Technology, Media & Telecommunications

Industry Perspective

An outlook on Asia’s sharing economy Industry Perspective Technology, Media & Telecommunications 2

(This page is left blank intentionally) Industry Perspective Technology, Media & Telecommunications 3

Executive summary Convenience is a key driver of the sharing economy due to:

Smartphone Number Lack of Cost usage of apps time savings

Ride-hailing / e-commerce • After establishing a large • Companies are looking customer base, ride-hailing into the online-to-offline companies are branching out to (O2O) model and additional categories to increase business-to-business customer lifetime value (CLV). (B2B) space to drive revenue growth. • Ride-hailing companies aim • Chinese players have to become super apps, with Four key been investing in services centred on a pillars ’s (SEA) consumer’s daily activities. of the e-commerce players to expand their footprint sharing in the region. economy

Hospitality and Real Estate Content • Convenience is the main factor • Cost-effectiveness of that has contributed to the content streaming success of travel-related apps. services is a huge • Online travel agencies (OTAs) driver of the market. are expanding their verticals to • Streaming service look for new sources of revenue. companies such as • Traditional developers are also Spotify are starting to starting to invest in co-working look into the B2B space spaces. to grow their revenue.

For more information on UOB’s value chain solutions for the digital business sub-sector, please reach out to us here.

June 2019 Industry Perspective Technology, Media & Telecommunications 4

Content

03 Executive summary Overview of the 05 sharing economy 08 Ride-hailing Sector: Technology, Media and Telecommunications 12 Hospitality An outlook on Asia’s Real estate: co-working sharing 16 spaces economy 19 Content

22 Retail / e-commerce

25 Risks 27 Case studies Industry Perspective Technology, Media & Telecommunications 5

Overview of the sharing economy Industry Perspective Technology, Media & Telecommunications 6

Overview of the sharing economy

Pure sharing economy Pure Sharing Hybrid Sharing 1 Refers to assets/services shared Economy Economy among individuals through various distribution channels via the internet, e.g. • Airbnb • • Carousell to buy/sell unused second-hand goods. • Kaodim • Traveloka • Airbnb to lease or rent • Style Theory

space/apartments. Commercial • Carousell Hybrid sharing economy

2 Includes platforms that facilitate the buying and selling of goods and services on top of shared • Lendor assets/services, e.g. • ZeroWasteSG Commercial

• Shopee enables the buying and - selling of products between merchants and consumers. Non • Traveloka aggregates the travel services of various providers.

Four key drivers of the sharing economy

Increased time spent Change in consumer on smartphones behaviour Southeast Asian Increased demand for consumers spend procuring goods/ approximately four services in the quickest to six hours on their way possible. smartphones daily.

Convenience is the Increased number main driver for the Cost savings of apps rise of the sharing Consumers can Growing number of economy access services and apps that connect goods at a lower cost. consumers with the products/services.

Source: UOB analysis Industry Perspective Technology, Media & Telecommunications 7

The concept of the sharing economy can be illustrated through four key areas:

• Ride-hailing apps fulfil transportation • Online platform for buying and needs by matching rider demand selling of goods/ services. with driver supply. • Riders can share access to vehicles.

• Content apps for music and video • Hospitality: For booking of content. Examples include Netflix, accommodation/ tickets when travelling. Spotify and Youtube. • Real Estate: Utilising co-working spaces to maximise empty spaces while enabling more flexibility.

While the sharing economy is a global phenomenon, a critical success factor lies in their localisation strategy. A Google and Temasek report predicted that Southeast Asia’s internet economy will grow to US$240 billion by 2025 driven mostly by the growth in online travel, e-commerce and online media.

Source: UOB analysis, Google and Temasek Industry Perspective Technology, Media & Telecommunications 8

Ride-hailing Industry Perspective Technology, Media & Telecommunications 9

Huge potential for growth in the ride-hailing market with growing number of users and daily transactions Growth in ride- 3 hailing market

Increased 2 demand for ride- Ride-hailing market in Key reasons for 1 hailing services SEA is expected to growth surge to US$20 billion (bn) in Gross Number of ride-hailing users* Merchandise Value is expected to double by (GMV) by 2025. 2022. Poor transport US$5bn and road ~60m 2017 US$20bn infrastructure 2022 2025 ~30m 2018

Low car Inefficiencies ownership in the public transport system Key strategy of ride-hailing players • Establish a large base before expanding into other verticals. • Continue to expand by growing in breadth and depth. • Breadth: Covering different types of services • Depth: Ensuring consumer stickiness and driving higher usage from its existing base

As smartphone penetration increases in emerging markets, we expect the ride-sharing penetration in these markets to also grow and reach 10-15% by 2023. We have seen how Mainland China has reached a higher ride-sharing penetration rate due to its higher smartphone penetration.

