Singapore, 5 November 2024 – Google, Temasek, and Bain & Company released the 9th edition of the e-Conomy SEA report - Profits on the Rise, Harnessing SEA’s Advantage today. For the first time, the report examines the health of the digital economy through the lens of profit. Key players made significant strides towards profitability, with tighter commissions, targeted incentives, and new revenue streams driving a 2.5X increase in profits over the last two years. Since 2022, profitability has grown 2.5X from $4 billion in 2022 to $11 billion in 2024, setting the stage for long-term success.

Overall, the report projects that in 2024, the digital economy will reach $263 billion in Gross Merchandise Value (GMV), a 15% increase over last year. Revenues have grown 14% and are projected to reach $89 billion in 2024. This suggests that the digital economy can achieve both profitability and growth in tandem, marking a significant step towards achieving sustainable economic value. 

This year’s report provides insights on six digital sectors and examines the current state and future prospects of technology funding in the region. It also delves into the factors essential for ensuring inclusive growth. These include innovating to stay abreast with increasing digital fluency of SEA users, enhancing digital security to keep up with the rapid pace of digital adoption, and ensuring SEA continues to grow the artificial intelligence (AI) ecosystem.

Southeast Asia is primed for AI-powered acceleration

SEA is emerging as a global hub for AI innovation and adoption. With significant investments in AI infrastructure and a thriving ecosystem of startups and developers, the region is poised to unlock the transformative power of AI across various sectors. The region is well positioned to compete and attracted more than $30 billion in AI infrastructure investment in the first half of 2024 alone.

Additionally, there is an increasing consumer interest in exploring and adopting AI solutions, with searches for AI growing by 11 times in just four years. With its young and growing population, coupled with high rates of digital literacy, and smartphone penetration, SEA provides a large and receptive market for AI-powered products and services. From AI-powered travel planners to Generative AI-powered fraud detection, AI is driving value for the region’s digital economy through sector-specific and broader business use cases. Pro-innovation policies that support AI growth and governance will help create more opportunities in the digital economy.

With a more complex online landscape, a collective effort to address digital trust is essential, as cybercrimes continue to pose a threat to the region's burgeoning digital economy. Rapid digital adoption necessitates a strong focus on building and maintaining digital security. 

Key findings from this year’s report include:

1. Profitability in SEA’s digital economy is on the rise

After years of investment and development, key players in the region’s digital economy have progressed towards profitability while maintaining double-digit growth for GMV and revenue. Deeper digital participation among users, effective monetisation strategies, and the recovery of pandemic-impacted sectors are expected to drive continued growth. E-commerce has also reaccelerated, fuelled by video commerce.

E-commerce, poised to reach $159 billion GMV by 2024, is now driven primarily by existing customers who account for up to 70% of expansion, a departure from past years when first-time shoppers were driving growth. Incumbents are reinvesting into GMV growth and defending their market share as international players disrupt the market. Revenue is projected to surge 13% YoY to $35 billion in 2024. 

Video commerce has surged to 20% of e-commerce GMV, up from less than 5% in 2022. Video commerce is reshaping the e-commerce landscape in SEA, driving impressive growth and transforming the consumer shopping journey. From live shopping to creator-led content, video is now an integral part of how people shop online.

Food delivery is gaining momentum as dining-out patterns stabilise and new monetisation pathways such as in-app advertisements and subscriptions emerge. In 2024, revenue is set to grow by 54% YoY to reach $1.7 billion, while GMV is expected to increase by 7% to $19 billion. Platforms are testing new recipes for future profitability such as improving visibility on restaurant selection pages while tapping on AI to optimise their operations.

Transport sector has surpassed pre-COVID levels with revenue projected to grow by 36% YoY to $1.5 billion, driven by rebounding demand and pricing, while GMV is expected to increase by 18% to $9 billion. Consumer demand remains robust in spite of inflationary pressures, owing to the strategic expansions of incumbents into second-tier cities and rural areas, combined with aggressive promotions by new entrants in pursuit of user growth. There is still headroom to further enhance profitability through strategic pricing mechanisms.

Online travel has outperformed the overall digital economy in terms of Gross Travel Bookings (GTB) growth, which is driven by intra-regional travel within Asia Pacific. Increased airfares and shift in travellers’ preference for luxury options will continue to drive GTB, which is projected to reach $46 billion in 2024, representing a 21% YoY increase. Revenue is also expected to grow by 18% to $20 billion. While direct channels remain dominant, online travel agencies continue to successfully monetise their core business and travel-adjacent offerings such as financing and insurance.

Online media is on track for significant growth due to video-on-demand and gaming, with GMV expected to surge to $30 billion, representing an 11% YoY increase. Developers in SEA are carving out a niche in casual gaming and hyperlocal gaming content. Advertising remains a proven revenue stream, while hybrid models incorporating in-app purchases, subscriptions, and ads are increasingly being adopted to cater to various player segments. The popularity of gaming creators have paved the way for a thriving creator ecosystem as other verticals also tap into livestreaming to facilitate two-way interaction between sellers and customers.

