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Google Invests in Indonesia – Making Up Lost Ground?

News about Google’s plans to open an office and increase investments in Indonesia was announced on Friday July 22nd by Indonesia Vice President, Boediono, after engaging in talks with Google Chairman, Eric Schmidt. The details on the exact date and plans of investment were not released in full, however a spokesperson for the vice presidential office commented that Google hopes to start the expansion by the end of 2011, with possible investments of over USD $100 million.

Why Indonesia? More than just social.

Much of the buzz predicting Google’s motives for its interest in Indonesia surrounds Indonesia’s huge growth as an online social nation. Relative to its population of 230 million people (the fifth largest in the world), Indonesia’s Internet penetration is small with only about 40 million Internet users- yet Indonesia is Facebook’s second-highest number of subscribers at 35.4 million, and is the fourth-largest user base on Twitter at 4.8 million, and also has the largest number of Foursquare users in South-East Asia, at 600,000 users. As a nation with just 18% Internet penetration, yet having such a high engagement on online social networks, the country is a perfect candidate for any Internet company to invest in.

Infographic from: Thomas Crampton. Click for full infographic.

The obvious advantage of having a local presence in Indonesia would be an increased understanding of the local market, allowing Google to interact more directly with users there. However, perhaps the greater goal that Google has their eyes set upon is to tap into Indonesia’s young online user base and mold it as it develops. Despite having tens of millions of people connected to the Internet, the majority of Indonesian people still are not fully ‘aware’ of what the Internet actually is. In actuality, most Indonesian people see the Internet either as just a marketplace to purchase goods, or merely as an alternative means of cheap communication via instant messaging and video chat. In fact, the local connotation of the term “online“, is actually “to play on the Internet” (despite the language in Indonesia being Bahasa, Indonesians still use the English term, “online” when referring to being on the Internet). Google’s entry at this point would be prime in molding and shaping this market’s Internet user behavior; not only in search behavior, but also tapping into the millions of SME businesses in Indonesia as they begin to go online.

Making up lost market share from China?

Since Google moved their China search service to Hong Kong in May of last year, amid tussles with the Chinese government’s censorship and alleged hacking of multiple Gmail accounts, their Chinese search market share has slowly been dropping, seceding market share to the other players in the search market: Baidu, Sohu, and Bing, among others. At its highest point in China’s search market share, during the last three months of 2009, Google held 35.6% of the the search market, with Baidu holding a share of 58.4%. Currently, however, according to Analysys International, Google’s online-search market share in China fell 0.3 precent to 18.9% in the in the second quarter of 2011, with Baidu seeing a slight gain of 0.1 percent to 75.9%, and Sogou seeing a rise of 0.9 percent to 2.4%. There aren’t clear figures on Bing’s market share, and they are estimated to hold roughly 2% of the Chinese search market, though this number is expected to increase much as 97 percent with their new partnership with Baidu, which will see all English queries on Baidu redirected to Bing’s engine.
Update: From Kaiser Kuo, Director of International Communications at Baidu, Baidu actually displays on its search engine results pages (SERPS) a limited number of top results from Bing, marked with a Bing logo.

Although Senior Vice President of Google’s research and engineering, Alan Eustace, told reporters after last year’s Google Innovation conference, that “search is only one piece of our business… there are lots of areas we can innovate. It’s not a narrow slice.” The fact is, search is still Google’s core product, and despite Google’s expansion to services such as Google Maps and advertising, it’s been a rocky road. For one, China’s State Bureau of Surveying and Mapping started a competing service called “Map World” in October 2010, and in addition, the Bureau of Surveying and Mapping also began requiring companies operating online map services in China to apply for a license to continue business on terms of national security. As things seem to go with foreign internet services in China which compete with a local competitor, the trend has been that outside players end up being blocked out in order to support local counterparts.

Still about advertising. The next-best ‘China’ market.

Indonesian Vice Presidential spokesman, Yopie Hidayat, explained that Google plans to develop their business in Indonesia by leveraging SMEs from Indonesia with foreign buyers, like what Google did in China. Such an investment would establish a network with local companies that would benefit from the efficiency of digital connectivity. “There are 50 million small businesses in Indonesia,” commented Schmidt at the summit with Boediono, “I had no idea it was that large. Those (small businesses) will be the engine of growth for the future economy.” Schmidt also went further to comment on Indonesia’s market being similar to the US in homogeneity, large population size, and inter-connectedness.

Andi S. Boediman, partner at Ideosource, an incubator and venture capital firm in Indonesia for digital businesses, also agreed by commenting that with such a move into Indonesia, Google would likely target SMEs through AdSense and AdWords, which basically work like classified ads. These two Google advertising businesses are Google’s main source of revenue, and reached USD $28 billion last year. “The market for these two services is huge.” Boediman continued, “About 80 percent of Google revenue is contributed by them.” Currently, Indonesian advertisers spend less than 2 percent of their budgets on online advertising or promotions, and leaves a huge amount of room for growth in the online advertising industry there.

Google has recognized and voiced multiple times that Asia is set for huge online development and a market to be tapped; though, with their failing market share in China, perhaps this is their next strategic move to make up for those losses.

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  1. Kaiser Kuo says:

    Just a correction on the remark that Baidu’s arrangement with Bing “will see all English queries on Baidu redirected to Bing’s engine.” That’s not quite accurate: For English queries, Baidu displays on its search engine results page a limited number of top results from Bing, marked with a Bing logo. (I’m director of international communications at Baidu). Thanks!

    1. Duncan Leung says:

      Thanks for the correction!

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