Chapter One
E-commerce Emerges in the Wild

As ASEAN's single largest market, Indonesia has long held incredible economic potential, underpinned by powerful demographic fundamentals, such as a young and growing population of more than 280 million people.1

In less than 10 years, Indonesia's digital economy has grown from its infancy to a forecast of US$360 billion by 2030.2 This value creation has happened across many industries: commerce, finance, MSMEs (micro, small, and medium enterprises), climate technology, and more. But one thing they all have in common is that they were created by visionary founders who persisted through the many challenges faced on the entrepreneurial journey.

In the early stages of internet adoption, startups in Indonesia encountered not only external challenges like limited internet penetration but also significant issues with payment systems and logistics. These foundational hurdles were compounded by a scarcity of capital for startups and hence funding to create robust, scalable businesses.

This chapter examines the emergence of Indonesia's digital economy, highlighting influential individuals, pivotal companies, and defining events that catalyzed its growth. The narrative begins with the early internet forums that linked Indonesian diaspora communities and progresses to the establishment of the nation's first major e-commerce platforms. It recounts how Indonesia's digital landscape was meticulously crafted by pioneering entities like Kaskus, Tokobagus, Tokopedia, and Bukalapak amidst a backdrop of cultural, economic, and technological transformations.

As we examine the rise of Indonesia's first unicorns and the impact of foreign investors and returning diaspora, this chapter shows the forces behind the country's digital boom. Indonesia's e-commerce evolution testifies to the power of entrepreneurial spirit and the transformative potential of technology in shaping the future of a nation.

Beginnings

To fully understand the birth and evolution of Indonesia's digital economy, we need to look back to the turn of the millennium.

By the start of 2001, some 150 licensed internet service providers were offering 150 Mbps of bandwidth-certainly not insignificant for a country that first connected to the internet in 1994.3 The majority of users were using dial-up to check their email, chat, or catch up on news, so it was only a matter of time before the transition to e-commerce took place.

However, that transition might have taken longer had there not been a few key players already on the move and a couple of foreign serial entrepreneurs to pave the way. In late 1999, six years before Reddit was founded, three Indonesian students in Seattle, Washington, came up with Kaskus (short for "kasak kusuk" or gossip news in Indonesian), an informal forum for the large Indonesian student diaspora.4

An early social media progenitor, Kaskus was a strong community builder for the many Indonesians to stay in touch with developments back home while making English news accessible by translating it into Bahasa Indonesia. Kaskus cofounders Andrew Darwis, Ronald Stephanus, and Budi Darmawan also recognized the potential of the nascent web advertising sales market, as local news site Detik.com boasted 6.42 million visits in 1999.

However, battling Detik proved too expensive, leading Andrew's two cofounders to drop out of the project. In 2000, Andrew transformed Kaskus into its forum-like iteration, moving away from journalism into user-generated content.

That same year, Indonesia's famous tourist island of Bali became home to BaliCamp, the nation's first startup incubator, and a haven for software developers.

The Marketing Dutchmen

It was against this backdrop that Tokobagus (now called OLX Indonesia) launched in Bali in 2005. Combining the Indonesian words for "shop" (toko) and "great" (bagus), the e-classifieds site was the brainchild of Remco Lupker and Arnold Egg, two young entrepreneurs from the Netherlands who had discovered Bali's internet cafes on holiday and saw Indonesia's incredible e-commerce potential.5

Two decades ago, Indonesia had barely any startup infrastructure, so Remco and Arnold quickly learned Bahasa Indonesia and found that this opened doors when introducing e-commerce to the government and local business partners.

In those early days, the task of introducing Tokobagus to consumers was formidable. Trust was in short supply all around, and brand recognition was essentially nonexistent for the company at that point. As such, Remco thought of a simple solution to the problem: bring Tokobagus and e-commerce straight into Indonesians' living rooms.

