• Ecommerce in Southeast Asia has now developed beyond its initial scramble for users and scale. Promotions and marketing should continue to decrease to more reasonable levels.
• Ecommerce is Southeast Asia is now about longer-term, fundamentals-driven growth. The leaders are focused on innovation and building more sophisticated services over time.
• Lazada’s strategy for longer-term, sustainable growth has 3 main engines.
  1. Never-ending improvements in the consumer experience.
  2. Continually adding new tools and services that empower sellers.
  3. Making large, long-term investments in technologies that will Transform Ecommerce.
• Lazada has just reached operating profitability (by EBITDA).

***

The Initial Scramble for Southeast Asian Ecommerce Is Over

Over the past 10 years, we have witnessed a surge in online shopping and spending across Southeast Asia. It is now a sizeable market. According to reports by Temasek, Bain and Google, it is projected that ecommerce GMV in Singapore, Malaysia, Indonesia, Philippines, Thailand, and Vietnam will reach US$186 billion by 2025. This will constitute 63% of the regional US$296 billion digital economy.

This first phase of ecommerce in southeast Asia has been a crazy ride, characterized by intense and sometimes irrational competition. There was lots of marketing spend. There were lots of discounts and promotions. It was a frantic scramble for users and scale.

This is normal in the early days of ecommerce in a region. Marketplace business models (such as Lazada and Taobao) usually result in a “winner take most” situation, where 3-4 large players emerge. The ecommerce marketplaces that get to scale first usually do well long-term. They benefit from network effects, economies of scale and serious barriers to entry. We have seen this in ecommerce in the US, Japan, and Europe.

This “winner take most” situation is why the early days of ecommerce in a region are somewhat frantic. Everyone is trying to get to critical mass in users and activity. Those that don’t end up in the top 3-4 usually fade away.

The first phase of ecommerce in region is also usually about building the online equivalent of a goods packed superstore. Think endless rows of goods, like you see in superstores like Walmart and Carrefour. In this early ecommerce phase, the offering to consumers is a huge selection of products at good prices.

And the more products the better. Consumers love a really big selection. In terms of the consumer experience, it is fairly similar to a superstore. During this phase, there is a lot of focus on user numbers, seller numbers, marketplace liquidity and GMV. It reminds me of the below picture.

The early days of ecommerce usually resemble building a goods packed superstore.

Photo by Peter Bond on Unsplash

There is also a lot of focus on convenience and ease of use in this phase. A clean ease to use app matters. And faster deliveries (i.e., convenience) are very important.

There are also some common problems in this early phase. The focus on growth sometimes comes at the expense of cultivating a holistic and sustainable ecosystem. And over time, there is a need to pivot away from short-term growth tactics to investing for longer-term outcomes.

The Next Phase of Southeast Asian Ecommerce Will Be About Innovation and Improving the Consumer Experience

If phase one was about building a goods packed superstore, phase two is about building a really fun shopping mall. Or a carnival, depending on which analogy you prefer. It’s about providing the best consumer experience.

And yes, there is still about having tons of good products available really conveniently. But there is also much more now. It is about providing entertainment. There can be videos. And live streaming. There can be games. There can be community and lots of interactions.

Consumers go to a local Walmart to buy stuff. But nobody goes there to hang out and have fun. When they want to have fun, people go to the shopping mall. Or to the carnival. Where there is shopping. But there is also entertainment, fun and activities. It reminds me of the below picture.

The next phase of ecommerce usually resembles building a carnival or fun shopping mall.

In practice, that means significantly improving the experience for the two user groups that create the marketplace platform: consumers and merchants / brands.

First, ecommerce in Southeast Asia is increasingly about meeting evolving consumer expectations.

Southeast Asian consumers are much more savvy, discerning, and aware than before. They have much higher expectations. They expect and seek out personalized experiences, reliable delivery, and exceptional customer service. A standard ecommerce offering plus a healthy marketing budget are no longer enough to meet their elevated expectations.

