One of the books I read last year that changed my way of viewing business opportunities was Steve Case’s The Third Wave. If his name sounds familiar, it is because he was the founder of AOL, one of the first internet-related companies that went public back in 1992. Yes, they were the ones who create that iconic, “You’ve Got Mail!” notification (In the book, Case also told the story of how that came about). Part memoir, part visionary, I personally found the book very relevant to South East Asia and our journey with technological advances. The title itself is borrowed from Alvin Toffler’s famous book from the 1980s that influenced young Steve Case.
To quickly recap the main argument of the book, Case argues that we (or more precisely, the United States) are now in the middle of the third wave of internet. The first wave was actually bringing internet access and basic web services to people. This is where companies such as AOL, Cisco, Sun, Hotmail and in some sense older incumbents like IBM-Apple thrived. On top of the basic internet infrastructure, media and early e-commerce started (Yahoo!, ebay, Amazon, etc).
The second wave was the advent of more powerful search (Google) and networking (Facebook, Twitter). More recently, companies such as Instagram and Snap leveraged the mobile and smartphone revolution. It was the age of some ‘dorm-room’ phenomenon where Zuckerberg and Spiegel emerged as heroes.
The third wave according to Case, is the Internet Of Everything, where entrepreneurs start to transform “real world” sectors like agriculture, education, healthcare, energy, finance and many others. This is just starting with companies such as Coursera (education), Theranos (healthcare), Stripe (finance), and Bloom Energy reaching unicorn status in the last couple of years. As for agriculture tech, Climate Corp was acquired by behemoth Monsanto just shy of $1 billion back in 2013. But this is still early days for the third wave. After Climate Corp, no agritech startup has entered Fortune’s Unicorn List.
People, products, platforms
The nature of tech entrepreneurship always require three P-factors for businesses to succeed: people, products and platforms. As in the previous two waves, these will continue to be important in the third wave. Great founders will continue to create great products that disrupt existing practices.
However, Case argued, the nature of third wave companies are very different from the second wave. As entrepreneurs try to disrupt ‘real-world’ industries that may be heavily regulated and with the presence of existing (giant) incumbents, the ecosystem of third wave companies is more similar to the first wave, as he experienced when growing AOL.
Third wave tractions may take longer and the hockey-stick growth may not be as steep as purely digital companies. Having to contend with implementations that need physical effort, third wave companies will have to be more patient with time. An agritech founder once joked, “I can’t hack the growth of rice and corn.”
Second wave companies may be built purely by (software) engineers in their dorm room/basement/garage, but third wave companies might require some industry expertise to ensure product-market fit. It will be difficult for a healthcare startup wanting to revolutionise the drug supply chain without an understanding of how these products currently move from big pharmaceuticals’ factories to the local mom-and-pop drugstores/pharmacies.
There may be exceptions, but the average age of third wave founders seems to be higher as a lot of them are people with industry experience who have seen/experienced firsthand in their workplace the problems they are solving.
Having a strong industry network also helps to navigate the complicated regulations in these industries. There’s a reason why changes in classrooms/hospitals/banks in the last 10 years are nothing compared to commerce and media. These are industries burdened with regulations that may be outdated yet still enforceable.
With these in mind, Case strongly believes that there are additional 3 P-factors that are very crucial: perseverance, partnerships and policies. Just like their first wave counterparts, third wave entrepreneurs have to work extra hard to navigate the industry, sometimes working with incumbents and/or government and regulators to ensure that they can see any progress
Southeast Asia’s accelerated journey
Now what about Southeast Asia? I would argue that we are experiencing an accelerated journey through all 3 waves in the past 10 years. The US’ first wave started as early as mid-1980s but was only gaining momentum in the mid-1990s. It has been 20 years since then and they are just entering the third wave.
If you were in Indonesia in the mid-2000s and you had access to mobile internet (through those USB dongles), you must be an early adopter. Online media like Detik was founded in late 90s but only grew in popularity then. Southeast Asia’s infrastructure first wave was dominated by giant players: telcos and the hardware producers. You would probably only buy things online if you couldn’t find it elsewhere. It was more of a necessity, not choice. My first Amazon purchase back in 2007 was for a book I couldn’t find in physical bookstores in Jakarta or Singapore. Local online commerce were practically non-existent before 2010.
If Case considered e-commerce a first wave phenomenon before second-wave social media compounded more commerce growth, it’s the other way around down here. Most internet users started with social media before ever making their first online purchase. Although on the increase, We Are Social’s latest survey showed that only ~40 per cent Indonesian internet users actually purchased something online (within the past month). Facebook and Twitter usage started exploding in late 2000s and e-commerce startups started pumping marketing money circa 2012. This was also around the time affordable smartphones enter the market and having a 4-inch screen in your pocket was no longer a luxury.
If the US saw two distinct waves from mid-90s to mid-2010s, Southeast Asia experienced both waves at the same time in the last 10 years.
Just as the majority of people (non-early adopters) are getting used to being constantly online through their mobile devices, Uber entered and Go-Jek received their first major investment in late 2014. This was perhaps the start of Indonesia’s third wave as technology started to transform the landscape of ‘real world’ sectors.
I guess other Southeast Asian markets (except Singapore) are also facing the same phenomenon: third wave companies being founded even when first and second wave companies (e.g. media & e-commerce) are just breaking out into the mainstream. From an investor point of view, we see a whole mix of interesting companies trying to disrupt these traditional sectors.
Third wave disruptors gaining traction
These Southeast Asian third wave disruptors are starting to gain traction. In education, Topica is transforming higher education in Vietnam while Ruangguru is digitising Indonesian school experience. CXA, VaultDragon and mClinica are trying to change different levers in the healthcare ecosystem in Singapore, Indonesia, Philippines and Vietnam.
Being an agricultural country, Indonesia has seen agritech startups like CI-Agriculture, Limakilo, iGrow and Sayurbox sprouting (pardon the pun) in the past couple of years here. eFishery has been making waves (pardon another pun) winning global pitch competitions and securing funding, and we start to see more ideas around aquaculture and marine fisheries.
Fintech is heating up and hopefully will start to see usage upticks after attracting so much investment money. This is certainly the case in Indonesia with Go-Jek leading the way with Go-Pay becoming possibly the most active e-payment method in the country.
They will all have to deal with old players, regulators, and face implementation challenges. And unlike their US counterparts, they will have to do this while still contending with users who are just learning to get online.
What do we need to support the ecosystem?
Personally I feel it’s important for them to focus on the existing early adopters and ensure their key problems are solved well. Some of the startups mentioned above may have a small niche market now, but will certainly grow with mainstream digital adoption. It is therefore crucial for the startups to be aware of implementation challenges and ensure they have enough runway to survive until a meaningful hockey stick uptick can be demonstrated.
Otherwise they run the risk of withering and become ‘startups way ahead of its time’, just like the dot-com casualties from late 90s. It’s therefore key to learn from first-wave survivors like Detik, and also work together with incumbents who are learning to embrace new changes. Perseverance is a must, and partnerships might be key to move them ahead.
As an investor with an impact thesis, we are very excited about this development as this start to prove our belief that entrepreneurial solutions can improve the lives and livelihoods of many people in these markets. As a user, I am excited to have all these new technology making my life easier
What about you, do you agree that the time is ripe for this technological third wave, and what solutions do you think is desperately needed in your market? Looking forward to discussions in the comments below!
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