Why Southeast Asia is the world’s most exciting region for startups and tech in 2013

As I looked back on 2012, preparing a series of posts about how technology and startups have changed in Asia, it struck me just how significant the period was for Southeast Asia.

So often disregarded by folks who focus on China and India with their billion-plus populations, or the high-tech markets of Japan and Korea, Southeast Asia is likely one of the world’s fastest evolving technology markets. Nowhere else is technology having such a fundamental and visible effect on life, and that’s all set to continue in 2013.

Here are a few reasons, in no particularly order, why I am excited by the potential of this year in Southeast Asia. I wouldn’t chose to live anywhere else in the world.

Southeast Asia is being noticed as a market

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Outside stimulus is one key factor that helps emerging markets to develop and, prior to 2012, Southeast Asia had seen precious little input from overseas players. Most preferred to focus on more substantial opportunities and markets, that is if they ventured overseas at all.

Though Southeast Asia has some 600 million inhabitants, the Internet and technology are nothing like as widely adopted as they are in the US or Europe. Indeed, measuring the region’s tech footprint is no easy thing — as I pointed out back in 2011 — and that is a major reason why companies tended to ignore Southeast Asia in favor of other markets where potential and target audiences are more obvious.

Fast forward to today and many more companies are realizing that Southeast Asia is not only well populated and lucrative, but also largely untapped by their competitors. This awareness began in late 2011 and it continued through 2012 when Twitter and Facebook usage among countries like Indonesia, Malaysia and Thailand grabbed headlines — some of the countries were even more active than Western markets, which opened eyes.

In today’s multi-device era, social media usage is a more accurate way to measure the development of the Web in a country, as opposed to more traditional metrics, such as Internet penetration. Indonesia’s high usage of Twitter and Facebook, the popularity of Instagram in Thailand and other factors are helping to put the region on the map for Web companies, despite a deceptively low rate of fixed-line Internet.

Last year alone saw Rocket Internet launch five companies in Southeast Asia, and Lazada and Zalora raised millions of dollars from a series of investors that are bullish about the future of the Amazon-like marketplace services in Southeast Asia’s nascent e-commerce market.

Other international names, such as music service Airbnb, Deezer, Tencent’s WeChat messaging app, Naver’s Line app also sharpened their focus on the region to grow their user bases. Chinese giant Baidu continued its softly-slowly approach, as it launched new products to explore the potential of Thailand and Vietnam, while it opened the doors to its Singapore-based research center. The center specializes in linguistics and will be used to develop local services for Southeast Asian markets, showing clearly that the Chinese search giant sees potential here.

Smartphone growth and Internet access

At the core of the growth in the indicators that are putting Southeast Asia on the map is the rise in ownership of smartphones, which has helped bring about incremental rises in Internet access. Android has been the single biggest driver of mobile devices across Southeast Asia. Reports on its influence vary; the Google owned operating system accounts for upwards of 31 percent market share, according to Ericsson, while GfK puts that figure at 49 percent.

In separate research, GfK estimates that smartphone sales in the region are up 78 percent year-on-year. It found that, in seven key markets — Singapore, Malaysia, Thailand, Indonesia, Vietnam, Cambodia and the Philippines —  a cumulative $13.7 billion worth of phones were sold between July 2011 and June 2012.

What is most interesting about the GfK data is that smartphones make up just 25 percent of all mobiles sold in those seven markets, according to the firm. That means that there’s plenty more growth to come — in time, more first-time Internet users will come online with their mobile phones as their sole/main access point to the Web.

For now, there is still a price barrier for many — since pre-pay is the standard and many operators do not subsidize devices. Ask yourself if, without the discount you get for a two-year contract, would you buy an iPhone 5 unlocked?

While devices are getting cheaper and older, discounted models — like the iPhone 3G — fall into more consumers’ budgets, there are other organizations help to bring data into people’s hands. Last week, Malaysia’s government revealed details of a smartphone rebate that will allow young people to get MYR200 ($65 US) back when they buy selected 3G smartphones priced below MYR500 ($163US).