2018 Mainland China Thailand Vietnam Smartphone 66.6% 45.9% 62% 37.7% 44.9% penetration Ride-sharing 15%-19% 4%-7% 4%-7% 3%-5% 3%-5% penetration

* Note: Includes markets such as (China), Indonesia, , , Thailand

Source: UOB analysis, Data from various sources, Google and Temasek Industry Perspective Technology, Media & Telecommunications 10

Key strategies of ride-hailing companies: Offering additional categories to boost a larger CLV and average order value (AOV)

AOV / GMV

Stage #4 – Targeted product offerings Stage #3 – Collection of customer data Critical mass of Stage #2 – users and Increased significant data number of will enable services As the number of services expand, targeted product Stage #1 – ride-hailing offering Achieving players are able to critical mass Existing users start transacting gather more data for other services on consumers Transactions offered by ride- through the ride- hailing players hailing app

Timeline

Source: UOB analysis Industry Perspective Technology, Media & Telecommunications 11

A look at Go-Jek: A ride-hailing company’s journey towards becoming an all-encompassing super app

All these services are fulfilled through Go-Pay, Go-Jek’s digital GO PAY wallet, serving users of varying demographics.

Scenario 1

GO FOOD GO GLAM GO MASSAGE GO LAUNDRY

11am 3pm 6pm 8pm • Stay-at home mother with 2 Orders Gets a facial done Takes a break with a Laundry gets children food for her in the comfort of massage while her collected from • Does not children her home children are napping home have the time to head out

Scenario 2

GO CAR GO SEND GO TIX GO CLEAN

8am 12pm 3pm 8pm • Working professional Orders a Sends something Movie tickets Able to get his • Does not have Go-Car to get to his mother get sent to house cleaned the time to do to work during lunch his office even when he is housework not at home • Does not have the time to shop

Go-Jek has gained close to 50% of Indonesia’s ride-hailing market and has expanded in various verticals.

Source: UOB analysis, Go-Jek Industry Perspective Technology, Media & Telecommunications 12

Hospitality Industry Perspective Technology, Media & Telecommunications 13

The convenience of accessing a vast number of hospitality services has led to the popularity of travel apps

Past Present

Consumers travel to the tour agency 1

growth3X expected Consumers discuss with the agency on for the SEA online travel their proposed plans 2 Consumers market from 2017 to 2025 have immediate (US$26.6bn to US$76.6bn) access to a wide and customisable range of travel options via an online platform Tour agency calls the airline to confirm the flights 3 60-70% travellers Use mobile apps to make travel plans

Consumers make payment at the agency 4

Source: UOB analysis, Google and Temasek Industry Perspective Technology, Media & Telecommunications 14

A look at Airbnb: An asset-light company with a large revenue gained through the sharing economy

Homeowners Airbnb Travellers Who is Airbnb? Homeowners Airbnb is an app that Travellers have a rent out their connects homeowners cheaper option unutilised space. and travellers. other than hotels.

• Asset-light business model and revenue for six key markets* was US$1.5bn in 2017. This made up close to 60% of the global revenue of US$2.6bn, showing importance and vast potential for growth in these countries. Business • Airbnb operates a simple pay-per-booking model, charging a 3% fee to the model host and 6%-12% to the guest on the value of the booking. • Airbnb was reported to be raising cash at US$30bn valuation, exceeding that of every major hotel chain. In comparison, the market cap of Hilton Worldwide Holdings was around US$21bn.

• Airbnb’s new initiative ‘Backyard’ aims to design a prototype of new ways of building and sharing homes. Strategies moving • This is likely Airbnb’s strategy to diversify its revenue stream as it faces forward more regulatory hurdles. It has also launched the “Experiences” business line for travellers to book classes, outings and tours with the local providers.

*Includes Mainland China, Hong Kong, India, Malaysia, Singapore, Thailand

Source: UOB analysis, various media sources, Google and Temasek Industry Perspective Technology, Media & Telecommunications 15

A look at Traveloka: Entering the market at the right time was the main factor to Traveloka’s success

Timing PayLater Launched at the right place and time Flexible payment options Traveloka launched in 2012 and 2013-2014 was Consumers are able to purchase products first the period when the smartphone boom happened and pay later. The limit for this is close to in Indonesia. This was also the period when US$3,500. Payments can be made one to two consumers were starting to purchase more things months later with low instalment fees without any online. annual fee and downpayment needed.

