Ninety percent of Indonesia's population is now covered by mobile networks, according to the International Telecommunications Union. Compare that to the number of fixed lines that cover only 13.36 out of every 100 in the country. With mobile Internet connectivity becoming more affordable, it is inevitable that increasing numbers of Indonesians will connect to the Internet using mobile connections and leapfrog the fixed line altogether.
The more people connecting to the Internet, the more chance that some of them will shop online and hence the question: With the leap in connectivity, will we also see a leap in retail e-commerce? Can businesses both big and small leapfrog Indonesia's limited physical infrastructure and generate value by selling their products through the Internet? After all, what better way to reach more than two hundred million customers across this massive archipelago than by going online?
Businesses go where the costumers are. With consumers increasingly spending more time online, businesses will go there too, and with that the buying and selling will move online as well. As the economy continues to grow, the purchasing power of Indonesians will increase and before we know it, we could see an explosive growth in retail e-commerce. Isn't that a big leap? Yes, but not that fast, because there are other non-technological constraints of equal importance that cannot be ignored.
Take slow connection for example. Amazon.com started in 1995 when most Americans were not yet connected to the Internet via broadband. Even three years later, broadband subscribers in the US accounted for a mere 0.25 percent of every 100 inhabitants. When Amazon started making profit in 2001, the number of US broadband subscribers had reached 4.4 out of every 100.
Yet amazon.com managed to grow to be one of the biggest online retailers in the world. Speed is not everything. Our Internet infrastructure may be far from perfect, but it is getting better by the day and growth in demand will spur further improvement.
What about legal infrastructure for consumer protection? This too may be less of a factor in determining whether Indonesians will shop online. True, there are plenty of shady websites out there. But information travels fast on the Internet and it does not take long for a customer to know which websites they can trust. Fraudulent sites will not stop consumers from shopping at trusted stores.
Furthermore, the basic regulations protecting consumers do exist and online fraud is punishable by law. It is true however, that just because the law exists does not mean it is adequately enforced and this is part of the reason some of us are still not compelled to spend our money online.
For example, in the United States, long before the age of online shopping, it was already a common business practice to give customers a chance to return what they bought in case they were not happy with it or had simply changed their minds. Although return policies among stores differ, it was so common that customers came to expect such policies. When businesses started to move online, the same practice naturally followed.
Such practices are especially important in retail e-commerce, where costumers cannot physically examine what they are buying. There is also a risk of damage during shipment. In Indonesia, such practice is not yet common either online or offline, hence why risk-averse Indonesians still prefer to go to a real store than a virtual one.
That however, is not the end of the story because even after we manage to entice consumers to shop online, other challenges remain. Moving goods from the seller to the buyer could still be problematic. This brings us to the next important factor: A reliable postal service.
E-commerce is an area where the post office can expect growth amid the dwindling business of delivering mail. That's right; with the advent of email and text messaging, the amount of mail sent via post has fallen each year, taking revenue with it. Although the post office still gains business from delivering bank statements and bills for cellular phones and credit-card companies, this too will not last. With more and more people leaping to the Internet, it won't be long before companies in Indonesia start sending their bills online as well. And why not? It's cheaper, faster and greener.
However, this does not mean the post office's days are numbered. The Internet may slowly kill one part of the postal business, but it also brings new ones in the shape of e-commerce. Letters and greeting cards may be losing out to SMS and email. Phone and credit-card bills may soon follow, but physical goods purchased online will still need to be delivered, and there is no other institution that has the far-reaching network to perform this service across our vast archipelago other than the national postal service.
In the end, no matter how far we can leap technologically; our limited brick-and-mortar infrastructure will remind us that progress does not move in isolation. Indonesia's e-commerce may be eager to leap and it may be able to do so where intangible products are concerned.
We have seen this in online gaming where players buy and sell virtual goods, but when it comes to e-commerce that involves physical goods, where products have to be delivered from point A to point B, the constraints are all too real and too big to ignore.
The writer holds a master's degree in Industrial Engineering, and has worked as a management consultant for seven years. He resides in Vienna, Austria.
