How will the TikTok-Tokopedia alliance disrupt the Indonesian e-commerce space?

TikTok, owned by ByteDance, is considering a return to the Indonesian market by making a substantial investment in GoTo's Tokopedia.

TikTok Shop, the platform's venture into social commerce, had to shut down last October in line with a new rule introduced by the Indonesian government, barring online shopping on social media.

On December 11, GoTo (which is listed on the Indonesian Stock Exchange) unveiled plans to relinquish operational control of Tokopedia to the social media giant.

Under the new arrangement, Tokopedia and TikTok Shop Indonesia will merge, adopting the Tokopedia name. TikTok will secure a 75% ownership stake in the merged entity, leaving the remaining share in the hands of GoTo.

To initiate the integration, Tokopedia will pay a sum of $340 million to acquire business contracts and exclusive rights for operating TikTok Shop in Indonesia. Additionally, the company will issue new shares to TikTok, amounting to $840 million.

According to YouGov, Tokopedia is the choice for 39% of Indonesia's online shoppers, second to Shopee, which boasts a massive 73% patronage. After that comes Lazada, with a 22% share, while Bukalapak, Blibli, and Zalora trail with 6%, 5%, and 2%, respectively.

For consumers making multiple monthly purchases, Shopee still leads at 77%, with Tokopedia nipping at its heels at 43% and Lazada at 24%. Bukalapak, Blibli, and Zalora are still in the picture but with smaller shares.

Interestingly, before TikTok Shop had to pull down its shutters, there was a significant overlap in user base with Tokopedia. About 32% of TikTok Shop's customer base was also shopping on Tokopedia, which is quite a bit lower than Shopee's 71%, but higher than Lazada's 23%.

So, with such a large investment, where does the TikTok-Tokopedia partnership stand in the grand scheme of Indonesia's e-commerce landscape, and what are its anticipated outcomes? Campaign explores with industry experts.

A new e-commerce giant?

According to Bain & Company's SYNC Southeast Asia report, the consultancy has observed more consumer behaviour trends emerging in Indonesia than any other part of Southeast Asia.

These include value-seeking behaviours in the current climate, where buying via promotions is a crucial approach to shopping. Additionally, the continued emphasis on social media is an essential part of Indonesians' lives, alongside a high prevalence of switching to insurgent disruptor brands.

With these trends in mind, Justin Halim, expert partner, marketing and e-commerce practice head for APAC at Bain & Company, tells Campaign the coming together of both social and commerce in the TikTok-Tokopedia partnership provides the opportunity for consumers to satisfy these behaviours across the entire consumer journey, within the one ecosystem.

Halim notes that, in the online realm, the majority of consumers lean towards discovering and buying products. This includes activities such as learning and making transactions during promotions, transitioning to more affordable brands, or exploring new emerging brands.

"In addition, the partnership is exciting for Gen Z in Indonesia. Indonesia has among the highest proportions of its population in Southeast Asia (and globally), with Gen Z at more than 24% of Indonesia's total population," says Halim.

"They are born digital and spend more time online than any other generation. [They] are large consumers of short-form video for entertainment and to discover new brands/products, adopt new tech, and make purchases online—making this partnership an exciting space for this group."

Simon Torring, co-founder at Cube Asia, points out to Campaign that Shopee was the definitive market leader in Indonesia's e-commerce landscape before the TikTok-Tokopedia alliance.

However, he notes Tokopedia was not far behind and ahead of Lazada in gross merchandise volume (GMV). While TikTok Shop had grown incredibly fast, it was still far smaller than Shopee and Tokopedia.

According to Torring, the most interesting dynamic in the short-term is the investment posture of the different e-commerce players, and its implication on where consumers decide to spend.

He observes in the third quarter of 2023, the picture was one where TikTok Shop and Shopee invested heavily in GMV growth, Lazada was more measured, and Tokopedia was almost on the sidelines to restrict spending and optimise for profitability.

In the fourth quarter, that changed entirely when TikTok Shop had to go offline for about 60 days. During that period, Shopee and Lazada invested heavily to capture market share while Tokopedia stayed dormant. 

"Now, the landscape has completely changed again. While Shopee and Lazada may continue to invest, there are now potentially two players who are ready to amp their growth investments up again: TikTok Shop, which is live again, and Tokopedia, which is now majority-owned by a very cash-rich and aggressive TikTok," explains Torring.

"Net, we will see Shopee, and particularly Lazada, under significant pressure over the short-term as TikTok Shop and Tokopedia ramp up their subsidies and marketing investments."

