Southeast Asia’s Internet Economy Faces Slowest Growth, Shifts Focus to Profitability Amid Rising Competition
Southeast Asia (SEA) is experiencing its slowest internet economy growth on record this year, as rising inflation, high interest rates, and a shift in focus from revenue expansion to profitability dampen consumer demand. Research from Google, Temasek Holdings, and Bain & Co. reveals that online spending in the region is set to rise by only 15% to US$263 billion, marking a slowdown from last year’s 17% growth rate and hitting the lowest growth rate since 2017.
Consumer Spending Under Pressure, Private Funding Declines
The report highlights the impact of elevated inflation and interest rates on consumer spending in SEA, a region of over 650 million people. The economic pressure has led consumers to curb spending, raising questions around the billions invested by tech companies in countries like Indonesia, Singapore, Thailand, and Vietnam, which were anticipated as high-growth markets. The report also shows that private funding for SEA’s digital economy has dropped sharply, hitting a record low in 2024 as investors become increasingly cautious and capital costs rise.
Competition Intensifies Among Tech Giants
Global and regional tech giants are vying for dominance in SEA’s competitive online marketplace. Companies like Amazon, Alibaba, Grab, Sea Ltd., and GoTo Group are aggressively expanding in areas like e-commerce, food delivery, and ride-hailing. As user growth slows and competition compresses margins, these companies are under immense pressure to demonstrate profitability to investors. Cost-cutting measures, including layoffs and exits from unprofitable ventures, have become common as firms seek to improve margins and show positive returns.
SEA’s internet economy is projected to generate US$11 billion in profits this year, backed by US$89 billion in total revenue. Much of this profit is driven by growth in the online media sector, where demand remains strong. By 2024, online spending in SEA is expected to reach or surpass the US$295 billion previously projected, signaling continued growth at a similar pace in the coming year.
Shifts in Investment Focus
The challenging investment climate has led to a shift in funding priorities, with private capital moving towards software and sustainability technology. The number of tech-related deals in SEA plummeted to 306 in the first half of 2024, down from 564 a year earlier, illustrating investor caution and selectiveness.
However, SEA remains a promising destination for data centre investments. In the first half of 2024, tech giants committed roughly US$30 billion to AI-ready data centres in the region, capitalizing on SEA’s digital transformation momentum. CEOs of major companies, including Apple, Microsoft, and Nvidia, have visited SEA countries like Indonesia and Malaysia, meeting with government officials and pledging billions in new investments to support regional digital infrastructure.
SEA’s Digital Economy Outlook
While SEA’s digital economy faces immediate challenges, researchers see robust macroeconomic conditions underpinning long-term growth. As SEA’s digital landscape matures, key areas such as user sophistication, digital safety, and AI adoption will shape future opportunities. By focusing on these trends, SEA could unlock greater business value and maintain its position as a digital growth hub.
The annual report emphasizes that SEA’s digital economy will continue to evolve, with advancements in technology and infrastructure supporting sustainable growth in the years to come.
