Asia Summit 2015 - Technology and Innovation: Catching the Next Wave of Investment

Lazada Market Position & Strategy:

• Max Pernell (CEO, Lazada) identifies Lazada as the market leader in 5 of 6 Southeast Asian markets (Indonesia, Malaysia, Thailand, Philippines, Vietnam, Singapore) with under four years of operation.
• Differentiates from competitors by functioning as a "one-stop shop" for brands and cross-border merchants to navigate regional complexity without establishing separate local entities.
• Targets a regional consumer pool of 550 million, aiming to replicate US/China customer service standards.
• Logistics focus involves building an IT platform connecting 70+ logistics providers while developing its own last-mile fleet, which currently handles 50% of orders in the Philippines and Vietnam.
• Prioritizes bringing infrastructure to consumers rather than expecting consumers to adapt to existing logistics, emphasizing speed and cost efficiency in home delivery.

Garena (Shopee) Operational Model:

• Nick Nash (Group President, Garena) states the company has evolved into Southeast Asia's largest internet company by net revenue, employing 4,000 staff across entertainment, financial services, and social commerce.
• Addresses regional disparity by employing a "hyper-local" strategy: launching Shopee simultaneously in 7 countries with 7 distinct user interfaces and apps to prevent cross-border errors.
• Leverages mobile-first strategy, recognizing that mobile phone penetration will vastly exceed desktop usage in the region.
• Nick Nash cites a 100x to 1,000x GDP per capita disparity between the poorest (e.g., Timor-Leste) and wealthiest (e.g., Singapore) communities in Southeast Asia, necessitating tailored product approaches.
• Competitors like Uber and Grab are moving toward global integration, with alliances (e.g., Grab-Lyft, Uber-DiDi) allowing consumers to access local services internationally.

Lippo Group (Matahari Mall) E-commerce Expansion:

• John Riadi (Lippo Group) launched Matahari Mall, converting Indonesia's largest department store brand (40% market share) into a leading e-commerce marketplace with an Online-to-Offline (O2O) model.
• Justification for entry timing: Believes 24 months was the optimal window to avoid over-educating a market while capitalizing on existing brand equity, saving estimated $70–$100 million in consumer education costs.
• Addresses Indonesia's logistical fragmentation (13,000–17,000 islands) by deploying e-lockers and changing rooms integrated with 30% of the country's malls.
• Leverages existing Lippo assets, including hypermarkets with 31% market share and operations across 60+ islands, to create synergies between offline and online channels.
• Acknowledges direct competition with Lazada in Indonesia but differentiates by focusing on C2C models and leveraging physical retail infrastructure that Lazada lacks.

Investment Landscape & Market Trends (GGV Capital):

• Jenny Lee (GGV Capital) notes mobile devices serve as "global standardizers," enabling business models to expand rapidly across borders, with global mobile users projected to grow from 2.5 billion to 4 billion in five years.
• Identifies growth areas in "mobile disruption" of traditional verticals including transportation (Grab/Uber), education, entertainment, and internet finance.
• Observes a shift from open marketplaces (50 million SKUs) to curated, segmented apps targeting specific user demographics (e.g., women aged 20–25 in tier-1 cities) using data science for personalized product delivery.
• Predicts that successful companies will need to be global from day one due to the convergence of consumer expectations and mobile operating systems (Android/iOS).
• Highlights that commerce penetration in Southeast Asia is currently 1–2% compared to 10% in China and 6% in the US, indicating significant growth potential.

Innovation, Education, and Hardware Convergence:

• Tom Magnanti (Singapore University of Technology and Design) showcases student innovation, including 3D-printed RFID rings functioning as transit passes for both Singapore and Boston MRT systems.
• Introduces the concept of "maker revolution," predicting a convergence of physical hardware (via 3D printing) and digital commerce.
• Demonstrates 3D printing capabilities ranging from low-cost polymer bicycles to multi-material metal pliers and aerospace components, noting potential disruptions to supply chains via on-demand, low-volume production.
• Defends Asian education systems against the stereotype of lacking creativity, citing Garena's hiring of fresh graduates who possess strong customer empathy and humility compared to their US counterparts.
• Emphasizes that Asian students are better equipped to handle local market realities due to cultural values emphasizing service and understanding customer living conditions.

Investment Risks, Valuations, and Market Cycles:

• Jenny Lee warns investors against applying Western business logic without on-the-ground understanding, citing complex regulations in China (e.g., drones, social media) and the necessity of strong government relations.
• Nick Nash and John Riadi argue that valuations and market cycles are secondary to sustainable business models, specifically focusing on gross margins rather than top-line revenue or GMV.
• Nick Nash asserts that "great companies" typically survive at least two downturn cycles (citing Alibaba's 2003 runway crisis) and that the current era represents the third tech upswing (following the 1980s and 2000).
• Warns against "renting revenue" via unsustainable subsidies, noting that companies burning cash for customer acquisition without a path to profitability (e.g., Groupon clones) will fail.
• Predicts consolidation in the O2O sector (taxi, food delivery), where only the top 1–2 players will survive the inevitable subsidy wars; the "99.9%" of subsidy-dependent models will fail.
• Highlights the danger of conditioning customers to expect perpetual discounts (e.g., Paytm's subsidized iPhones in India), arguing that long-term success requires pricing models that reflect true value.

Security and Technology Disruption:

• Jenny Lee estimates 20–30% of investment focus is now dedicated to security, covering authentication, fraud detection, and cloud hosting, particularly as mobile and IoT expand data sensitivity.
• Tom Magnanti notes the increasing importance of "cyber-physical systems" security, where hardware (e.g., autonomous vehicle brakes) requires protection against external manipulation.
• Nick Nash contrasts "disruption" (which often kills margins via commoditization, e.g., dense wave division multiplexing) with "sustainable business models," stating few companies achieve both rapid growth and high margins.
• Concludes that in internet businesses, there are effectively no "bronze medals"; companies must be #1 or #2 to survive, as the industry tends toward monopoly or duopoly structures.

Selection Criteria for Investors:

• Jenny Lee identifies "founder-business model fit" as the primary criterion for early-stage investment, emphasizing that the team's DNA must match the vertical (e.g., game developers lack the operational DNA for e-commerce).
• Success relies on the team's ability to adapt over 8–10 years, navigating multiple economic cycles while maintaining a sustainable path to profitability.