The internet economy in Southeast Asia will record its slowest growth this year, according to researchers, emphasizing weak consumer demand and the company’s push for profit over revenue gains.
The internet economy refers to the economic activities and transactions that are centered around digital goods and services.
Research from Google, Temasek Holding Pte, and Brian & Co., revealed that online spending is expected to only expand around 15% this year, or $263 billion in the region, a decline from 17% growth the previous year and could continue to the lowest rate in seven years. Private funding into the local digital economy is also heading toward the lowest this year, according to the research.
Consumers in Southeast Asia are cutting back their online spending to deal with swelling inflation and interest rates. This started the debate among big tech companies about billions of dollars invested into the region, as they seek to tap into emerging economies in countries beyond China and Japan.
On the other hand, competition continues to escalate. Especially among global giants like Amazon.com and Alibaba Group, and regional companies like Grab, Sea, and GoTo Group, all vying for control of the online delivery market.
Meanwhile, the regional tech companies are under pressure from investors to show them a profit, which results in these companies aggressively cutting costs by scaling the business down, as user growth is stagnant and performance is weighed on margin.
This year, the SEA internet economy will report $11 billion of profit on the back of $89 billion of total revenue. According to the report, most of the internet economy rests on the back of the online media industry.
In the annual collaborative report, SEA’s digital economy was built upon the region’s robust macroeconomic condition. The economy will be molded by users increasing internet literacy, digital security awareness, and the utilization of AI for business.
The report also shows private funding continuing its sharp decline to rock bottom after the pandemic high, largely due to investors getting more picky and capital becoming more expensive.
The number of deals involving tech companies in the region slumped to 306 in 1H24 compared to 564 last year, in the report shows that investor funding has been geared toward software and sustainability technology.
However, Southeast Asia is becoming a more attractive region for data center investment. In the first six months of the year, many tech giants have spent approximately $30 billion to build data centers for AI. CEOs of global giants like Microsoft, Apple, and Nvidia have been on a spree, investing billions of dollars into the region over the past few months, and are currently in a talk with Indonesia and Malaysia.