Unintended Consequences of the Indonesian Startup Ecosystem
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[First original essay for Tech Machiavellian]
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| Figure 1.1: Memes spawned due to the electoral debate. |
What... are.... Unicorns?
Above is an excerpt from Mr. Prabowo (presidential candidate of Indonesia) of yesterday's (17/02/2019) electoral debates here in Indonesia. For those who don't understand, that remark above demonstrates said participant's lack of understanding of 'Unicorn' as a startup term. For those who understand, that remark has (understandably) spawned tons of ridiculous memes on the internet (E.g Figure 1.1).
These memes were born not out of nothingness, but perhaps out of disappointment towards Mr. Prabowo's lack of understanding of a relatively ubiquitous startup term. In an Indonesia where startups are booming and the tech industry is rapidly growing [2], it is expected that future leaders are at least not left behind in the scene. However, with so much focus on developing startups in Indonesia, it is understood that many things are left behind, and one of it is the issues that the new emerging digital economies are bringing to the table.
The Indonesian Startup: Strong and Disruptive
From an economic point of view, the Indonesian startup scene is one that has shown a lot of promise. At the moment, Indonesia has thousands of startups and at least four unicorns (Gojek, Tokopedia, Traveloka, and Bukalapak). In 2018, Indonesian startups have secured at least 51 investments totalling US$274 trillion, not counting the unicorns. And with the help of continuous interest of investors in Indonesian startups and the emergence of various incubators and accelerators - plus an increasing amount of digital adoption among Indonesians - it is expected that new unicorns will come from other sectors such as education and healthcare [3].
This immense potential (and success) is also acknowledged by our government, with Mr. Joko Widodo (the Indonesian president) aiming to make Indonesia the biggest digital economy in the region with a targeted value of US$130 billion by the year of 2020 [4]. A lot of steps has been done to support the startup ecosystem, such as the formation of Bekraf (Badan Kreatif) and mass deregulation to help startups develop.
And as such, it is only natural that in the past five years, we have witnessed massive change in our daily lives due to the existence of many startups. Five years ago, if one wanted to get an ojek (motorcycle taxis), one had to come to the nearest ojek base to find drivers. These ojek bases are usually shady and aren't everywhere, so it is not uncommon for one to walk extraordinary lengths to order ojeks, not to mention that these ojeks have exorbitant prices. Now, one can simply order an ojek online using Go-Jek. Many other daily activities are also accessible online, such as purchasing goods (Tokopedia and/or Bukalapak), ordering travel tickets (Traveloka), and even buying movie tickets (M-Tix).
This is the fruit of the economy that has built itself upon disruptive innovations and technology. Things are now easier and cheaper. Things are now possible, and it has no doubt improved the lives of many people. However, these success stories cannot hide the side effects of disruption.
The Side Effects of Startups and - to A Larger Extent - Changes
2015 was the year that Go-Jek and similar on-demand transportation applications were launched. In 2016, Go-Jek found its application to have hit 900x scale since its initial launch [5]. With their relatively low prices (at the time) and ease-of-ordering, they drove conventional taxis down [6]. The graph below shows the amount of conventional taxis under the Express, where we can see continuous growth until 2015 (the year in which said applications were released). It was telling that these new 'startups' were bound to challenge the position of conventional taxis.
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| Figure 2.1 source: https://www.bareksa.com/id/text/2015/11/04/taxi-mencoba-bertahan-di-tengah-kompetisi-ketat-transportasi-ibukota/11853/analysis |
And so they did. The online transportation services was experiencing a boom while conventional transportation services saw a significant decline and - despite wading out various strategies - could not do anything to challenge it. By mid-2016, the tension between the conventional taxis and online taxis peaked, leading to destructive riots across Jabodetabek [7] [8]. Reasons for the demonstrations are the unfair treatment from the Indonesian government towards the online taxis (no taxes and no special plates) and the significant decrease in income (~70%) . In a phenomenological study in Kediri, it was concluded that these tensions also manifested in the form of verbal and physical abuse between drivers, citing reduction in income as its main cause[9].
What makes this interesting is the fact most of these demonstrations were done by Bluebird drivers. Bluebird is Indonesia's largest taxi operator and has led the monopoly in the transportation markets for since its inception in 1972 [10]. To see it lose its monopoly to relatively young companies (Go-jek was founded in 2011 and had its app released in 2015) is symbolic of how fast the wind of change startup companies bring to the table.
This also happens to other sectors in which startup companies have sprouted. One of the more significant ones is in the commerce sector. In said sector, Indonesia have experienced a massive growth in e-commerce with the proliferation of Tokopedia and Bukalapak in recent years, accounting 41% of Southeast Asia's online retail transactions (that is approximately US$7b), and is projected to grow bigger and bigger [11]. In the meantime, the reality for physical retailers have been nothing short of gloom. Many physical marketplaces report vacancy [12] and many retailers are closing their branches [13], with some citing the reasons for closure are due to digitization - among other reasons[14].
So, what is happening here? As it turns out, these turnovers and declines are a natural part of the innovative process. The innovative process that drives startups.
Startup Innovates and Innovation Destroys
The way innovation and progress works is paradoxical. The creation of new industries and fields will sweep away the existing order. For the case of e-commerce with physical retailers and online taxis with conventional taxis, it is simply creative destruction at work. Through lost jobs and ruined companies that growth is delivered by capitalism. This is the argument of Joseph Schumpeter, that capitalism is simply the "perennial gale of creative destruction"[15].