Best Price Guarantee Convenience

Price advantage All-in-one travel platform Traveloka offers to match or to beat lower prices Users are able to purchase all travel-related found on other websites. booking services on one platform, including tickets to tourist attractions and activities.

Traveloka as at January 2019 making it has been one of the most popular travel downloaded million booking apps in Southeast more than 40 times Asia. App helps consumers search, compare and purchase flights, train tickets, hotel and tour packages.

Source: UOB analysis, Traveloka Industry Perspective Technology, Media & Telecommunications 16

Real estate: Co-working spaces Industry Perspective Technology, Media & Telecommunications 17

Co-working spaces: Provides flexibility and convenience

Appeal of co-working spaces

Flexible. Startups prefer flexibility in managing their Cost effective. This is beneficial for small start- resources. They now do not need to commit to long ups/teams that do not want to commit to a large term office leases at the onset of their operations and permanent space yet. and have flexibility to manage it on a need-to basis.

Convenient. Startups especially do not need to Encourages creativity and networking. Co- deal with managing an office space and can working offers the opportunity for collaboration manage their limited resources more efficiently. among companies within the same space.

Demand from these type of companies

Multinational corporates (MNCs) Grab Flexible lease terms enable MNCs to manage their workspace Startups requirements arising from changes As the number of startups grows, Microsoft in headcount and project-based the demand for co-working spaces work. has also increased given the flexibility of scaling their operations. IBM

Co-working space companies that have expanded in the region

Number of co-working space companies is growing

Co-working space enables individuals to Go Work Common Ground work independently or collaboratively in a Spaces Ucommune shared office space. Just Co

Source: UOB analysis, various media sources Industry Perspective Technology, Media & Telecommunications 18

Content Industry Perspective Technology, Media & Telecommunications 19

Cost-effectiveness of content streaming services is a huge driver of the market

>2X >200% Revenue Growth Increase in Time Spent

between 2015 and 2021 on video streaming hours for the Asia Pacific video from 2015 to 2017 streaming industry

Early Timeline 1990s Present 2000s

Streaming services: US$9.99 per month CD: US$15 for 15 songs MP3: US$1.29 per song with access to 30 Evolution of million songs medium of content Video streaming services: US$10.98 per delivery DVD: US$15 for one DVD: US$1.50 per day month with access to movie (rental) >5000 TV shows / movies

Content was limited to Content was limited Variety of Millions of songs and one CD (15 songs) or to the show/ song content thousands of shows one DVD (one movie) subscribed or purchased

US$1 per song but one For the same five songs, US$10 per month for an Cost per has to purchase CD at one has to pay almost infinite number song/show US$15 to listen to five 5xUS$1.29= US$6.45 of songs or shows songs

Source: UOB analysis, various media and online sources Industry Perspective Technology, Media & Telecommunications 20

A look at Spotify: Localisation a key factor for its success

At a glance

• Global music streaming service offering basic features for free • Paid subscriptions offer additional services such as improved streaming quality • Started as a business-to-consumer model Spotify • Revenue earned from subscriptions and advertisements • Currently in these Asian markets - Hong Kong, Indonesia, Japan, Malaysia, Philippines, Singapore, , Thailand and Vietnam

Strategies

Local partnerships Tailored payment structures

• With telco operators to offer • Different payment options: In light of the low credit card bundled mobile plans with penetration rate, users can pay for Spotify with phone paid subscriptions credits, bank transfers or cash at convenience stores

• With local musicians by • Lower monthly fees: Average monthly fees less than promoting playlists with US$5 compared to US$9.99 in US and US$14 in Britain local hits, prioritising licensing for Korean pop • Tailored subscription plans: Family subscription plan music etc for six users works out to be as low as US$1 per person

What’s next for Spotify?

Spotify is focusing on B2B strategies to gain more breadth and depth in the industry

• Offering B2B subscriptions that enable consumers to stream music in public spaces with a monthly subscription of around US$35 Partnerships include • Retail stores (Starbucks) • Soundtrack Your Brand – Provides customised playlists to fit client’s brand. Global clients include Aesop, Joe & The Juice, McDonald’s, TAG Heuer, Uniqlo and W Hotels. • Building on partnerships with telcos to tap large databases to gain subscribers

Source: UOB analysis, SCMP and Forbes Industry Perspective Technology, Media & Telecommunications 21

Retail/ e-commerce Industry Perspective Technology, Media & Telecommunications 22

E-commerce companies driving growth with O2O and B2B strategies

Reasons for growth • Rising middle class in Southeast Asia • Mobile-first society

Key growth numbers • Less than 5% of Southeast Asia’s sales are done online, reflecting the growth potential of the market. • Southeast Asia’s e-commerce Gross Merchandise Value (GMV) of first-hand goods was close to US$11bn in 2017, up from US$5.5bn in 2015.

