Indonesia: Getting IT together

Indonesia is attracting increasing attention from the international communications sector, both as a market for advanced products and due to its burgeoning profile as a centre of development and innovation.

A recent study by internet corporation Yahoo! showed that while only 40m of Indonesia’s population of 232m are connected to the internet, usage growth is rising rapidly, with a 48% increase in the number of net users over 2010, more than double the 22% rate of expansion recorded in 2009.

Though Indonesia has a relatively low level of computer ownership, estimated to be around 4% of the population, or just under 10m units, according to the Indonesian Computer Businessmen Association, mobile phone subscription rates are rising fast, with more advanced models that are internet capable gaining popularity.

The results of a study conducted by market research firm The Nielsen Company released earlier this year showed that mobile phone ownership in Indonesia had jumped to more than 50%, putting subscriber numbers at well over 115m. Importantly for the IT industry, much of the growth in phone ownership came in the internet savvy 15- to 19-year-old age bracket, where connection levels were at 70%.

Indonesia’s GSM market rate penetration is set to rise 12% this year, according to global market research firm Tavess, and its research shows that 80% of new handsets sold in Indonesia are able to access the web.

It is this rate of growth that is generating widespread interest in the Indonesian IT market. Among those looking to increase their profile in the country are internet giant Google, with the company’s executive chairman, Eric Schmidt, announcing in late July that the firm was looking at expanding into Indonesia.

Following meetings with Vice-President Boediono; the minister of communications and information, Tifatul Sembiring; and the minister of cooperation and small and medium business, Syarifuddin Hasan, on July 22, Schmidt said his company is considering opening an office in Indonesia by the end of 2011 or early 2012.

According to Yopie Hidayat, a spokesman for Boediono, Google was already conducting studies and analysis as part of the preparation to entering the market.

“Eric Schmidt said to the vice-president that Google was designing plans to develop its business in Indonesia,” he said in an interview with The Jakarta Post on July 23. “They will execute their plans once they consider that all is in accordance with the parameters of their company.”

While no date for Google’s launch in Indonesia has been set, Yopie said the minimum level of investment is expected to be around $100m. The top end could be significantly higher. According to Gita Wirjawan, the head of the Badan Koordinasi Penanaman Modal, or the Investment Coordinating Board, “The value of Google's investment in Indonesia will range from $100m to $1bn – the biggest in the ASEAN region.”

Addressing a regional entrepreneur summit in Bali, Schmidt said that while Indonesia’s number of web users was climbing, there remained significant room for further growth. The Google chief also forecast that a new generation of entrepreneurs would rise in Indonesia, predicting an internet explosion, with the initial growth burst already under way.

“There are 50m small businesses in Indonesia,” he said. “Just numerically those will be the engine of growth for the future economy.”

It is not just Google that is looking to tap into and support the coming Indonesia IT boom. In early August, East Ventures, a Singapore- and Indonesia-based venture capital firm, announced it was launching an accelerator programme to assist IT start ups, providing office space, hardware, infrastructure and funding, along with expert mentoring services.

“With this programme, we hope that there will be more and more entrepreneur [sic] in the internet scene from Indonesia,” said Batara Eto, the co-founder of East Ventures.

Though only relatively few internet start-ups will be able to access the support offered by programmes such as that provided by East Ventures, this does not appear to be discouraging budding businesses. According to data from StartupLokal, a support group for web entrepreneurs, there have been some 200 or more new web start-ups this year with the numbers increasing.

That flow could receive added volume from overseas. Faysal Sohail, the managing director of Silicon Valley-based venture capital firms CMEA Capital, recently visited Indonesia to assess the start up situation for himself. He saw enough to prompt him to consider investing some of his own money into local projects, recognising the potential for the new market.

“It’s still early and there isn’t much structure on the ground,” Sohail said in an interview with Associated Press on August 10. “But from a growth point of view, India and China have been predominantly done at this stage, there are a lot of investors there already. So now the question is, what are the markets beyond that. That’s partially why I came, to look for some new, world-class entrepreneurs.”

It will be some time before Google confirms whether it will follow through on its plans to extend its operations into Indonesia and back up those plans with solid investment. However, with or without the global giant, Indonesia’s IT sector will continue to gain momentum, driven both by public demand for access to advanced applications and by a growing entrepreneurial spirit eager to meet that demand.