E-Commerce in Indonesia

Zuraida BOERHANOEDDIN <ib03@indosat.net.id>
Indonesian Satellite Corp. (PT INDOSAT)



Indonesia is the largest archipelago country in the world with more than 16,700 islands, spreading across 5,000 km of equatorial line. With a population of almost 210 million (Source: Indonesia Bureau of Statistics), Indonesia is the 4th most populous country in the world. Although the country covers a large area, the population is concentrated in the islands of Java, Bali and Madura.

As one of the developing countries in Asian region, Indonesia also felt the effects of the economic crisis, which prevailed globally since 1997. That crisis hit Indonesian economy very badly. Data show that since 1997, GDP (gross domestic product) and income per capita have been decreasing (see graph below). But those numbers were improved in 1999 because of the Indonesian economy recovery program under the new government.

Internet in Indonesia

The Internet was first introduced in Indonesia in 1994 through an academic institution. Today the Internet in Indonesia is growing very fast. Absolute numbers show little compared with developed countries but show high growth. There is no accurate data about Internet users in Indonesia but it is estimated that there were 180,000 subscribers at the end of 1999. With a CAGR (compound annual growth rate) of about 105% (Source: WDR Research) Indonesia has the highest growth among Asia countries after China.

Right now, there are 46 ISP (Internet service provider) licenses in Indonesia, but only 35 ISPs are in operation. Some of the licensed ISPs could not operate for several reasons, mostly because of the economic crisis. ISPs, which are small- to medium-scale businesses, could not survive. With only a small market and almost 35 ISPs struggling for it, competition is very tough.

In big cities, what is called 'Warung Internet' (Internet Cafe) is now booming. These are places where a user can access the Internet without having to become a customer of an ISP. People just pay the hourly fee, depending on the amount of time they are using the Internet. They don't have to be registered in an ISP; there is no need to pay the Internet monthly fee or telephone fee. And the most important thing is that they are free from technical problems such as modem problems, difficulties connecting, etc.

Currently the number of Internet subscriber in Indonesia is around 200,000, although the absolute number of Internet users cannot be easily measured. We can estimate that Internet users in Indonesia may vary between 500,000 to 1,000,000. Internet users may be more numerous than subscribers, since often one personal computer (PC) is used by 3 to 5 people. This can be verified by looking at many Internet cafes. This makes the number of Internet users in Indonesia more unpredictable.

Below we will look more deeply into the Internet trend in Indonesia and its factors.


The Indonesia geographic structure, which is composed of thousand of islands, is a big challenge in developing a fiber-optic-based global infrastructure. Aware of this, Indonesia government has announced a national infrastructure concept called Nusantara 21. Nusantara 21 is a reflection of Indonesia's vision of entering information era as an important part of the global community.


The huge and widely spread population is a potential market for Internet and e-commerce business. With proper infrastructure, distance location is not a problem anymore for communication and transaction.

But with only 200,000 Internet subscribers and a population of more than 210 million, Internet penetration in Indonesia is about 0.1%. This figure contrasts with neighboring countries such as Singapore whose Internet penetration is about 14.5% (Source: WDR Research).

PC and phone line penetration

PC and phone line penetration is very small. PC penetration in Indonesia at the end of 1999 was only 0.8% and phone line was only 3.67% (Source: WDR Research). Internet penetration is a very challenging task because a PC and a phone line are vital for accessing the Internet.

1997 Indonesia Malaysia Philippines Singapore
Population 200,000.0 22,048.0 71,886.0 3,444.0
PC population 1,600.0 1,014.2 1,006.4 1,198.5
PC penetration (%) 0.8 4.6 1.4 34.8
Number of Internet subs. 50.0 217.1 88.0 266.6
Internet penetration (%) 0.025 1.0 0.1 7.7
2001E Indonesia Malaysia Philippines Singapore
Population 221,294.0 24,185.0 79,704.0 3,579.0
PC population 3,762.0 2,079.9 1,912.9 1,767.9
PC penetration (%) 1.7 8.6 2.4 49.4
Number of Internet subs. 880.0 1,158.6 506.9 702.6
Internet penetration (%) 0.4 4.8 0.6 19.6
CAGR 1997-2001 Indonesia Malaysia Philippines Singapore
PC CAGR (%) 24.0 20.0 17.0 10.0
Internet CAGR (%) 105.0 52.0 55.0 27.0

ISP service coverage

Even though population is spread all over Indonesia, Internet service coverage is limited to several big cities. Among 35 operating ISPs, just a few can provide access Internet in remote locations. One of them is WASANTARAnet owned by PT Pos Indonesia which is available in 26 provinces. Another one is INDOSATnet owned by PT Indosat that serves 12 big cities in Indonesia. Nowadays the biggest market shareholder is INDOSATnet with a market share of around 30%.