E-commerce players are starting to look for new strategies to expand their verticals as the share of e-commerce is still quite small compared with overall retail numbers.

O2O (Online to Offline) Greater focus on B2B. With Chinese players expanding Traditional retailers are moving B2C still in the low single-digit their footprint in SEA. online, while e-commerce percentages, companies will players are also setting up start focusing more on B2B. Alibaba.com invested in offline stores to complete the Examples: • Lazada customer experience journey. • tokopedia Examples: Zilingo Love, Bonito Launched for consumers in US Tencent and/or JD.com and Europe to buy at wholesale Pomelo prices. invested in • Go-Jek Shopee • Pomelo • Shopee Wholesale feature for merchants • Tiki to set lower unit prices for larger • Traveloka orders.

Source: Google-Temasek, Newswires and various sources Industry Perspective Technology, Media & Telecommunications 23

A look at Carousell: Seeking new ways to drive monetisation

• Start: Consumer-to-consumer marketplace for buying/selling of low-value second-hand goods • Current: Buying/selling of used products and new larger-ticket items • Goal: To be the world’s largest online classified listing platform • Operates in , Hong Kong, Indonesia, Malaysia, Singapore, Taiwan • Generates revenue by moving into other verticals and monetising some services

Monetisation and Artificial Intelligence (AI) now a key focus of Carousell

Premium listings Introduction Launched Artificial for sellers of paid listing CarouPay Intelligence For S$2.98, users services for Users can make Building AI can boost their other verticals payment through solutions to boost listings to the top Cap on the number payment apps, credit sell-through rates of their category of free listings for or debit cards. and to increase for three days. Cars and Property Carousell charges a quality of listings. categories. Charges nominal fee of 4.98% users for listings in + S$0.50 (US$0.37) the Jobs, Services- for all successful related and Learning transactions. and Enrichment categories.

Source: UOB analysis, data from Carousell’s website Industry Perspective Technology, Media & Telecommunications 24

Risks Industry Perspective Technology, Media & Telecommunications 25

Despite the huge potential of the sharing economy, there are risks arising from this new business model

Lack of fiscal discipline With too much money from investors, companies could over-expand and face operational difficulties as a result.

“Loss-making companies” Many of these companies are still making losses and burning cash. It could take time before they become profitable.

Collateral drawbacks The lack of protection and stability for companies in this new economy could mean that employees in this industry would face a clear disadvantage.

Regulatory impact Despite being a relatively nascent industry, many of these companies are subject to regulations. For example, in Japan, more than 40,000 Airbnb rentals were removed after Japan implemented a new home-sharing law.

Source: UOB analysis and various media sources Industry Perspective Technology, Media & Telecommunications 26

Case studies Industry Perspective Technology, Media & Telecommunications 27

Case study on Go-Jek Go-Jek is a successful example of a company that first started out as a ride-hailing service provider but soon scaled and expanded its services through its various verticals. We have provided some suggested metrics below on how we can assess companies.

Proposed metrics on how to assess companies Go-Jek

Does the team have The CEO has built a strong management team a track record in a comprising experienced professionals in areas such as similar business/ products, technology, payments and government industry? What is relations. Team their background?

What is the overall GMV for ride-hailing services in Southeast Asia is market trend? In the expected to grow four times from US$5bn in 2017 to country? In the region? US$20bn in 2025.

Secured market leadership in home Is the company market (Indonesia) before planning its expansion expanding too rapidly? into Philippines, Singapore, Thailand and Vietnam.

Market Regulations are constantly evolving given that this is Are there regulations still a relatively new industry. For example, Indonesia is that are affecting preparing to launch regulations to fix the rates drivers business expansion and riders for ride-hailing services receive and to plans of the company? impose limits on promotional price cuts. This may limit its expansion plans.

What are the direct and Grab remains its main competitor after Uber exited the indirect competition in Southeast Asia market. the market?

Used its consumer base to expand into many other services / verticals that are supported by its What is the defensibility Competition payments ecosystem, making it a super app. of the business? The wide range of services ensures that it has a high number of monthly-transacting users.

