Enterprises from the East: A Snapshot of Southeast Asia's Startup Scene


The convergence of technological innovation and human ingenuity to respond to market gaps has empowered the rise of startups across the world. The business landscape in Asia is no different. The growth of the developing countries in this region in recent years has unlocked various economic opportunities for budding entrepreneurs and enthusiastic investors. A regional economy overtaking developed Western nations, Asia's emerging middle class with their growing demand for products and services, and governments' strong support for the business community were the factors detailed in an article from the Harvard Business Review as to why Asia has an edge in innovation [1].


Delving into Southeast Asia, the region's sociocultural and economic factors have played part in the viability of the growth of inventive business ventures. These factors encompass a continuously growing population with emerging internet use, advantageous economic outlook of countries in the region, and a growing startup environment supported by government incentives [2]. Akin to the use of the term outside the context of businesses to denote setting something into motion, “startups” in Southeast Asia have served as the impetus to introduce relevant solutions in their respective industries and countries. The examples of Gojek and Sky Mavis are microcosms that give an overview of the current trajectory of startup enterprises in the region.



Gojek


Setiawan, Dhoni. Gojek drivers wear their jackets with the new logo

Image source: thejakartapost.com



Hailing from Indonesia, Go-Jek initially focused its business in the transportation industry but has since grown to diversify its operations to cater to Southeast Asia's largest nation in terms of population and its neighboring countries. The difficulty in hailing an ojek (motorcycle taxi) due to the lack of a proper system served as the primary inspiration for Gojek's inception as this mode of transportation helped to avoid the traffic jams in Jakarta as its residents struggle with two to three-hour commutes [3]. It was initially established as a call center to enable commuters to contact an ojek through a telephone. Co-founded by Nadiem Makarim who launched the business as a smartphone application in 2015 after being inspired by the reception of Grab and Uber, Gojek deviated from the established business models of these platforms as it did not solely offer ride-hailing services but also delivery and shopping to supplement the business's operations outside of rush hours [4]. Despite being a little more than a decade old, hurdling industry challenges such as the merger of Grab and Uber in Southeast Asia, and the stifling competition with other modes of transportation, the company sustained its growth by capitalizing on the demand conditions of Indonesia's immense ride-hailing market and pain points stemming from the country's lacking public transportation system [5]. Gojek’s expansion was marked by a revamp of its logo in 2019, nicknamed “Solv” (Figure 1). With the company’s recent logo change, they aimed to continuously innovate on over 20 on-demand services in their integrated ecosystem as Gojek transitioned from a “Jakarta-based ride hailing service to Southeast Asia’s leading Super App.” [6]

Gojek's growth is also bolstered by its efforts to diversify its services in the food delivery and digital payments industries. Starting from its humble roots as a call center to hail motorcycle taxis, Gojek has gained backing from various renowned companies such as Google, Facebook, PayPal, Visa, and Tencent, raising more than US$3.45 billion in investments and receiving an additional investment of US$300 million from Telkomsel, a subsidiary of Indonesia's largest telecommunications company Telkom [7]. The company's steady growth has produced positive repercussions for MSMEs and the Indonesian economy. According to a study by the University of Indonesia’s Demographic Institute of the Faculty of Economics and Business (LD FEB), it is expected that 1.6% of Indonesia's GDP for 2021 would be contributed by Gojek's portfolio of services and would amount to 249 trillion rupiah (US$ 17.6 billion) [8]. The study also detailed how Gojek's various platforms have empowered its drivers, merchants, and even first-time entrepreneurs to grow by using its services such as GoFood for food delivery and GoSend for courier services during the pandemic.



Sky Mavis


Axie in Sky Mavis / Kohara, Yuki. Sky Mavis' game platform

Image source: asia.nikkei.com


In comparison to other Southeast Asian startups that are gradually becoming household names, Sky Mavis may not ring a bell to a lot of people. However, this startup is the driving force behind the popular blockchain-based game Axie Infinity. Aleksander Leonard Larsen, Jeffrey Zirlin, Tu Doan, and Viet Anh Ho co-founded Sky Mavis with Vietnamese developer Trung Nguyen in 2018 [9]. With the rising interest and viability of blockchain technology, Sky Mavis was able to integrate the use of NFTs into the gameplay of Axie Infinity.


The platform highlights itself as a "play-to-earn" game, deviating from other games that facilitate in-game trading [9]. Real money can be gained by selling NFTs from breeding monsters, known as Axies, to earn tokens. The game's increasing popularity drives the value of its NFTs. Like other cryptocurrencies, Small Love Potion (SLP) and Axie Infinity Shard (AXS) governance tokens can be traded based on their market value [10]. Investors can participate in determining upgrades to the game's ecosystem and direct usage of a community treasury through the AXS tokens while Sky Mavis generates income from the SLP utility tokens when players trade Axies on the marketplace, with the company having a 4.25% fee on every transaction [11].


Furthermore, the same article details how within seven days in 2021, the game was able to record the highest revenue for a decentralized application project in that period as Sky Mavis generated US$ 287.65 million. The startup's promising outlook has attracted numerous high-profile investors outside of Asia. UK-based venture capital firm Libertus Capital spearheaded a series A round for Sky Mavis, raising US$ 7.5 million of investments from the likes of billionaire Mark Cuban and Alexis Ohanian, co-founder of Reddit [9].