And historically, it has been true. Take for observation the jobs in the United States. Back in 1920, around 2.1 million Americans got their paychecks from the railroad, compared to today's lesser than 200,000. This difference is only natural since nowadays, there are many other newer modes of transportation compared to railroad that are better and cheaper that are more beneficial to society. But if one were to see it from the perspective of the railroad worker, one would see reduction in income and job opportunities[16].
As such, this is expected. The disruption of the stability of lives is the direct consequences of capitalism delivering innovations, and this phenomenon is simply one in a long line of "creative destruction"s. Because of the way startups operate - that is by delivering innovation in a fast and disruptive way - it is not uncommon for them to cause massive ripples in society. Combined with the advancements in information technology, the pace and the effects of creative destruction can be observed in a bigger scale, as suggested by the data above.
Therefore, in understanding the startup innovation as a creative destruction process, we need to acknowledge the decline in industries such as conventional transportation and physical retail as much as we appreciate how the innovations benefit Indonesia. That also means we must accept that many jobs on these fields will go - causing many lives to be dislocated - and instead be replaced on the newer ones.
Footnotes:
[1] Iqbal Fadli, "Debat Kedua Capres di Mata Netizen, Jokowi Disorot Salah Data, Prabowo Soal Unicorn", Merdeka.com, February 18, 2019, accessed February 21, 2019, https://www.merdeka.com/politik/debat-kedua-capres-di-mata-netizen-jokowi-disorot-salah-data-prabowo-soal-unicorn.html
[2] Fatimah Kartini Bohang, "Resmi Bukalapak Jadi Startup Unicorn ke-4 Indonesia", Kompas.com, October 10, 2018, accessed February 21, 2019, https://tekno.kompas.com/read/2018/01/10/18310737/resmi-bukalapak-jadi-startup-unicorn-ke-4-indonesia
[3] Khamila Mulia, "What to expect from Indonesia’s startup landscape in 2019", Kr-Asia.com, January 7, 2019, accessed February 23, 2019, https://kr-asia.com/what-to-expect-from-indonesian-startup-landscape-in-2019
[4] Fedina S. Sundaryani and Stefani Ribka, "Indonesia wants to lead the region in E-Commerce", The Jakarta Post, November 11, 2011, accessed February 23, 2019, https://www.thejakartapost.com/news/2016/11/11/indonesia-wants-to-lead-the-region-in-e-commerce.html
[5] Malavika Velayanikal, "An insider’s account of how Go-Jek hit 900x scale in 18 months and is still doubling", Tech in Asia, November 21, 2017, accessed February 23, 2019, https://www.techinasia.com/gojek-insider-account-of-scaling-900x-doubling.
[6] Hanum Kusuma Dewi, "TAXI Mencoba Bertahan di Tengah Kompetisi Ketat Transportasi Ibukota", Bareksa.com, November 4, 2015, accessed February 23, 2019, https://www.bareksa.com/id/text/2015/11/04/taxi-mencoba-bertahan-di-tengah-kompetisi-ketat-transportasi-ibukota/11853/analysis
[7] Dwi Prasetya, "Demo ke DPRD Banten, Tukang Ojek Pangkalan Minta Ojek Online Dilarang", Merdeka.com, Oktober 9, 2017, accessed February 23, 2019, https://www.merdeka.com/peristiwa/demo-ke-dprd-banten-tukang-ojek-pangkalan-minta-ojek-online-dilarang.html
[8] Aditya Hadi Pratama, "7.000 Pengemudi Angkutan Umum Memprotes UBER dan GrabCar, Apa yang Mereka Inginkan?", Tech in Asia, Maret 14, 2015, accessed February 23, 2019, https://id.techinasia.com/pengemudi-angkutan-umum-berdemo
[9] Mega Swastika Junior, "Fungsionalitas Konflik Gojek: Studi Fenomenologi Terhadap Konflik Pengemudi Gojek di Kota Kediri", Jurnal Analisa Sosiologi, April 2017, accessed February 23, 2019, https://media.neliti.com/media/publications/227586-fungsionalitas-konflik-gojek-studi-fenom-33b9f9f9.pdf
[10] "Company Profile of Blue Bird: Indonesia’s Largest Taxi Operator", Indonesia-Investments.com, November 12, 2014, accessed February 23, 2019, https://www.indonesia-investments.com/id/news/todays-headlines/company-profile-of-blue-bird-indonesia-s-largest-taxi-operator/item2606
[11]Tech Collective, "Southeast Asia’s online retail market to reach $53b in 2023", Kr-Asia.com, February 11, 2019, accessed February 23, 2019, https://kr-asia.com/southeast-asias-online-retail-market-to-reach-53b-in-2023
[12] Erwin Hutapea, "Orientasi Pengunjung Berubah, Tingkat Hunian Mal Turun", Kompas.com, Februari 15, 2019, accessed February 23, 2019, https://properti.kompas.com/read/2019/02/15/173855121/orientasi-pengunjung-berubah-tingkat-hunian-mal-turun
[13] "Central Neo Soho Tutup Karena Tergerus Belanja Online", CNN Indonesia, January 15, 2019, accessed February 23, 2019, https://www.cnnindonesia.com/ekonomi/20190115101703-92-360875/central-neo-soho-tutup-karena-tergerus-belanja-online
[14] Fiki Ariyanti, "Toko Ritel Tutup, karena Daya Beli atau Digitalisasi?", Liputan6.com, October 27, 2017, accessed February 23, 2019, https://www.liputan6.com/bisnis/read/3142860/toko-ritel-tutup-karena-daya-beli-atau-digitalisasi.
[15] Alm, Richard and Cox, W. Michael, "Creative Destruction", econlib.org, accessed February 23, 2019, https://www.econlib.org/library/Enc/CreativeDestruction.html
[16] ibid.
[17] ibid.
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