If you listen close enough you can hear a rumbling through the Indonesian rice paddies or off the shores of Singapore. This is not the sound of the region’s scores of motos revving their engines, but rather the galloping hooves of ASEAN’s unicorns: start-ups that have reached a $1 billion valuation and are charging ahead to change the region’s digital landscape.

With a population of over 640 million people, the region is poised to be a global powerhouse with the third largest labor force in the world, after China and India, and one of the fastest growing consumer markets. Across the 10 ASEAN member countries, the size and level of development varies significantly- but there is an enormous potential for growth within each economy, and for the region as a whole. With 125,000 new users coming onto the internet every day, the ASEAN’s digital economy is projected to grow significantly, adding an estimated $1 trillion to ASEAN’s GDP over the next ten years, if the right conditions are in place.

ASEAN is currently home to at least seven unicorns, and many of the region’s leaders are bullish about the future. Rudiantara, Minister of Communication and Information Technology of Indonesia, who serves as a member of the Board of Advisors for the Digital ASEAN project and a Steward of the Future of the Digital Economy and Society System Initiative, said in a recent interview that Indonesia alone is likely to have more than 5 unicorns by 2019.

So what are the magic ingredients that will enable ASEAN’s unicorns to thrive?

Strong economic foundations

If ASEAN were a single country, it would be the fifth largest economy globally, with a combined GDP of over $2.73 trillion. The region is predicted to grow by 5% this year, and by 2050, ASEAN is projected to surpass Japan and the EU to become the 4th largest economy in the world. For individuals, ASEAN’s per capita GDP has risen by a factor of more than 33 since the inception of ASEAN as a block in 1967, propelling millions of people into the middle class.

ASEAN also boasts a young, literate and digitally savvy population. By 2020, 64% of Southeast Asia’s population will be under 40. These digital natives will be well positioned to help drive and disrupt the region’s digital economy. We are already seeing this in the region’s unicorns with Traveloka, a leading travel booking site whose CEO Ferry Unardi is just 30; GO-JEK a ride hailing app which is quickly expanding its service offerings and reach throughout Asia, whose CEO Nadiem Makarim is 33; Tokopedia, an e-commerce platform which has exploded onto the scene under 36-year-old CEO William Tanuwijaya; and Bukalapak, a leading online market place whose CEO Achmad Zaky is 31 years old.

Diversity as a strength

There is incredible diversity in the economics, language, religion, and culture within and across the 10 ASEAN nations. As the region becomes more integrated, it is not a one size fits all market: per capita GDP of the richest ASEAN nation is more than 45 times that of the poorest. This diverse economic structure presents challenges but also a wide array of growth opportunities. The region includes frontier markets which have lower operating and labour costs with significant untapped potential from foreign investment, as well as more highly developed globalized markets that are at the cutting edge of tech and innovation. There are possibilities all along the value chain.

While there is diversity in supply, we are seeing an increasing convergence in demand. As former ASEAN Secretary General Lê Lương Minh framed it, “While the region is diverse and varied, the growing middle classes in ASEAN share similar demands and consumption patterns. This should allow companies to build broader regional platforms and take advantage of economies of scale.”

Growth in internet and mobile penetration

With over half of the region online, ASEAN continues to add millions of new users each month. Mobile is king, with 141% mobile penetration. Meanwhile, 90% of the region’s internet users access the web through their smartphones. Its connected citizens are highly engaged, spending an average of 3.6 hours on mobile internet each day across the region, according to a recent report by Google and Temasek. Thailand is at the front of the pack, spending an average of 4.2 hours on mobile internet per day, which is more than double the 2 hours American users are consuming on a daily basis. This same report points out ASEAN internet users also spend nearly double the amount of time online shopping compared to Americans (140 vs 80 minutes per month) making it a very ripe market for unicorns to emerge.

Platform potential

The ubiquity of mobile phones throughout the region has also resulted in a boom in transportation platforms such as GO-JEK and Grab, which can be seen zipping around busy city streets. The global market valuation for ride hailing services in ASEAN more than doubled in just 2 years to $5.1 Billion in 2017, and Google projects that it will climb to more than $20 Billion by 2025.

E-Commerce has seen incredible growth throughout the region, topping $10 billion in revenues last year, with the rise of unicorns like Singapore-based Lazada and Indonesia’s Tokopedia, as well as multi-platform unicorns such as SEA, which offers e-commerce and payment services, in addition to its hugely popular Garena gaming platform. Gaming alone represents a billion dollar market in the region and is forecasted to double in the next 5 years.

The growth in internet penetration has also given rise to an active social media presence, with Indonesia topping the list. Its capital, Jakarta, was honoured with the title of ‘Twitter City’ in 2012 for the most number of tweets originating from any city in the world and has become the most popular geo-tagged city on Instagram according to an analysis by CB INSIGHTS.

While we have seen many start-ups and tech companies arise from the region to cater to the local market, the social media platforms that have dominated the ASEAN market have largely originated from the West or from China. This leaves the door open for home-grown competitors to emerge, such as VNG in Vietnam who owns Zalo, one of the nation’s leading messaging app, that is set to be Vietnam’s first IPO abroad.

Investment on the rise

Confidence in the region from global investors continues to build, with ASEAN pulling in increasing levels of venture funding year on year. According to CB INSIGHTS, tech companies raised $6.5 billion in 2017, which is more than double the $3.1 billion raised in 2016, and triple the $1.7 billion in 2015. While this is good news for the region’s current unicorns, who received an overwhelming 75% of the venture capital that was invested over the last several years, this can be a challenge for those start-ups who hope to grow their horns in the future, as this leaves little leftover for smaller, early stage ventures, who rarely make it past Series A funding, if at all. If the region hopes to develop new unicorns in the future, more money will need to be invested across the ecosystem to help foster new areas of growth.

More than magic

As the world’s fastest growing internet region, the future for ASEAN’s digital economy looks bright – though not without its fair share of challenges. If ASEAN hopes to capitalize on its enormous digital potential, it will need to focus on getting the other half of its population online. As the Digital ASEAN initiative highlights, the region will need to nurture local tech talent who can build and run innovative start-ups and transform them into large, complex billion dollar companies. It will also be critical for the 10 ASEAN member nations to work together to create cohesive and interoperable legislation around data sharing and other key areas of regulation that will enable the regional integration of the digital economy and take advantage of economies of scale.

The World Economic Forum on ASEAN 2018 will take place in Hanoi, Vietnam 11-13 September and bring together the region’s leading start-ups and entrepreneurs. With all of the energy and dynamism of ASEAN, you don’t have to believe in magic to glimpse the unicorn horns on the horizon.

Kelly Ommundsen
Lead, Digital Economy and Society, World Economic Forum