Furthermore, the TikTok and Tokopedia partnership can potentially develop an entirely new social media platform/e-commerce marketplace platform model that Indonesia has never seen before, predicts Ajay Tawde, head of experience for Indonesia at Ogilvy.

Tawde explains to Campaign the partnership is another step in the ongoing industry shift towards continuous commerce, where the bottom funnel ceases to exist. Instead, every touchpoint becomes shoppable for consumers.

"The partnership could provide a more personalised and engaging consumer shopping experience, with features like live streaming, interactive product demonstrations, and personalised recommendations. Additionally, the combined entity has the potential to offer a broader range of products and services through the Tokopedia platform, benefiting both consumers and sellers," explains Tawde.

"The TikTok-Tokopedia partnership could disrupt the existing equilibrium in Indonesia's e-commerce market, as it could challenge the dominance of platforms like Shopee. However, the final details of the partnership are still not revealed, and how it will impact consumer shopping habits and preferences in the long run remains to be seen."

Will small businesses in Indonesia benefit?

As Indonesia's e-commerce ecosystem starts to mature and reach wider audiences, it also presents significant challenges for small businesses (SMBs), who may struggle to adapt to the shift in consumer behaviour.

There are concerns about a potentially uneven playing field as bigger businesses and brands, armed with larger budgets and production capabilities, may easily outshine and drown out smaller players.

"This highlights the responsibility of all the players in the ecosystem to empower small businesses by educating them on the fundamentals of live shopping, online merchandising, etc," explains Tawde.

"The responsibility of the partnership between TikTok and Tokopedia is to ensure that it fosters a fair and competitive environment for businesses of all sizes."

Alex Tan, commerce director at VML Singapore, believes SMBs will be able to tap on TikTok's wide (125 million) and diverse, mass and country-wide user base, in addition to Tokopedia's existing user base of 18 million. These are primarily in urban cities to showcase their products more engagingly and creatively, focusing on visual content and storytelling.

Tan explains that SMBs could now have better accessibility (price and choices) to influencer marketing, creators and affiliates with its in-house solutions like TikTok Creators Marketplace (TCM) and TikTok Creative Xchange (TCX). Having in-house solutions allows SMBs to collaborate at various levels to boost their visibility and credibility.

Conversely, he cautions SMBs must compete with other sellers and the vast content on TikTok. Creating engaging content can be resource-intensive, which may require SMBs to acquire new skills or seek external assistance.

"With TikTok's interactive platform, small businesses can organise live streams and Q&A sessions for real-time customer engagement. This could help them build a more intimate relationship with their customers, fostering loyalty and repeat purchases," Tan explains to Campaign.

In addition, Tan says this partnership will provide SMBs access to valuable consumer data and insights, allowing them to tailor their offerings effectively. This data could be information on trending products, keywords, and customer preferences. 

"Given the partnership's focus on supporting local SMBs, we expect specialised campaigns and onboarding activities focusing on 'local commerce', helping local sellers promote products on the platform," adds Tan.

More personalised shopping experiences

As per the Indonesian trade ministry regulations that forced TikTok Shop to go offline in Indonesia to begin with, TikTok Shop and Tokopedia are technically not allowed to share user data. However, it is unclear to what extent these standards will be upheld or enforced, as the merger seems to have gone ahead successfully. 

For example, the regulation also forbids blending social media and e-commerce payment transactions in the same app. However, that is currently how TikTok Shop is functioning again in Indonesia as of early January 2024.

"TikTok has many potential ways to find synergies between TikTok Shop and Tokopedia," explains Torring.

"However, the potential for integrations on the seller side might be more important than the user data—such as providing accessible tools for co-listing products across the two platforms or displaying TikTok videos and live streams for a given product on the corresponding Tokopedia product page. It remains to be seen whether this will pass muster with the regulator."

Should the regulation not be strictly interpreted, Tan says by integrating TikTok's social media data, such as user preferences, consumption and engagement patterns, with Tokopedia's transaction data, both parties are more likely to understand shoppers' preferences, audience share or what they spend time watching.

TikTok and Tokopedia can tailor their product offerings to match these interests, resulting in a more relevant shopping experience.

"By understanding the types of content users engage in TikTok, Tokopedia can create 'frictionless commerce' to streamline the shopping journey. For instance, if a user constantly engages in videos about a specific skincare product, Tokopedia can highlight and offer the product for easy discovery and similar comparisons to make purchase decisions," explains Tan.

