The internet economy in Southeast Asia is expected to record its slowest growth this year as weak consumer demand and a shift in company priorities towards profit over revenue gains take their toll. The internet economy, which encompasses digital goods and services, is anticipated to grow by only 15% in 2023, reaching $263 billion, down from 17% growth the previous year, according to research by Google, Temasek Holding Pte, and Bain & Company. This slowdown marks the lowest growth rate in seven years and comes amid rising inflation and interest rates, which have prompted consumers in the region to reduce their online spending.
The trend has sparked a debate among tech giants about the billions of dollars they have invested in the emerging economies of Southeast Asia, as they seek alternatives to the more mature markets of China and Japan. Despite the slower growth, competition remains fierce. Global giants like Amazon and Alibaba, along with regional players such as Grab, Sea, and GoTo Group, are all vying for dominance in the lucrative online delivery market.
Amid this competitive landscape, regional tech companies are under significant pressure from investors to deliver profitability. This has led to aggressive cost-cutting measures such as scaling down operations, as growth in user numbers stagnates and profit margins come under strain.
Digital economy growth shifts in Southeast Asia
Researchers forecast that Southeast Asia’s internet economy will generate $11 billion in profit from $89 billion in total revenue this year. A substantial portion of this economy is driven by the online media industry. The annual collaborative report highlighted that Southeast Asia’s digital economy is also supported by robust macroeconomic conditions, increased internet literacy, heightened digital security awareness, and the integration of AI into business practices.
However, private funding in the local digital economy has been declining sharply since the pandemic, with investors becoming more cautious and capital more expensive. The number of deals involving tech companies in the region dropped to 306 in the first half of 2023, compared to 564 in the previous year. Nonetheless, investment is shifting toward software and sustainability technology, and Southeast Asia is emerging as an attractive region for data center investments.
In the first six months of this year, tech giants have collectively invested approximately $30 billion in building data centers for AI. Companies like Microsoft, Apple, and Nvidia have been particularly active, channeling billions into the region and engaging in discussions with governments in Indonesia and Malaysia. The digital landscape in Southeast Asia continues to evolve, driven by rapid technological advancements and changing economic conditions, positioning the region for future growth despite current challenges.