The move is motivated by improving access to technology and a spokesperson said the idea is to get “those with the old second-generation mobile phones to migrate to a basic 3G smartphone”. Aimed at those that cannot afford the devices — rather than the population as whole — the move is innovative and indicative of an overall feeling that mobile can bring real change and benefits to the mass market.

It isn’t just governments that are helping, Internet firms have jumped in to lower barriers. In October, Google launched its ‘Free Zone’ initiative that lets mobile owners use its services for free in the Philippines, while Opera’s Web Pass helps novice mobile Web users keep tabs on their activity to keep their costs low. That service launched in Malaysia in November and has rolled out in other emerging markets worldwide since.

Then there are the countless mobile operators that have teamed up with service providers — such as messaging firm WhatsApp and Opera — to offer bundled deals that enable unlimited use of Web services for a low fee. Tablet adoption has been slower, but we can likely expect it to grow as cheaper devices — such as Kindle’s new Fire range and the Google Nexus 7 — come to the region.

All of this means more access for more people. That not only helps bring the benefits of information online to residents of Southeast Asia, but it also creates a more fertile environment for Web services like e-commerce, e-government and remote learning.

More startups are thinking regional

I’ve largely looked at the changes from a consumer standpoint, and for good reason since startups have to fish where the fishes are — as they say — and every ecosystem relies on having a captive audience. With Southeast Asia’s Internet population growing strongly, so the region’s startups have pushed on with more assessing the potential to move outside of their domestic market to reach beyond their local market.

Let’s not be simplistic, Southeast Asia is a hugely complicated market thanks to its diversity. Language, culture and ethnicity vary across the region, even if you just assess the biggest countries. Yet, a new wave of successful startups have shown that employing a regional mindset from day one can reap big rewards.

Back when most companies were still focused on winning in their home markets first, a number of business demonstrated that there is plenty to gain from a broader view. Paul Srivorakul is the Chairman of Ardent Capital, a private investment firm based in Bangkok, but he is most notable as the founder of Admax Networks (bought by Komli in February 2012) and Ensogo (bought by LivingSocial in June 2011).

Srivorakul got both businesses running across multiple markets early on, and he reaped the dividends with two of Southeast Asia’s most notable acquisitions to date, though the price of both deals remains undisclosed. Ensogo enjoyed 85 percent market share in Thailand, 50-60 percent in the Philippines, and 45-50 percent in Indonesia — no wonder Groupon was so keen to buy it, and so aggressive when it didn’t.

Both businesses could have remained focused on Thailand. However, by pushing the boundaries and going beyond the local blinkers that many entrepreneurs have tended to wear when building companies in Southeast Asia, they developed into companies that were obvious and beneficial acquisitions for two industry leaders.

Srivorakul is, unsurprisingly, an advocate of the regional approach. Ardent is a new entrant into Southeast Asia’s investment community but already it is putting together a system that will help its portfolio companies easily expand across the region’s key markets, giving them more potential to grow and — perhaps crucially — more potential to raise funds and attract potential suitors.

By pooling administrative support, sharing resources and knowledge between its portfolio companies and dipping into Srivorakul’s network of contacts, he’s confident that Ardent-backed startups can scale both rapidly and effectively.

Ardent isn’t alone in pushing a ‘regional from day one’ model to companies that it applies to. The increase in the number of companies that are thinking regional stands to benefit Southeast Asia by increasing competition, providing better services and providing attractive acquisitions for big firms that do decide to enter the market or boost their presence.

Starting local and expanding once you have an established base still remains a very valid path that companies are taking but it also comes with some risk. By taking its time to move into a specific market, a startup might lose its early mover advantage, or face increased competition from domestic firms that are better entrenched in the local space. That’s particularly true when services are based on the latest consumer trends, or take their cue from more established businesses elsewhere in the world.

More opportunities for startups and entrepreneurs

Irrespective of big company involvement, Internet access rates and regional thinking, Southeast Asia’s startup scene has grown at a fast clip, and that’s certain to continue on in 2013, regardless of any other factors. One big reason behind that is the grow in opportunities.