"The integration can also enable more effective marketing campaigns. TikTok can combine its demographic and psychographic data with Tokopedia's purchase and browsing data to create a more accurate shoppers' profile. This can help craft a more relevant marketing message that resonates with that shopper's segment, increasing effectiveness in their A&P campaigns."

In addition, by analysing trends and user engagement on TikTok, Tokopedia can predict up-and-coming products that are likely to be in high demand, resulting in better inventory planning and ensuring popular items are well-stocked and promoted.

"With access to rich data, personalisation can reduce cart abandonment rates in Tokopedia. Shoppers will likely be offered personalised discounts, reminders and alternative product suggestions based on their user engagement in TikTok to encourage checking out," says Tan.

How will TikTok-Tokopedia compete?

"While TikTok Shop became famous in 2022 and 2023 as an e-commerce platform focused on livestreaming and short-form videos, there is no doubt that TikTok's ambitions for e-commerce are far greater than that," explains Torring.

"TikTok also wants to win so-called intent-driven e-commerce—the lion's share of e-commerce, where users begin their customer journeys with specific intent and use search and category-based discovery to compare and buy products. This is precisely what Tokopedia (and Shopee and Lazada) offer today."

Instead of the digital shelf or catalogue-styled shopping, TikTok's forte creates engaging, viral, and shareable content, collaborating with creators and affiliates for product endorsement, live streaming, and shoppable videos to drive traffic and sales.

Tan explains this means TikTok is inherently social, and integrating this aspect into the shopping journey will make shopping on Tokopedia more engaging and community-driven, which will be the key differentiator in establishing a social shopping experience.

Possible features include sharing favourite products, creating a wishlist and seeing what friends and influencers are buying, which can also increase the dwell time and conversion on the platform.

Given the popularity of TikTok among younger audiences, Tokopedia can also tailor marketing and product strategy to appeal to this demographic, including expanding into new and emerging product categories.

"Regarding the UX, TikTok-Tokopedia should provide a seamless and intuitive shopping journey that integrates social and shopping elements. [They should] ensure that the transition, the path to purchase from TikTok content to Tokopedia for purchasing, is smooth and user-friendly," says Tan.

"They can tap into a growing trend of supporting local businesses by developing programs to promote and support local sellers and artisans. In this way, they can foster a sense of community and shape the perception of inclusive shopping. A 'Gotong Royong' platform may be a good strategy."

It is also possible for TikTok to integrate video reviews into Tokopedia product pages, and the ability to book flights, food delivery, and bill payments through TikTok, enabled by Tokopedia, is also possible.

Another possibility, says Tawde, could be viewing TikTok's trending analytics within the seller panel on Tokopedia so sellers could customise their bundles, plan keyword strategies in real-time, and develop campaigns during mega sales days.

"Such collaboration strategies would boost TikTok-Tokopedia's reach and market share and set the benchmark for global e-commerce marketplaces," explains Tawde.

The road ahead for TikTok-Tokopedia

As mentioned above, the uncertainty on the ability to share user data will be a crucial part of the TikTok-Tokopedia partnership and will determine if this merger is successful. The Indonesian trade ministry's regulation stipulates the need to split social media and e-commerce payment transactions in a relatively lengthy, more than 27-page document, with many rules to protect consumers and domestic sellers in Indonesia.

It also includes limitations to data sharing between apps, restrictions about so-called illegitimate pricing strategies, e-commerce platforms' customer service requirements, and others.

"What is interesting is that TikTok Shop currently operates almost exactly the way it did before the regulation and in a way that does not comply with it," says Torring.

"That might be a temporary state—perhaps TikTok is working on an alternative customer experience with the regulator's blessing. Still, it raises questions about whether the regulations will be enforced."

In addition, Tan says TikTok and Tokopedia must protect consumer rights, including clear product descriptions, fair prices, return and refund policies, and customer service. Predatory pricing, which kills small businesses in low-volume sales, is disallowed.

"On the TikTok end, it will need to monitor and regulate content and advertisements to ensure they are not misleading or violating the advertising standards set by the authorities," explains Tan.

"They should ensure compliance with Indonesian tax laws, including invoicing, tax collection, remittances, payment, and financial and anti-money laundering regulations. Last but not least, both parties should ensure that products sold through the platform do not infringe on IP rights to avoid legal issues and maintain the integrity of the marketplace."

*Note: TikTok declined to participate in this story when Campaign reached out.