So, ecommerce is now much more about the overall consumer experience. GMV still matters. But now so do DAU and MAU. So does “time spent per day”. And so does fun. Constantly improving the consumer experiences requires lots of creativity and innovation.

Second, ecommerce is increasingly about sophisticated sellers with serious online capabilities.

Ecommerce sellers have also evolved. They are no longer the merchants and brands that were just moving their businesses online for the first time. They have moved online. And have serious online capabilities.

Today, with access to many sales channels, they are more selective in the platforms they invest time and resources into. They are looking for customers and sales for sure. But they are also looking for better tools and insights to optimize their operations, understand their customers, and grow their businesses sustainably. They are partnering with platforms that can empower them to engage more effectively and efficiency with their customers.

***

Overall, the emphasis has shifted:

• From growth at any cost to a focus on profitable, longer-term growth.
• From consumer sales to consumer experiences.
• And from merchant sales to merchant digital capabilities.

Which brings us to Lazada.

Bam! Lazada Hits Operating Profitability (by EBITDA) in Southeast Asia

As this is being written, Lazada has just announced it has achieved EBITDA-positive status. This happened at a townhall meeting with Lazada CEO James Dong and CFO Frank Luo.

Note: I interviewed James Dong last year. A really cool guy, who trained at Alibaba in China for years, then ran Thailand and Vietnam Lazada and is now running the Lazada and Daraz businesses. In between all this, he does Iron Man competitions. Here is that article.

• Lessons from My Interview with Lazada and Daraz CEO James Dong

Lazada reaching operating profitability is a good milestone for these two phases of ecommerce in Southeast Asia. At the townhall, James talked about Lazada’s future growth plans, which include investments to:

• Optimize efficiency of core operations
• Enhanced customer experiences
• Seller empowerment.

That is a pretty good summary of Lazada’s long-term growth strategy. Below is a summary of what I think is going on (which a simple picture). There are a lot of initiatives at Lazada right now. You’ll be hearing lots of announcements. This is all easier to understand if you understand the overall strategy.

The 3 Engines of Lazada’s Long-Term Growth

To cater to the needs of this new era of ecommerce, Lazada has transformed its business strategy to focus on and invest in long-term outcomes. This means moving away from aggressive, short-term growth tactics and focusing on 3 long-term growth engines. That’s a simplification of course. But it’s a pretty reasonable one.

Here’s how I view Lazada’s strategy going forward.

Engine 1: Never-Ending Improvements to the Customer Experience

As mentioned, consumers in Southeast Asia are increasingly looking beyond promotional discounts and flash sales. When it comes to engagement, brand loyalty and user stickiness, it is increasingly about creating a better user experience. That was the carnival analogy.

And this means a long and never-ending list initiatives to improve the customer experience.

• It means making it more fun. More entertainment, more games, and more enjoyment.
• It means initiatives for greater personalization.
• It means improved ease of use and greater convenience. And yes, even faster delivery is almost always a plus.
• And it means less friction, fewer pain points, and so on.

And this process never stops. Every year, Lazada must innovate and add ever more value to its consumers. That requires lots of creativity and innovation. It requires long-term investment. And Lazada has a long list of initiatives in this area. I’ll detail some of those in a subsequent article.

Engine 2: Continually Adding Services and Tools that Empower Sellers

Alibaba co-founder Jack Ma has long said that they are in the business of creating tools that empower smaller merchants. That they give them tools that level the playing field with larger businesses. And the list of services, Alibaba now provides to its merchants and brands is quite impressive. You can map out all the merchant tools against a typical income statement of a merchant.

Southeast Asian merchants are not yet at this level of sophistication in their online businesses. But the path forward is clear.

Lazada is empowering sellers with the tools and resources they need to thrive as digital businesses. This means better marketing tools, better and faster logistics capabilities, better data and insights tools, improved customer service, data-enhanced R&D, and so on.

And this race also never really ends. Virtually every aspect of a seller’s operations should be getting better and more efficient by becoming using Lazada’s tools and services.