Despite Axie Infinity's lucrative gameplay, hurdles facing the platform's sustainability have raised eyebrows from its users as they weather challenges from the in-game trading due to the volatility of cryptocurrencies. The initial fanfare for the opportunity to earn while playing fueled the popularity of the game to grow beyond Vietnam and gain traction in nearby countries where populations still grapple with poverty such as the Philippines.


As the COVID-19 pandemic prompted government-mandated lockdowns resulting in record-high unemployment, Axie Infinity became a sensation in the Philippines two years after its release in March 2018 [12]. The lack of stable sources of income encouraged numerous Filipinos to dabble in the attractive opportunity to earn while playing. With this, willing but financially lacking "scholars'' would shoulder the effort of leveling up Axie monsters lent by wealthier investors known as "managers" in an employment scheme that emerged as an effect of the game's popularity in a country where its peak number of players constituted 40% of the game’s entire users at one point [13]. Moreover, there was also a drastic decrease in active users of 760,000 from 2.7 million daily active users in November 2021. The downturn of the game’s cryptocurrencies affects those who have invested in its tokens, particularly those coming from lower socioeconomic backgrounds and those who have considered the game as their primary source of income during the pandemic.

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The progression of the development of Gojek and Sky Mavis as startups in Southeast Asia detail the opportunities and challenges that up-and-coming businesses in the region must anticipate. Capitalizing on the potential of the digital economy unlocks a polarizing spectrum of untapped markets and risks. On one end, the upward trajectory of Gojek’s growth exhibits the potential of startups by responding to the unanswered problems faced by the region’s population and maximizing unexplored perspectives in their products and services. On the other hand, not all startups are guaranteed to have consistent success and may grapple with unexpected circumstances such as the case of Sky Mavis. Nevertheless, the continuous growth of the countries' economies in the region driven by its young population immersed in the internet, rising demand for goods and services, and influx of support from governments and investors only goes to show that the startup scene in Southeast Asia has more room to improve in offering trailblazing innovations.


References:


[1] Moulton, Sara. “Why Asia is the place to be a startup.” Human Capital Leadership Institute. October 11. 2018. https://hcli.org/articles/why-asia-place-be-startup


[2] Vyas, Roman Kumar. “3 reasons Southeast Asia is a hot market for tech startups.” Forbes. May 17, 2022. https://www.forbes.com/sites/forbesbusinesscouncil/2022/05/17/3-reasons-southeast-asia-is-a-hot-market-for-tech-startups/?sh=5f27521750ab


[3] Davis, Jason. “Digital lessons from Go-Jek, Indonesia’s answer to Uber and Grab.” INSEAD Knowledge. April 13, 2018. https://knowledge.insead.edu/entrepreneurship/digital-lessons-go-jek-indonesias-answer-uber-and-grab


[4] Maulida, Saskia Rizqina. “Nadiem Makarim and Gojek’s runaway success: What you need to know.” The Jakarta Post. October 24, 2019. https://www.thejakartapost.com/life/2019/10/24/nadiem-makarim-and-gojeks-runaway-success-what-you-need-to-know.html


[5] Cho, Nam Jae and Anindya, Firti January. “Analysis of Indonesia’s digital industry and the case of Gojek.” Journal of Information Technology Applications & Management 28, no. 5 (October 2021): 17–39. https://www.kci.go.kr/kciportal/ci/sereArticleSearch/ciSereArtiView.kci?sereArticleSearchBean.artiId=ART002776100


[6] Babu, Apoorva. “Gojek — Southeast Asia’s leading Super App — launches rebrand.” Gojek Tech. July 23, 2019. https://www.gojek.io/blog/gojek-southeast-asias-leading-super-app-launches-rebrand


[7] Singh, Manish. “Telkomsel invests an additional $300 million in Gojek.” TechCrunch. May 10, 2021. https://techcrunch.com/2021/05/09/telkomsel-invests-an-additional-300-million-in-gojek/


[8] Sutrisno, Gabriel Budi. “Gojek to add $17.6b to Indonesian economy: report (updated).” Tech in Asia. October 27, 2021. https://www.techinasia.com/gojek-contribute-176-billion-indonesian-economy-2021


[9] Le, Thu Huong. “Mark Cuban joins Vietnamese gaming startup Sky Mavis’ $7.5m series A round.” Tech in Asia. May 11, 2021. https://www.techinasia.com/mark-cuban-libertus-capital-join-vietnamese-gaming-startup-sky-mavis-75m-series-a-round=


[10] Gonzales, Gelo. “What is ‘Axie Infinity’ and how is it different from traditional video games?.” Rappler. August 23, 2021. https://www.rappler.com/technology/gaming/things-to-know-axie-infinity/


[11] Li, Stephanie Pearl. “What does Axie Infinity’s meteoric rise tell us about the play-to-earn game industry?.” KrASIA. August 11, 2021. https://kr-asia.com/what-does-axie-infinitys-meteoric-rise-tell-us-about-the-play-to-earn-game-industry


[12] Li, Stephanie Pearl. “Axie Infinity and Yield Guild Games took the Philippines by storm but users are starting to question long-term viability.” KrASIA. March 14, 2022. https://kr-asia.com/axie-infinity-and-yield-guild-games-took-the-philippines-by-storm-but-users-are-starting-to-question-long-term-viability


[13] Chow, Andrew and de Guzman, Chad. “A crypto game promised to lift Filipinos out of poverty. Here’s what happened instead.” Time. July 25, 2022. https://time.com/6199385/axie-infinity-crypto-game-philippines-debt/

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