South-east Asia's Internet economy is on the brink of a meteoric take-off, 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 set to grow to nearly US$200 billion (S$276 billion) by 2025, from US$31 billion last year.
To capture these opportunities, US$40 billion to US$50 billion of investment must be injected over the next 10 years, the study found.
The research, released yesterday, was carried out over five months and was based on macro-economic statistics, proprietary Google data, Temasek research on venture capital and start-up activity, and more than 50 interviews with entrepreneurs, investors and bankers.
It focused on six nations: Indonesia, Singapore, Malaysia, the Philippines, Thailand and Vietnam.
South-east Asia is the world's fastest-growing Internet region, with auser base of 260 million expected to grow to about 480 million by 2020, said Mr Rajan Anandan, Google vice-president and managing director in South-east Asia and India.
Speaking yesterday at an event built around the research, he said this will give rise to considerable 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" (retailers occupying very large premises), logistical challenges in some markets and the rapidly-growing middle class will drive demand in these sectors.
But start-ups will need significant investor support to realise the opportunities, the research found.
While investment levels in South-east Asia shot up tenfold from 2011 to last year, the region still lags behind India and China, said Mr Rohit Sipahimalani, the joint head of Temasek's portfolio strategy and risk group. Funding activity has been largely concentrated in Singapore and Indonesia, with the bulk going to a few prominent start-ups.
"As we have more success stories coming out of the region, I think that will start attracting more capital," said Mr Sipahimalani in a media interview on the event sidelines. Funding levels have eased not just in the region but also globally, "partly because there was too much exuberance six to 12 months ago", he noted.
Still, there is 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 firms in sectors such as the 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 scaled up and have a proven business model.
Singapore-based big data firm Crayon Data is among the companies eyeing regional opportunities.
The four-year-old firm helps enterprises offer "ultra-personalised" choices to customers using data from sources such as social media.
"We are trying to build a global product company out of Singapore... Banking and hospitality are the two biggest verticals we're targeting," said founder and chief executive officer Suresh Shankar.