Digital Financial Services (DFS) are experiencing rapid growth, with revenue expected to increase 22%, from $22 billion in 2022 to $33 billion in 2024. Digital payments and lending, accounting for over 90% of the total revenue from DFS sectors, are driving this expansion. Digital payments have become ubiquitous, with e-wallets partnering with major payment card networks and QR code usage on the rise. A generational shift in investor behaviour is contributing to a more dynamic wealth landscape. This momentum should continue as merchant acceptance of digital payments expands, risk underwriting capabilities improve and consumers migrate online for their insurance and wealth needs.

2. Investors show confidence in the long-term potential of SEA

While the funding landscape continues to be subdued, investors have shown cautious optimism by directing nearly 50% of investments towards nascent sectors. Even as the exit environment remains challenged, early stage companies in SEA have made significant progress towards profitability. There is also an increased focus to drive cross-border exchange collaborations and IPO regulatory improvements aimed at improving capital markets conditions.

Last year, the report outlined four enablers to revitalise the funding landscape: realistic entry valuations, proven monetisation models, a clear path to profitability, and dependable exit pathways. The first three have been achieved but developing dependable exit pathways is a work in progress as capital market conditions continue to be challenging. 

“Southeast Asia's digital economy is undergoing a dynamic transformation as businesses find innovative ways to achieve profitability, creating a more sustainable and resilient ecosystem.  The rise of video commerce is supercharging e-commerce growth, with live shopping and creator-led content reshaping how people discover and buy products. Southeast Asia is emerging as a global hub for AI innovation and adoption. With significant investments in AI infrastructure and a thriving ecosystem of startups and developers, the region is poised to unlock the transformative power of AI across various sectors,” said Sapna Chadha, Vice President for Southeast Asia and South Asia Frontier, Google.

“It is encouraging that SEA's digital businesses are now focusing on achieving the appropriate balance between growth and profitability. Investors have also started looking for the next wave of growth by investing in nascent sectors such as software and services as well as AI, demonstrating confidence in the long-term potential of SEA’s digital economy. Temasek remains committed to deploying catalytic capital to the region’s digital economy to achieve sustainable and inclusive growth so that every generation prospers,” said Fock Wai Hoong, Head, Southeast Asia, Temasek. 

“Southeast Asia’s digital economy continues to do well, with continued double-digit GMV and revenue growth and a surge in profitability across sectors led by key players. The region is also attracting significant AI investment, with over $30B committed to AI infrastructure in the first half of 2024. To fully harness the transformative potential of Generative AI, businesses must advance beyond experimentation and invest in foundational elements—aligning AI initiatives with core business objectives to address real-world problems and create tangible value, strengthen AI talent, and building scalable, adaptable infrastructure for sustained growth,” said Florian Hoppe, Partner, Bain & Company. 

3. Singapore leads globally in appetite for AI-related information and services

Singapore's digital economy has demonstrated remarkable resilience and is projected to reach $29 billion in GMV in 2024, up 13% from 2023. E-commerce has rebounded from $8 billion GMV in 2023 to $9 billion in 2024, while online media and travel have grown at double-digits, fuelled by robust infrastructure and pro-business policies.

Singapore is among the top 10 countries in the world in terms of interest in AI-related topics, with education, marketing, and travel driving AI search interest. There is a strong demand for mobile apps with AI features such as content creation, photo apps, and AI assistants. AI has also played a key role in fuelling the growth of Singapore’s tourism sector, with chatbots powering personalised recommendations, analysing visitor data to optimise marketing strategies, and enhancing visitor experiences through interactive exhibits and bespoke guides.

Investments are growing to meet this demand. In H1 2024, investments to build AI-ready data centres in Singapore reached $9 billion, second to Malaysia, where $15 billion was invested. 

The DFS sectors have emerged as a dominant force, with digital payments and wealth management poised to lead its growth. Singapore's reputation as a regional financial hub has attracted significant venture capital and private equity investment too. To maintain its competitive edge, the Singapore Exchange (SGX) has implemented measures to improve exit options and attract investor capital and IPOs. Singapore's favourable business environment, political stability, and tax incentives have also solidified its position as the premier wealth advisory hub for high-net-worth individuals in Asia Pacific.

“Singapore's digital economy thrives on government support, investor confidence, and AI innovation. Strong growth is projected in e-commerce, travel, and digital financial services, while SGX initiatives aim to improve the exit environment. The country embraces AI with high levels of interest and adoption, supported by government initiatives and a dynamic tech ecosystem,“ said Sapna Chadha.

“Singapore continues to be a tech and fundraising hub, bolstered by the presence of industry giants which have cultivated a strong pool of talent who drive innovation and attract further investments. Initiatives to promote regional cooperation and improve capital market conditions in Singapore will ensure that the country continues to maintain its competitive edge,” said Fock Wai Hoong.

“We are optimistic that Singapore’s digital economy will continue to do well as it matures, driven by strategic government initiatives and strong tech infrastructure that has fostered innovation and rapid adoption of advanced technologies. As digital adoption accelerates, it is crucial that digital security evolves in tandem to safeguard data, maintain trust, and ensure the sustained progress of the digital sector,” said Florian Hoppe.

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Editor's Note: For more information or interview requests please contact: Tay Yan Xin, tel: +65 6228 5019, email: yan-xin.tay@bain.com, Bain & Company