E-Commerce in Indonesia

The pioneer of E-Commerce in Indonesia was an online bookstore called Sanur. Getting the idea from Amazon.com, Sanur tried to become the first Indonesia bookstore in Indonesia who sells book on the Internet. Today Sanur already has up to 2,500 transactions per month, offering 30,000 books and having 11,000 customers. Another player is Indonesia Interactive or I-2 (http://www.i-2.co.id). I-2 is being developed as a portal and providing a virtual shopping mall. Now it has 10 online stores selling books, computers, handicrafts, and t-shirts.

By volume, revenue that comes from transaction is not adequate. Compared with total world transactions that are reaching USD 390 billion in 2000, e-commerce transactions in Indonesia are only USD 100 million or just 0.026%. But this number is predicted to jump drastically up to USD 1,200 million (Source: Forrester Research).

Why e-commerce does not make a big jump in Indonesia

Now we will focus on the main topic of this paper. A question comes into mind: Why is e-commerce not making a big jump in Indonesia?

If we consider those facts above, we will see there are some factors that are believed to support e-commerce development while some others are not. First, we will discuss some factors that do not support e-commerce growth. These factors are classified into 5 groups: infrastructure, awareness, security, culture/habit and factors that comes from e-commerce providers.


We can say that infrastructure is one of the most important aspects. Geographically, Indonesia is an archipelago country. This structure makes it difficult to build fiber-optic-based backbone. PT Telkom as a domestic telecommunication company is responsible for this domestic infrastructure. Most parts of it still use copper wire. Only big cities implement fiber optic, but connections to end users are still using copper.

Other aspects that can be categorized as infrastructure are telephone and Internet access fees that are relatively expensive. Unlike in the United States and many other countries where a telephone fee is charged only for the month, in Indonesia telephone fees are charged not only for the month but also by usage. On top of that, Internet users also have to pay the ISP for Internet usage.


Most Indonesian users treat the Internet as a tool of communication. They love to send mail or share information with each other. For live communication they prefer to talk through a chat room, especially young people such as students. Some like to search and gather any information needed from the Internet, especially news.

A survey conducted by AC Nielsen can give us a brief overview of what Indonesian users like to do on the Net (answer can be more than one). Using e-mail is the biggest percentage, about 42%. Then reading newspaper (39%), searching for information about products or services (29%) reading magazines (27%) and chatting (23%).

We see that e-commerce is not yet part of the Internet activities among Indonesian users. They agree that the Internet can satisfy them in some ways. But not many of them realize that the Internet can also be a powerful media for business and making transactions. Only some of them are willing to transact through the Internet. This number is about less than 10% of total Internet users (Source: AC Nielsen Survey). We can say that e-commerce awareness is still low among Indonesian Internet users.


An opinion survey given to Indonesian users showed that the main thing that keeps them from making transactions on the Internet is the security of their payment. They want providers to guarantee a safe transaction through their sites.

Another trend of e-commerce that just arose in Indonesia is Internet banking. Several banks started it as an alternative way of banking. Even though the services are still limited and only for their own customers (internal bank transaction), it is seen that in the near future it will push the growth of payment transaction through Internet.

Culture and habit

The native Indonesian people are farmers who mostly live in villages. Income per capita for year of 1999 is low at USD 774.51. Computer equipment to get connected to Internet is still considered as a luxurious thing. Therefore PC penetration is still barely off the ground at about 0.8% for year of 1999.

Another thing related to culture and habit is that the Indonesian considers shopping as an act of leisure or recreation. Indonesian people prefer to go to a shopping center or mall together with family or friends. They like to see and make a detailed selection before buying or just window shop without intending to buy.

The second reason, according to the survey, says that they do not want to buy through the Internet because they would be apprehensive about the quality of product they have ordered. In other words, it may not match their expectations.

E-commerce provider

There are three parties of e-commerce providers: Merchant, E-Commerce Facilitator, and Bank (or payment gateway).

Only several merchants have already gotten involved in e-commerce. Many of them are still waiting for the right time. There are some reasons that keep them from joining e-commerce. They are afraid that doing business through Internet will bring additional cost that will not correspond to transaction revenue. Shipment or delivery is another handicap, since some merchants do not have or maintain a good, reliable, and fast delivery system. It has happened that a shipment of books took 3-5 days for local delivery; within the same city.

As mentioned above, only a few banks already run Internet banking services. Most e-commerce providers still have an offline payment system, while few run a semi-manual system. SET technology is not implemented thoroughly today.

Another thing that has colored e-commerce development in Indonesia was the appearance of a "middleman" widely involved in the business process. This happened on the development of the EDI (electronic data interchange) system for the customs system. They realize that their role will be finished by implementation of computerized system or e-commerce. That's why it is very difficult to get rid of them.