Accelerators

JFDI Asia’s inaugural bootcamp last year was a big step forward since it brought a Western-style accelerator to pan-Southeast Asian startups. The 100-day program was fully focused on developing a business, with mentoring and expertise from those who’ve built successful companies; the result saw more than half of the startups land funding. Indeed, more than 60 percent of the 15 participants landed at least SG$650,000 (US$530,000). That’s something JFDI Asia CEO and co-founder Hugh Mason is (understandably) proud of and encouraged by.

The program used weekend startup events to help seek out and identify participants and, though that element has been removed this year now that the Bootcamp has traction, Mason tells me that these events themselves triggered regular meetups and communities across the region. Thus it has had an influence beyond the companies that actually came on board, and it is helping to kick start awareness of startups and the possibilities of building businesses.

This year, JFDI Asia is aiming to run two programs, and it has teamed up with Goldengate Ventures to help fast-track promising startups to seed funding stages, and beyond. Mason says that JFDI is aiming to graduate more than 100 startups, he is optimistic that one of that number will be a $100 million startup — a game changer with real influence.

That’s largely based on the fact that, from its initial progress, JFDI’s is ahead of the average for Techstars-affiliates’ progress. Mason believes that the coming together of these macro factors gives entrepreneurs in the region a huge opportunity and market to step into.

Right now, it isn’t clear where, what or how a huge company like that could emerge from Southeast Asia, but growing the ecosystem, access to mentoring, funding and information are sure to increase the potential for this to happen. Equally, learning by failure, and serial entrepreneurialism — starting a company, and leaving once it is established — are two things that are still seeding across Southeast Asia; these factors will be key to future services and business that emerge from more experienced and seasoned entrepreneurs.

Growth of startup hubs and pan-regional investors

Much as I despise the word, ‘startup hubs’ have emerged across Asia. Bangkok, for example, now boasts at least three top co-working spaces (from around zero a year ago), while TNW regularly hears from startups in thriving communities in places such as Vietnam, Cambodia and other off-beat areas.

The connectivity of the Internet, coupled with the low cost of living, is undoubtedly the reason for this. But, rather than be apologetic about that, the fact is that this is a huge opportunity to attract talent and possible investment to the area.

Singapore continues to be the center point of VC cash — thanks to numerous government programs — but deals are being done in startups across the region, be it Vietnam, Indonesia, the Philippines, Malaysia, etc. Likewise, VCs are emerging outside of Singapore, with Japanese investors particularly keen on the region.

While most of the cream of the crop is not likely to leave Silicon Valley for Southeast Asia, two of Goldengate Ventures’ founding team saw success in the US and opted for Asia. Equally, new startups like DoctorPage — a health service from now-Google-owned DailyDeal co-founder Max Scheichenost — have started out in Asia with global ambitions, and that shows that the region is increasingly seen as an excellent place to build a business.

Challenges

Southeast Asia is fighting a number of challenges, however. The openness of markets for foreigners varies wildly across the region — from business friendly Singapore to visa/work permit strict Thailand — and many startups have found recruiting and retaining quality local talent to be a huge challenge.

Equally, the mindset of many is stacked against startups. Society in many Southeast Asian countries values working for big companies (‘getting the lanyard’), not to mention that few startups can compete against the salary and compensation packages that multinationals and other large businesses can offer. That may hold some advantages — since it helps weed out the mercenaries after little more than a pay check — but there’s little doubt that many would-be entrepreneurs are holed up in less risky jobs and environments, rather than out there building startups and learning from the experience.

Then there are the continued tech issues, uneven income distribution, payment system compatibility woes and the low rate of bank usage across the region as a whole.

Let’s not kid ourselves that Southeast Asia has arrived. There’s still plenty of work to be done but — as I said at the top — I do believe this is the world’s most exciting region, such is the potential for growth and change. Here’s to 2013 in Southeast Asia, and more progress!

Images via Thinkstock, Thinkstock, tratong/Shutterstock, calsidyrose/Flickr, Thinkstock, Africa Studios/Shutterstock, keithroper/Flickr