Average number Processes more than 100mn transactions for its 20- Unit Economics of transactions 25mn monthly users. (and evolvement over time)

Source: UOB analysis, Google and Temasek, ChannelNewsAsia Industry Perspective Technology, Media & Telecommunications 28

Case study on Ofo Ofo is a bike-sharing company that expanded too fast at the start and faced the problem of being a single product business with low frequency. It also did not have the ability to scale to other verticals. In addition, Ofo faced several regulatory hurdles in some countries. In the most recent case, its licence to operate a bike-sharing service in Singapore was suspended in February 2019 after it failed to meet the Land Transport Authority’s (LTA) regulatory requirements.

Proposed metrics on how to assess companies Ofo

Does the team have Management team includes professionals who have a track record in a experience working in the ride-hailing industry. similar business/ Investors include Alibaba Group, Didi Chuxing, DST industry? What is Global, Coatue Management and Matrix Partners Team their background? China.

Growth of the market has slowed down with Chinese cities barring rental companies from putting new bikes What is the overall on the streets, leading to industry consolidation. The market trend? In the number of bike-sharing users was forecast to grow at country? In the region? only 14.6 percent in 2018, a steep decline from 600 percent growth in 2017.

Is the company Went international before winning in China, its Market expanding too rapidly? home market.

Are there regulations Faced hurdles ranging from traffic regulations to that are affecting vandalism and rising costs. New regulations such as business expansion updated locking requirements and the need to meet plans of the company? various financial obligations led to its exit in some cities.

Competitors include Mobike and HelloTransTech (formerly HelloBike). What are the direct and indirect competition in Unprofitable business model: Charged between the market? US$0.07 and $0.14 for 30 mins. Average cost of bikes: US$45.

Competition It was a single product business with low frequency and it did not have the ability to scale to other verticals. What is the defensibility of the business? Users’ contribution to programme funding was too small to make facility setting and maintenance profitable.

Average number Average daily transactions ranged between 10-32M. of transactions Close to 63M monthly active users in 2017. What is the burn rate? Unit Economics (covers at least 6-12 Burn rate: At least US$25M per month/US$300M (and evolvement months) per year over time)

Source: UOB analysis, Various Media Sources Industry Perspective Technology, Media & Telecommunications 29

Contacts

Technology, Media and Telecommunications Team

Hooi Mun Hon Tay Xiaohan Centre of Excellence Business Insights and Analytics [email protected] [email protected]

UOB’s Industry Insights brings you the latest trends across industries in Asia. Scan the QR code to learn more about potential opportunities and risks in the Consumer Goods, Construction & Infrastructure, Industrials, Oil, Gas & Chemicals, Real Estate & Hospitality and Technology, Media & Telecommunications sectors.

Disclaimer This publication is strictly for informational purposes only and shall not be transmitted, disclosed, copied or relied upon by any person for whatever purpose, and is also not intended for distribution to, or use by, any person in any country where such distribution or use would be contrary to its laws or regulations. This publication is not an offer, recommendation, solicitation or advice to buy or sell any investment product/securities/instruments. Nothing in this publication constitutes accounting, legal, regulatory, tax, financial or other advice. Please consult your own professional advisors about the suitability of any investment product/securities/ instruments for your investment objectives, financial situation and particular needs.

The information contained in this publication is based on certain assumptions and analysis of publicly available information and reflects prevailing conditions as of the date of the publication. Any opinions, projections and other forward-looking statements regarding future events or performance of, including but not limited to, countries, markets or companies are not necessarily indicative of, and may differ from actual events or results. The views expressed within this publication are solely those of the author’s and are independent of the actual trading positions of United Overseas Bank Limited , its subsidiaries, affiliates, directors, officers and employees (“UOB Group”). Views expressed reflect the author’s judgment as at the date of this publication and are subject to change.

UOB Group may have positions or other interests in, and may effect transactions in the securities/instruments mentioned in the publication. UOB Group may have also issued other reports, publications or documents expressing views which are different from those stated in this publication. Although every reasonable care has been taken to ensure the accuracy, completeness and objectivity of the information contained in this publication, UOB Group makes no representation or warranty, whether express or implied, as to its accuracy, completeness and objectivity and accept no responsibility or liability relating to any losses or damages howsoever suffered by any person arising from any reliance on the views expressed or information in this publication. 30

United Overseas Bank Limited Company Registration No.: 193500026Z

Head Office 80 Raffles Place UOB Plaza Singapore 048624 Tel: (65) 6221 2121 Fax: (65) 6534 2334 www.UOBgroup.com

MCI (P) 092/04/2018