SINGAPORE - South-east Asia's Internet economy will hit US$50 billion (S$67.6 billion) in 2017 and will potentially exceed US$200 billion by 2025, according to new research by Google and Temasek.

The Google-Temasek e-Conomy SEA Spotlight 2017, a report released on Tuesday (Dec 12), has found that the region's Internet economy is growing at a compound annual growth rate (CAGR) of 27 per cent, outpacing the 20 per cent 10-year CAGR projected in Google-Temasek e-Conomy SEA, which was released in May last year.

This puts South-east Asia's Internet economy on "a solid trajectory to exceed US$200 billion by 2025", said Google and Temasek. Last year, both parties predicted that the region's Internet economy will grow to US$200 billion by 2025.

All sectors of the Internet economy have experienced "solid growth" in 2017, with e-commerce and ride-hailing booming the fastest at a CAGR of over 40 per cent, according to the latest Google-Temasek report.

E-commerce sales will reach US$10.9 billion in gross merchandise value (GMV) in 2017, up from US$5.5 billion in 2015, and growing at a CAGR of 41 per cent. The acceleration in sales has been driven by a surge of marketplaces, where small and medium-sized enterprises sell to consumers on mobile-first platforms. Leading players include Lazada, Shopee and Tokopedia, going by the 2017 report.

Ride-hailing services will reach US$5.1 billion GMV in 2017, more than double that of the US$2.5 billion in GMV recorded in 2015. Over six million rides per day were booked on the top ride-hailing apps (namely Go-Jek, Grab and Uber) in the third quarter of 2017 alone, a more than fourfold increase since 2015.

The Google-Temasek report noted that ride-hailing players are expanding to food delivery, courier services and digital payments. "With the large and growing base of users and drivers on their platforms, ride-hailing players are well positioned to become South-east Asia's horizontal personal services leaders."

Between 2016 and third-quarter 2017, South-east Asia Internet companies were able to raise more than US$12 billion in capital, up from just US$1 billion in 2015, setting the region well on track to meet the estimated 10-year requirements. In the 2016 Google-Temasek report, it was predicted that US$40 billion to US$50 billion in investments will be required over a decade for the South-east Asian Internet economy to reach US$200 billion by 2015.

The shortage of home-grown tech talent remains the most pressing challenge for growth, said Google and Temasek in their 2017 report. "There remain areas where continual focus and investments are needed for the region to realise its full potential. In particular, the talent challenge remains largely unsolved."