E marketer indonesia_online-a_digital_economy_emerges_fueled_by_cheap_mobile_handsets

1. INDONESIA ONLINE A Digital Economy Emerges, Fueled by Cheap Mobile Handsets MARCH 2013 Rahul Chadha Contributors:Tobi Elkin, Jennifer Jhun, Monica Peart

2. INDONESIA ONLINE: A DIGITAL ECONOMY EMERGES, FUELED BY CHEAP MOBILE HANDSETS ©2013 EMARKETER INC. ALL RIGHTS RESERVED 2 EXECUTIVE SUMMARY Among emerging markets, Indonesia often falls into the long shadow cast by Brazil, Russia, India and China—also known as the BRIC countries. But Indonesia—with the fourth-largest population in the world—is growing rapidly, as is its online population. Indonesia’s economic engine will help create a new and considerable digital class of consumers. eMarketer projects about 29% of the population—or 72.7 million people—will have access to the internet by the end of 2013.That penetration rate is expected to climb to 39.8% by 2016, accounting for 102.8 million internet users. Internet use remains heavily concentrated in Indonesia’s largest cities, where people are more able to afford both internet-enabled devices and service plans. Mobile internet is making gains, aided by the proliferation of cheap feature phones and smartphones manufactured in China, along with more affordable data packages. KEY QUESTIONS ■■ Who makes up Indonesia’s online population? ■■ Will internet users leapfrog fixed broadband in favor of mobile internet? ■■ What is shaping Indonesia’s peer-to-peer economy? millions, % of population and % change Internet Users and Penetration in Indonesia, 2011-2016 2011 43.0 17.5% 40.4% 2012 59.6 24.0% 38.6% 2013 72.7 29.0% 22.1% 2014 83.6 33.0% 14.9% 2015 93.4 36.5% 11.7% 2016 102.8 39.8% 10.1% Internet users % of population % change Note: individuals of any age who use the internet from any location via any device at least once per month Source: eMarketer, Feb 2012 136985 www.eMarketer.com CONTENTS 2 Indonesia’s Online Population 6 Internet Usage in Indonesia 8 Social Society, Social Media 11 Advertising 12 eMarketer Interviews

3. INDONESIA ONLINE: A DIGITAL ECONOMY EMERGES, FUELED BY CHEAP MOBILE HANDSETS ©2013 EMARKETER INC. ALL RIGHTS RESERVED 3 INDONESIA’S ONLINE POPULATION Indonesia is sometimes overlooked as an emerging market, with more attention paid to the BRIC countries. But its size and economic growth are increasing its profile. In September 2012, McKinsey & Company estimated that Indonesia could grow from the 16th-largest economy in the world to the seventh largest by 2030.The International Monetary Fund (IMF) estimated that Indonesia’s GDP will grow 6.3% this year—well higher than the global average (3.6%) and the average for emerging market and developing economies (5.6%).The IMF also predicted that Indonesia’s growth rate will increase over the next several years and continue to outpace that of developing markets in general. Not surprisingly, internet usage is rapidly expanding in the country, with growth reaching almost 20% this year. eMarketer estimates that Indonesia’s online population will reach 72.7 million in 2013 and 102.8 million in 2016. Comparative Estimates: Internet Users and Penetration in Indonesia, 2011-2016 Internet users (millions) APJII, Dec 2012 (1) eMarketer, Feb 2012 (2) IDC, June 2012 Jefferies, Sep 2012 comScore Inc., Nov 2012 (3) BCG, April 2012 Frost & Sullivan, Feb 2012 McKinsey & Company, Dec 2012 Internet user penetration (% of population) eMarketer, Feb 2012 (2) IDC, June 2012 BBG, Oct 2012 (4) Roy Morgan Research, June 2012 (5) ITU, July 2012 Frost & Sullivan, Feb 2012 2011 55.0 43.0 39.0 - - 31.0 - - 17.5% 15.0% - 22.1% 18.0% - 2012 63.0 59.6 45.0 55.0 47.0 - - - 24.0% 17.0% 27.0% - - - 2013 82.0 72.7 50.0 - - - - - 29.0% 19.0% - - - - 2014 107.0 83.6 56.0 - - - - - 33.0% 21.0% - - - - 2015 139.0 93.4 61.0 - - 50.0 145.2 - 36.5% 23.0% - - - 37.0% 2016 - 102.8 - - - - - 100.0 39.8% - - - - - Note: (1) ages 12-65; use an hour per day or more; (2) individuals of any age who use the internet from any location via any device at least once per month; (3) ages 15+; home and work locations; (4) ages 15+; data is for Aug; (5) ages 18+; urban population only; ever used Source: eMarketer, Feb 2012; various, as noted, 2012 152511 www.eMarketer.com Other estimates vary due to different methodologies. For example, some estimates do not include usage outside of the home or office, which may discount a large number of users accessing the internet in shared places such as internet cafes. Accounting for variations such as this and the age ranges studied, other firms’ figures are in line with eMarketer’s. August 2012 data from Gallup and the Broadcasting Board of Governors (BBG), an independent agency of the US government responsible for all US-sponsored nonmilitary broadcasting conducted overseas, showed that internet penetration was highest among those ages 15 to 24, at 51%. It then declined sharply to 25% among those ages 25 to 54, with the trend continuing as users got older. Internet use also increased as the education levels of respondents went up: 72% of those with a university- level education reported going online in the week prior to the poll. % of respondents in each group Demographic Proﬁle of Internet Users in Indonesia, Aug 2012 Age 15-24 51% 25-34 25% 35-54 11% 55+ 2% Location Large city 30% Small town 23% Rural 13% Education level None 1% Primary 3% Secondary 21% High school 40% Vocational 46% University 72% Total 21% Note: used in the past week Source: Broadcasting Board of Governors (BBG) and Gallup, "Media Use in Indonesia 2012," Oct 16, 2012 150271 www.eMarketer.com Internet penetration remains most prevalent in the country’s largest cities, which include Jakarta and its metropolitan area, often referred to as Jabodetabek; Surabaya in the province of East Java; Bandung in West Java; Medan in North Sumatra; and Semarang in Central Java. Because internet use in these cities is already more widespread, smaller cities are expected to host much of the growth in penetration over the next few years. As would be expected, Indonesia’s population as a whole is shifting from rural to urban. According to Indonesia’s 2010 census, the urbanized population increased from 41.9% in 2000 to 49.8% in 2010.

