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How the TikTok-Tokopedia deal impacts Indonesia’s digital economy

Published on January 10, 2024

Following the ban on its shopping service by the Indonesian government in October, TikTok announced a blockbuster plan to acquire a controlling stake in the local major e-commerce firm Tokopedia. The former committed to invest over US$1.5 billion into the online shop platform, which would operate TikTok Shop’s business in the country.

According to a statement in December 2023, Tokopedia’s previous parent company GoTo Group would retain a 25% stake in the e-commerce firm with a non-dilution term. In the future, GoTo would also receive an ongoing revenue share commensurate with Tokopedia’s scale and growth.

The strategic partnership would commence with a pilot period carried out in close consultation with and supervision by the relevant regulators, with completion expected in the first quarter of 2024. The first campaign was launched on December 12, coinciding with Indonesia’s National Online Shopping Day.

The partnership aims to create millions of new jobs and provide support for micro, small, and medium enterprises (MSMEs), whose lack of performance became the main stated reason behind the TikTok Shop ban in October. In addition, TikTok would also establish technology centers around the country to foster and improve the local tech talent pool.

TikTok-powered MSMEs

On a recent episode of Indonesia Digital Deconstructed, Adrian Li ⁠and Leighton Cosseboom of AC Ventures teamed up with Jianggan Li, CEO of Singapore-based venture builder and research firm Momentum Works, to dissect the strategic deal, including its implications for consumers, sellers, investors, and the Indonesian tech ecosystem at large.

Jianggan believes the deal is a win-win for both TikTok and GoTo, as the former could infuse lots of its expertise, technology, and products into the local ecosystem. Meanwhile, GoTo could focus a little bit more on other assets that create value, such as digital financial services.

“The deal came out faster than we had thought, and the deal terms are actually brilliant,” said Jianggan.

Nevertheless, the real winner from the transaction is Indonesia’s digital economy in general, which would benefit from the additional investment and tools that are now available again, Jianggan opined. 

Adrian agreed that the return of TikTok Shop, with capital firepower to be injected for market expansion, has the potential to further accelerate the integration of e-commerce for businesses across the country, especially social commerce. The deal also underlines the importance of Indonesia as an attractive market for global companies.

Meanwhile, MSMEs, the prosperity of which was the core tenet of the initial TikTok Shop ban, would have an additional channel to reach consumers in Indonesia.

“When TikTok Shop was shut down, I think many MSMEs were negatively impacted because they lost the traffic. We’ve seen this through some of the e-commerce players that we have invested in. So that’s going to be opened up again,” Adrian explained.

He added that the marriage between the two major tech companies would be beneficial for TikTok, which now suddenly has a large portion of Indonesia’s MSMEs on its platform. The short video app would also have longer-term regulatory protection or at least acceptance to shore up the business for the long term.

On the other hand, it would also remove the burden on GoTo to manage Tokopedia, as marketplace businesses have been notoriously cash-hungry. Adrian pointed to major e-commerce players like Amazon and Alibaba, whose cash flow today is generated predominantly from non-commerce take rates, such as those from cloud computing and revenue from advertising.

“It is difficult to build similar non-commerce businesses for Tokopedia alone. I think for GoTo to be able to hedge this off and essentially be able to simply say, ‘I want to get some of the take rates and not have to finance the cash burn’, that’s a tremendous deal,” Adrian said.

According to a disclosure from GoTo, using an illustration from public data of TikTok Shop and Tokopedia’s gross merchandise value (GMV) in the third quarter of 2023, GoTo would have received US$11.4 million in service fees that quarter if the deal had happened earlier. Such fees would be paid by Tokopedia to GoTo every quarter and would increase as the marketplace’s GMV scales.

The deal also showed how Indonesia is accessible for foreign businesses, Adrian added, as long as those global players have the right local partner and enter the market in the right way. He stressed that Indonesia is not a country that simply does not allow foreign companies to come in.

“Indonesia rightfully is employing a stance where foreign companies need to partner with local companies so that there can be some value captured domestically,” said Adrian.

Why didn’t GoTo’s stock boom?

Leighton pointed out that the stock price of GoTo on the Indonesia Stock Exchange (IDX) dropped precipitously following the deal announcement.

Adrian opined that it may be simply a profit-taking move, as GoTo’s stock price had moved up significantly since the regulatory ban of TikTok Shop and there were some leaks in the media on a potential partnership between Tokopedia and TikTok.

“I think people probably just saw it as a good time to sell some of the stock and not an indication of how much value creation would happen in the long term after the partnership,” Adrian said.

Jianggan agreed that the stock price drop may just be profit-taking, as GoTo’s stock has surged around 60% since October. He also pointed out that upcoming general elections may give short-term uncertainty on who will take over the country’s leadership.

Jianggan said, “When you look at the bigger trends, I mean how Indonesia is moving and digitizing, and how the government over the last two terms and probably the next term as well has been pro-business, I think those big trends will probably remain, and this is what people like as well.”