Partner content | How Tokopedia’s Culture of Daily Innovation Transformed Ecommerce in Indonesia

From its early efforts to appeal to an Indonesian population opposed to technology and e-commerce, to its most recent forays into a tailor-made AI-based offering for its customers, a culture of innovation has been a constant at Tokopedia. .

When Tokopedia, an Indonesia-based tech company with the world’s largest market platform, first articulated its vision of “democratizing commerce through technology”, there were few takers. Technology was viewed with suspicion or totally ignored, and commerce was rooted in geography, with traditional commerce dominating the landscape.

Over a decade later, there is ample evidence that rapid change is underway. Today, Tokopedia has over 100 million monthly active users, over 11 million merchants and covers 99% of Indonesia’s sub-districts.

It took a decade for the company to attract over 6 million merchants to its platform. That number has climbed to more than 11 million through 2021, with the changes brought on by the pandemic acting as an accelerator. Additionally, Herman Widjaja, CTO & Sr. Vice President at Tokopedia said: “7 out of 10 Tokopedia merchants saw a 133% increase in sales volume, and 68.6% of vendors who joined Tokopedia during the pandemic. were the only breadwinners. “The new traders are not only coming from areas where Tokopedia expected a boom – Jakarta and Java, but also from provinces like Bali, Central and South Sulawesi.

And while traditional commerce is still dominant in Indonesia, e-commerce penetration is now on a clear growth path and has plenty of room to expand.

From the United States to China and India, the time it takes for a market to reach digital maturity is shrinking. Speaking about the impact of these reduced lead times on digitization in Indonesia, Southeast Asia’s largest market, Herman said, “This is pushing us. How to reconcile growth and the need to invest? How do we make sure that our talents can support this growth? How to ensure that the national infrastructure supports the logistics and that the ecosystem matures at the rate of the company? “

And so, Tokopedia has placed itself at the forefront of support for digitization, removing as many sticking points as possible. None of this was easy, immediate or accidental. And it was all driven by a cohesive approach to innovation.

The DNA of innovation

The DNA of innovation at Tokopedia is based on knowing our customers and using a growth mindset to solve their problems.

The first of these challenges was existential: the trust concerns that struck at the heart of the digital economy. When Tokopedia started nearly 12 years ago, many merchants didn’t see the need for a platform or e-commerce, and consumers were skeptical about the quality of an online purchase.

One of Tokopedia’s first innovations was an escrow system. Money was only released to a seller after the buyer was satisfied, which solved the tricky issue of trust.

Another relatively early innovation surprised Herman on his return from the United States to Indonesia. He said, “I was used to two-day delivery and in the US one-day or same-day delivery was available in a few places. But when I moved here, I was surprised to find that Tokopedia offers same or overnight delivery for 65% of the products sold on our platform. And this despite the fact that Indonesia is one of the largest countries in the archipelago and is still considered a developing nation. “

It was the result of an early partnership between Tokopedia and the ridesharing companies. In fact, Tokopedia was the first tech company in Indonesia to introduce delivery through such alliances.

Bridging the Online and Offline Gap

With Tier 1 and Tier 2 cities embracing digitization, Tokopedia has turned its attention to the hinterland. This involved the creation of Mitra Tokopedia – a retail business where mom and pop stores go online and become a digital hub for a village. Herman said, “We’ve given them easier and cheaper access to a wider variety of products. Even if an entire village lacks digital knowledge, they can jump right into Mitra Tokopedia and reap the benefits of digitization. “

When designing the Mitra Tokopedia app, Herman made it clear that his team needed to design it to be extremely lightweight – a download size of no more than 1MB. He assumed the target audience would only own that. a malnourished phone.

After the launch, he insisted that engineering officials speak directly to customers. While heading backcountry with the sales team, engineers found they were right about the phones and uncovered a few more issues: black spots for coverage and customers sometimes disabling data. The application has been modified accordingly. Herman said: “Innovation doesn’t have to be something with a mind blowing factor. It may not be part of the initial plan. But it becomes “dignified enough” if we consider the needs of the customer. Our employees must have the genius to identify it. We hire people to be leaders – to make things happen. “

An innovative approach to fintech and savings

Tokopedia quickly realized that financial inclusion should be a core part of its vision for democratizing commerce. It overlapped with one of Herman’s personal passions – fintech. The challenges were multiple: a large unbanked and underbanked population. And no credit scores, since those scores depended on an overview of a consumer’s financial history.

The first task was to remove barriers to entry with an app designed from the ground up to be very simple. The next step was to introduce this audience to a larger universe of financial services. Herman said: “According to a World Bank study, a 1% increase in financial inclusion facilitates an annual growth in GDP per capita of around 0.03%. Financial services included loans that might otherwise have been taken out from a loan shark at exorbitant interest rates; payment services; credit card applications and easy access to insurance.

The portfolio of offerings has expanded to include investment options: conservative mutual funds and gold savings. Herman said, “When we started out, a lot of Indonesians thought gold was an investment for the rich. The cost of entry is very high and even 1 gram costs around $ 50. Since the normal Indonesian salary is lower than the GDP, buying even a gram is difficult. “

The inspiration came from Herman’s time in the United States. The giant retailers have offered to round a bill to the nearest dollar and donate the money to charity, saving consumers the inconvenience of struggling with change. Herman said: “We realized that consumers came to Tokopedia not to invest, but to buy. “

The workaround was via a savings instrument where the surplus, rounded to the nearest dollar, formed the basis of an investment in gold. The program was launched three years ago.

Apollo’s journey

While taking a frugal approach, Tokopedia is not averse to spending money when needed – for example, it has internationally renowned K-pop stars BTS and BLACKPINK as its brand ambassadors. It also bought time on television – Indonesia’s most expensive and popular medium – to announce its first annual sale, three years ago. Herman said, “It was an attempt to expand our customer base and market the brand to everyone in Indonesia. “

The campaign succeeded beyond the team’s wildest expectations, generating a significantly higher increase in traffic than expected. However, the team did not have time to congratulate themselves. Herman said, “Our technology backend was not ready for such a push and our system broke down. Although it is tempting to see this as a “good problem to have,” Herman recalled that the mood within the company was very dark. He said, “Our code name was Apollo: because it was like an attempt to go to the moon. Apollo 1 was a complete failure. Our immediate priority was to survive Apollo 2. ”

The team had a better experience the following year, and Tokopedia went from an annual sales cycle to a monthly sales cycle, starting on the 25th – payday for much of Indonesia – until the end of the month.

An AI-driven future

With an increase in scale and complexity, collaboration with other businesses is the need of the hour. A strong supporter of a marketplace system, Tokopedia partners include payment and logistics specialists as well as digital aggregators. Herman said, “It’s our job to turn many of these partners into technology companies. The challenges we have right now are something that old technology cannot solve. “

AI is becoming an increasingly essential part of the next stage of innovation at Tokopedia. Herman, however, remained realistic about its scope and potential and said, “AI is wonderful jargon right now and people are honestly abusing it. AI is not the solution; it is simply the transport to a solution.

An AI-based approach helps Tokopedia to deliver hyperlocal and tailor-made offerings to its large customer base. It goes beyond traditional rules-based computing. Herman cautioned, “Before we deploy AI, we need to start changing our concept, our mindset, and be more comfortable with experimenting. One of the most important things is a buffer for failure. When you experiment, 80% succeed and 20% fail. But as we mature, it will be the opposite. AI-first is Tokopedia’s vision for the next decade.

This article was produced in partnership with Tokopedia. Please visit the website for more information on Tokopedia’s innovation driven approach to building an ecommerce marketplace

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