Above all, we cannot ignore that the uniqueness of Indonesia shall bring some benefits of e-commerce development. One is the geographical structure as an archipelago country that keeps people from travelling a lot to save money. E-commerce can create efficiency, even though it will take some years for the market to be ready and well-educated people to get involved.

What Indonesia has done to speed up e-commerce

E-commerce is not rapidly developing in Indonesia; nevertheless Indonesia's government already realized the importance of this information revolution. Currently there are about 46 ISP licenses issued by the government, yet only about 35 ISPs operate. This number is even smaller now as the result of the economic crisis.

Many ISPs are categorized as small to medium business and mostly pioneered by young people. This business is susceptible to economic crisis because of the currency distinction. ISP pay in USD to lease international bandwidth while the revenue is received in Rupiah. Moreover, the market is still small compared to Indonesia's population. The 200,000 Internet subscribers are registered to 35 ISPs, giving an average of no more than 6,000 subscribers per ISP.

PT Indosat as an international telecommunication company has joined the Internet business by building an ISP called INDOSATnet (1996). Based on business convergence concept, 6-C: Connectivity, Communication, Content, Context, Commerce and Community (source: Goldmann Sach), INDOSATnet is developing its business by providing Internet access for dial-up and leased line. INDOSATnet also has competence as a network provider to other ISPs in Indonesia.

Proving its affirmation in Internet business, INDOSATnet has developed an Internet portal titled Indonesia Interactive or I-2 (http://www.i-2.co.id). This site was first launched in June 1997. I-2 portal has the vision to be the most complete Internet content about Indonesia. By means of this, INDOSATnet has entering e-commerce business. Currently there are 10 merchants joining I-2. The first merchant is Toko Buku Gramedia (bookstore), the largest bookstore in Indonesia. Beside that there are other kind of stores such as a computer store, handphone store and handicraft store. Merchant development is focusing on Internet user interests. The survey says that favorite goods ordered through e-commerce are books, software, magazines, computer hardware, electronic, office equipment, sport goods and clothes.

But what is unique, all these stores are actually brick and mortar (BAM) stores, meaning they have a physical store. Almost none of them really started as an online business. Only one merchant did this: Sanur Book Store.

Besides PT Indosat, other companies have also joined e-commerce such as PT Telkom with its TELKOMnet, Sanur Book Store that imitated the business concept of Amazon.com, and some other publisher companies such as Kompas CyberMedia. In fact some large companies such as Lippo E-net from Lippo group are now having serious intentions to enter Internet and e-commerce business. Indeed the revenue from content business is not so promising today. However, their existence should build's people awareness and educate the market.

As a complement to PT Telkom who is responsible for domestic infrastructure, PT Indosat has built a number of Remote Nodes within 13 big cities in Indonesia and it will be expanded to 33 cities in 2003. It is expected that Indonesia will enter the broadband era in 2001, so that Internet application and e-commerce will develop faster.

Something that should get more attention is how to build an Indonesia E-Commerce Community that is eager to make transactions through the Internet. The population's characteristic of being a traditional people cannot be easily changed. However, in big cities such as Jakarta, Surabaya, Medan, Bandung, the Internet is now becoming a vital need. This can be seen from the appearance of many Internet cafes that are mostly filled by young people. This generation hopefully will become the generation that realizes the importance of information in the future.

Conclusion: what can be learned from here?

It is very interesting to see the newest condition in Indonesia. Lots of portals are launched and still many are coming. Portals like Detik.com, Astaga and Satunet invested a lot of money to become the leading portal in Indonesia. Most of them are focusing on giving news and other updated information such as stock trading info and currency rates, while offering free facilities like e-mail, chat and space. What they seek is popularity among Indonesian Internet users. But a portal like Detik.com now can live just from the revenue of the online advertisements.

This is only the early phase of what we called content business 'booming' in Indonesia. Companies start promoting their products on the Web. The record in the IDNIC shows that the number of domains in Indonesia increased 62 times (6,200%) in the past 5 years, from 86 domains in 1995 to 5,454 domains in March 2000.

From these facts, we can say that currently Internet and e-commerce development in Indonesia is pointing in the right direction. What is needed now is more acceleration. We deeply hope that by more and more parties coming to this business, development will speed up.

The lack of local Internet or e-commerce expertise is one obstacle to merchants to help them develop. Most of them do not have good business sense or knowledge of this business or technical knowledge.

Today the Indonesian government is inviting foreign investors to invest their capital in Indonesia. Other expectations of their coming is to see the e-commerce potential and making more opportunities in this field. Indonesia welcomes more partnership with any parties especially ones having good expertise and experience in e-commerce. E-commerce potential is big and promising in Indonesia, but it does need the right handling to guarantee the success of its development in Indonesia.