TikTok, GoTo to merge Indonesian e-commerce businesses; TikTok commits at least US$1.5 billion

BYTEDANCE’S TikTok and tech giant GoTo are combining their e-commerce businesses in Indonesia – Tokopedia and TikTok Shop Indonesia – under an existing Tokopedia entity, putting pressure on other e-commerce platforms such as Singapore’s Sea.

Tokopedia is the online retail unit of GoTo, the merged entity between ride-hailing startup GoJek and e-commerce platform Tokopedia.

Shopping features within the TikTok app in Indonesia will be operated and maintained by the enlarged Tokopedia entity, said GoTo and TikTok on Monday (Dec 11).

TikTok will take a controlling stake in the enlarged entity. The group has committed to invest over US$1.5 billion in the enlarged entity over time. This will provide future funding for the business without additional dilution to GoTo. 

GoTo will also receive an ongoing revenue stream from Tokopedia in proportion to the enlarged entity’s scale and growth.

The move to merge Tokopedia and TikTok Shop Indonesia’s businesses is part of a strategic partnership between both parties to drive long-term growth for Indonesia’s micro, small and medium enterprises (MSME), as well as the country’s digital economy.

This arrangement will also allow both TikTok and GoTo to each serve their Indonesian consumers and MSMEs more comprehensively, said the partners, who expect the transaction to close in the first quarter of 2024.

Goldman Sachs has been appointed as GoTo group’s financial adviser on the transaction.

A committee under the enlarged entity will be established to facilitate transition and integration while ensuring that the Tokopedia business “continues to operate in the best interests of Indonesia’s digital economy”. 

This committee will be chaired by GoTo group chief executive Patrick Walujo and supported by members of both businesses.

GoTo and TikTok’s partnership will commence with a pilot period, with the first campaign slated to launch on Dec 12 this year to coincide with Indonesia’s national online shopping day, Harbolnas.

Dubbed Beli Lokal, the campaign will be available on TikTok as well as Tokopedia. It will promote a broad range of merchants with a strong focus on Indonesian products.

Through the partnership, TikTok, Tokopedia and GoTo are envisioned to create “millions of new job opportunities” over the next five years with the companies launching a series of joint initiatives to support them.

These initiatives include, among others, the establishment of technology centres across Indonesia to develop local tech talent as well as a skills development programme for Indonesia’s MSMEs.

News of GoTo and TikTok’s partnership confirms an earlier media report that emerged in early December.

Citing sources familiar with the matter, Bloomberg said TikTok had agreed broadly to work with GoTo’s Tokopedia across several areas, rather than compete directly with the Indonesian platform.

TikTok’s investment in Tokopedia marks the first of its kind for TikTok Shop, which was recently forced to split payments from shopping within Indonesia due to newly introduced prohibitions. 

The partnership between TikTok Shop and Tokopedia is expected to create competitive pressure for Shopee Indonesia, a subsidiary of Singapore’s Sea, said Nailul Huda, a digital analyst at the Center of Economic and Law Studies (Celios), a research group.

GoTo, which owns a payment system and logistics business, is expected to use its ecosystem to enhance and support its components, creating a more seamless and efficient experience for users.

“The winner in this competition will be the one with the most comprehensive ecosystem and the favour of users,” he told The Business Times.

He added that TikTok’s integration with Tokopedia could lead to strategic advantages, such as improved services, cost efficiencies, and a competitive edge in the market.

“Shopee needs to come up with a better strategy if they want to still exist in the industry,” he said.

Brokerage CGS-CIMB cut its target price for Sea last week – to US$42 from US$61 – following news that TikTok Shop was set to stage a return to the Indonesian market after being forced out by a regulatory decision.

The deal would lead TikTok Shop to re-emerge stronger, with the potential for cross-pollination of user and local merchant base, CGS-CIMB said.

“Given TikTok Shop’s ability to benefit from strong organic traffic generation by TikTok, we think Sea’s Shopee would have to keep its investments elevated until TikTok Shop rationalises its spending,” the brokerage added.

Sea shares are down 24.5 per cent this year, closing at US$40 on Friday (Dec 8).

Maxi Liesyaputra, research analyst from BNI Sekuritas, said, however, that Tokopedia and TikTok Shop may encounter challenges attracting buyers.

TikTok Shop’s allure is predominantly driven by impulse buying, he said, presenting a potential hurdle in acquiring a more deliberate customer base.

The separation of social media applications and e-commerce diminishes this impulsive drive. Said Liesyaputra: “Consumers now face constraints before finalising a purchase, potentially resulting in an increased dropout rate during the transaction process.”