E-commerce in 2025: Sustainable growth and rationality to emerge as key themes

MARKET consolidation and new entrants stole the e-commerce industry headlines in 2024. But market watchers say the year ahead will be more rational in this space, with customers across South-east Asia unlikely to continue to enjoy deep discounts on products and shipping, which has been subsidised by the platforms.

Last year, the entry of TikTok Shop and Temu shook up the status quo among e-commerce platforms in the region. Already, TikTok Shop has been seen to have gained significant market share here.

In Indonesia, the region’s biggest e-commerce battleground, TikTok Shop faced some regulatory setbacks. To continue operating in the country, it bought a majority stake in Indonesian e-commerce platform Tokopedia as a workaround.

A report by consultancy Momentum Works showed that this consolidation did not stunt TikTok Shop’s growth in the island archipelago.

Jason Moy, managing director at consultancy BCG, noted that the key theme for 2024 had been a drive to profitability and not just “growth at all costs”.

“Across all the major players, this was the year when, (in terms of) consumer incentives or the way they were marketing their business, they were much more reserved; a lot more focus was on delivering a quality product that would drive profit,” he told The Business Times.

There has been a distinct shift from the idea of simply building the infrastructure and hoping that business will come. Now, there is a focus on unit economics and enhancing the customer experience to differentiate themselves.

Li Jianggan, founder of consultancy Momentum Works, believes Shopee’s logistics arm, SPX Express, could become the biggest e-commerce logistics player in South-east Asia.

With customer experience gaining importance in the e-commerce business, building out logistics services to enable next-day delivery could be part of growth – without the need for deep discounting.

“If you run a purely discount game, there will be players who can run this game better,” he said.

Others such as Lazada appear to be pivoting to focus on brands and getting them to sell more on their platforms. Having brands sell more on any e-commerce platform makes sense, said Willy Chang, technology practice leader at consultancy Bain.

With brands, the take rate – or fees collected by e-commerce platforms – is much higher than that of consumer-to-consumer or smaller merchant businesses due to the higher prices their products command. The higher priced products enable platforms to garner more revenue per user.

“Platforms can shift the type of goods to those of higher value,” he added.

Brands are important in certain categories, such as footwear, and help to increase price points for platforms.

E-commerce platforms looking to add more customers and the share of their customers’ wallets would look towards driving brands on board, noted Rohit Ramesh, managing director at BCG.

Brands are already on e-commerce platforms, and the key would be getting them to have more meaningful sales, noted Li.

Any increased sales on an e-commerce platform would incentivise the brand to drive more traffic to the platform via better discounts, or a differentiated product portfolio.

Compared with China, brands’ efforts on e-commerce platforms in South-east Asia are far less intense, with a lot of potential yet to be tapped.

But the key questions, Li said, are: “How do you increase the penetration in this channel and increase the sales?”

Search for growth

For 2025, Ramesh noted that optimisation would be a key theme for e-commerce platforms. This is part of the profitability drive, where the platforms are looking to make the unit economics of the business work.

Logistics is part of this push, as part of building a better customer value proposition, where reliable or better delivery services would make a difference.

“Companies will still continue to build out, but not just build across the board without a business case,” he said, adding that companies are “significantly more cautious than in the past”.

Advertising revenue could also see more focus from platforms, and become a revenue stream on its own in 2024. Chang pointed out that ads do not incur much more costs for platforms, and almost goes directly from the top line to the bottom line.

Globally, ads are a significant revenue stream for e-commerce players, said Ramesh, as customers are spending significant amounts of time on the platforms. Ads are a way to monetise time on the platform, and can be amplified if the platform has scale.

Li added: “I think eventually, the platforms will find ways to differentiate the different kinds of merchants and brands, and how much they are willing to pay.”

The growing trend of live shopping or livestream selling will continue to grow in the coming year, as infrastructure and capabilities have been built up by e-commerce platforms. Acceptance by customers and merchants have grown, said BCG’s Moy.

There will also be a focus on value by the platforms, from free delivery to deals. With household penetration still low at about 20 to 30 per cent across South-east Asia, there is still headroom to grow, which the focus on value will aid in. Getting the customers in will pay off in the medium to long-term as they spend more the longer they are on the platform.

Ramesh said: “I think the real focus is really balancing the unit economics and profitability while pursuing that growth.”