in the region, most significantly in the first-hand e-commerce market, followed by online media (including digital advertising and gaming), and online travel services.
The region's burgeoning young population, lack of big-box retail, logistical challenges in some markets, as well as the rapidly-growing middle class will drive demand in these sectors. However, start-ups in the region will need significant investment to realise these opportunities, the research found.
While investment levels in the region have grown significantly - increasing tenfold between 2011 and 2015 - South-east Asia still lags behind India and China, said Mr Rohit Sipahimalani, the joint head of Temasek's portfolio strategy and risk group.
Funding activity in the region has been largely concentrated in Singapore and Indonesia, with the bulk of it going to a few prominent start-ups.
"As we have more success stories coming out the region, I think that will start attracting more capital," said Mr Sipahimalani in a media interview on the sidelines of the event.
"If we manage to see some listings of companies, that gives an additional avenue of exit to (venture capital firms), otherwise relying only on (acquisitions) can be very unpredictable."
Mr Sipahimalani noted that funding levels have eased not just in the region but globally, "partly because there was too much exuberance six to 12 months ago".
However, there are no lack of opportunities and funding is likely to return even if valuations do not rebound to their previous high levels, he added.
Consumer-oriented companies in sectors such as fast-moving consumer goods, healthcare services, travel and entertainment are a key focus for Temasek in South-east Asia, said Mr Sipahimalani. The firm's approach has been to invest in companies which have managed to scale up and have a proven business model.
"From our perspective I don't think getting in that early is important, because for the companies that are successful the runway is long and will be there for the next decade," he said.