Engine 3: Large, Long-Term Investments in Technologies that will Transform Ecommerce

The advent of new technologies such as GenAI, AI, AR and big data continues to transform ecommerce and retail.

• With improving AI capabilities, shopping experiences can increasingly be personalized for each consumer.
• With improving data tools, decision making can become smarter, faster, and more automated.
• With emerging GenAI capabilities, sellers can increasingly bridge the gap with their audiences and create more vivid and interactive experiences.

Lazada (and parent Alibaba) are almost uniquely well positioned to make large and ongoing investments ecommerce technology. At a minimum, this should result in greater operational efficiencies. But more ambitiously, this will create technologies that transform the future of ecommerce.

***

That’s a simple framework for thinking about Lazada’s growth strategy going forward. I find it pretty useful for categorizing their various initiatives and announcements (including M&A).

Final Point: Ecommerce Growth Includes Sustainability and Improvements to the Broader Ecosystem

Lazada’s long-term growth strategy also includes a focus on sustainability and delivering meaningful community impact. Lazada’s vision is centered on creating value for all stakeholders—consumers, sellers, and the broader ecosystem.

Lazada has been adopting eco-friendly practices and championing sustainability its business. This will demonstrate leadership in how the ecommerce environment should operate in the future. This includes strategies to lower its carbon footprint, reduce its use of natural resources and engage in a circular economy.

There have been some interesting initiatives in this. For example:

• Since 2021, Lazada has offered parcels made from alternative sustainable packaging materials through its Fulfilment by Lazada service. This uses FSC-certified carton boxes filled with recycled shredded paper instead of plastic fillers.
• In 2022, Lazada launched the LazEarth campaign, focusing on plastic waste reduction in product and packaging. Under this campaign, Lazada worked with LazMall brands and partners to make eco-friendly products easily accessible and identifiable to consumers. They featured more than 70 brands and 5,000 items that are made, packed, or shipped with reduced or better plastics.

***

That’s it for this higher-level summary of Lazada’s growth strategy going forward.

In the next article, I will detail specific initiatives for each of the 3 growth engines.

Thanks for reading, Jeff

Conclusions

• Ecommerce in Southeast Asia has now developed beyond its initial scramble for users and scale. Promotions and marketing should continue to decrease to more reasonable levels.
• Ecommerce is Southeast Asia is now about longer-term, fundamentals-driven growth. The leaders are focused on innovation and building more sophisticated services over time.
• Lazada’s strategy for longer-term, sustainable growth has 3 main engines.
  1. Never-ending improvements in the consumer experience.
  2. Continually adding new tools and services that empower sellers.
  3. Making large, long-term investments in technologies that will Transform Ecommerce.
• Lazada has just reached operating profitability (by EBITDA).

———

Related articles:

• When Microsoft’s Bundles Are Good vs. Bad for Customers and Markets (Tech Strategy)
• Microsoft’s 3 Big Upgrades to its 2 Platform Business Models (2 of 2) (Tech Strategy – Daily Article)
• What is Elon Musk’s Plan to 10x Twitter? (2 of 2) (Tech Strategy – Daily Article)

From the Concept Library, concepts for this article are:

• Marketplace platforms
• Ecommerce
• Southeast Asia

From the Company Library, companies for this article are:

• Lazada

———–

 

I write, speak and consult about how to win (and not lose) in digital strategy and transformation.

I am the founder of TechMoat Consulting, a boutique consulting firm that helps retailers, brands, and technology companies exploit digital change to grow faster, innovate better and build digital moats. Get in touch here.

My book series Moats and Marathons is one-of-a-kind framework for building and measuring competitive advantages in digital businesses.

This content (articles, podcasts, website info) is not investment, legal or tax advice. The information and opinions from me and any guests may be incorrect. The numbers and information may be wrong. The views expressed may no longer be relevant or accurate. This is not investment advice. Investing is risky. Do your own research.