In October 2005, Tokobagus launched the first of its many nationwide television campaigns.6 This was followed quickly by online and out-of-home advertising. Soon enough, Tokobagus was in homes, in elevators, on billboards, and visible via Google and Facebook. The all-out advertising strategy paid off, as page views and unique visits soared.

As Tokobagus slowly increased its foothold in the C2C (consumer-to-consumer) space, Andrew continued building out Kaskus while studying in the United States. In 2008, armed with a new investor and CEO in Ken Dean Lawadinata, Andrew and Ken returned to Indonesia to give Kaskus a branding overhaul, resulting in Kaskus ending the year with 350,000 registered members generating 2.4 million page views daily.7 Not only were Indonesians increasingly online, but they were also online for longer periods.

In 2011, Kaskus accepted its first investment from GDP Venture, a digital investment subsidiary of Djarum Group, a diversified conglomerate owned by the influential and wealthy Hartono family.8 The investment allowed Kaskus to transform itself into a place where people could formally buy and sell from one another via a C2C e-commerce model. It was a natural progression, as many Kaskus users were already doing this informally.

The rising tide of C2C e-commerce served as an accelerant. By mid-2011, Tokobagus was recording 160 million monthly page views and growing by 100% year over year.9 Tokobagus was also quick to embrace mobile, encouraging sales via its Blackberry app in May 2011.10

Even after Remco and Arnold exited the company to pursue other business opportunities (via an acquisition by South African conglomerate Naspers in 2012), the site continued to grow, hitting 1 billion page views by the end of 2013.11 By then, Tokobagus was acknowledged as the front-runner of Indonesian e-commerce.

Both Remco and Arnold remained active in the Indonesian venture space after exiting Tokobagus, separately founding new ventures, investing in startups, and coaching young entrepreneurs. Remco has since passed away, but Arnold is still active in the venture capital (VC) space. He became an Indonesian citizen in 2013, and now spearheads a venture builder tied to Wright Partners and digital consultancy firm Sprout Digital Labs.12

Enter the Unicorn Foals

Though Tokobagus had become part of a larger conglomerate with both its founders having moved on, their efforts to introduce e-commerce to Indonesian consumers, policymakers, and the business community paved the way for the first batch of homegrown e-commerce companies in the archipelago.

While many new e-commerce entrants ultimately died off, the trend did lead to the formation of two of Indonesia's earliest unicorns: Tokopedia and Bukalapak.

The Internet Cafe Graduate

From 1999 until 2003, William Tanuwijaya was pursuing his degree at Binus University-a private college in Jakarta-when his father fell ill and was unable to continue supporting him financially.13 As a result, William started to pull the graveyard shift at internet cafes to cover his tuition.

It was during those nights that he came up with the idea for Tokopedia, an all-encompassing marketplace that would bring e-commerce to MSMEs across Indonesia's more than 17,000 islands-a major reason why logistics costs in Indonesia account for a significant portion of the country's economy.

William and his cofounder, Leontinus Alpha Edison, believed their C2C marketplace would democratize commerce through technology. The goal was to ensure that consumers across Indonesia could clearly see and understand the prices of a wide range of goods. Tokopedia aimed to offer them the ability to safely buy these products online from any location in the country.

Before Tokopedia's arrival, consumers were paying different prices for the same goods depending on where they lived. Meanwhile, merchants in smaller cities had to overcome higher capital barriers to get their businesses off the ground and gain access to the larger national market.

The two cofounders began toying with their venture idea in 2007, deciding that combining "toko" (store) with "encyclopedia" would result in a winning name. At the time, they could not have imagined how big of a winning idea it was, as Tokopedia went on to become Indonesia's very first e-marketplace.

"At that time, there was no proper online marketplace in Indonesia. Instead, everyone used websites like online forums, social networking sites, and even blogs as platforms to buy and sell things online. Those websites then became what is known as a classified-ads e-commerce model in Indonesia," William recounted...