4. INDONESIA ONLINE: A DIGITAL ECONOMY EMERGES, FUELED BY CHEAP MOBILE HANDSETS ©2013 EMARKETER INC. ALL RIGHTS RESERVED 4 A MarkPlus Insight survey released in November 2012 estimated that, out of a total internet user population of 61.1 million in 2012, 56.4 million lived in urban areas. millions and % of population Urban and Total Internet Users in Indonesia, 2010-2012 2010 2011 2012 Urban internet users 37.6 50.5 56.4 Total internet users 42.2 55.2 61.1 Internet users % of population 17.0% 22.4% 23.5% Source: MarkPlus Insight, "Netizen Survey 2012" as cited by DailySocial, Nov 14, 2012 148986 www.eMarketer.com Yahoo! andTNS Global data showed that internet use among city dwellers was higher among males in 2012. Penetration was especially high among those ages 15 to 19, at 89%. % of population in each group Internet User Penetration in Urban Indonesia*, by Demographic, 2009-2012 2009 2010 2011 2012 Gender Male 36% 45% 54% 63% Female 21% 30% 38% 50% Age 15-19 64% 74% 87% 89% 20-24 42% 57% 65% 78% 25-29 28% 50% 49% 63% 30-34 16% 27% 33% 54% 35-39 13% 24% 38% 52% 40-50 9% 9% 15% 24% Socioeconomic status A 51% 54% 66% 75% B 32% 46% 51% 64% C 20% 25% 36% 48% Total 28% 37% 46% 57% Note: in the past month; *Bandung, Botabek, Denpasar, Jakarta, Makassar, Medan, Palembang, Semarang, Surabaya andYogyakarta Source:Yahoo! and TNS, "Net Index - Indonesia," June 27, 2012 150300 www.eMarketer.com MOBILE INTERNET WINS OVER BROADBAND Fixed broadband remains a rarity in Indonesia, with a penetration rate of about 1.6% households, or 800,000 homes. eMarketer does not project significant growth of broadband penetration over the next four years. Fixed Broadband Households and Subscriptions in Indonesia, 2010-2016 Households (millions) —% change —Household penetration Subscriptions (millions) —% change 2010 0.6 10.5% 1.3% 1.6 9.5% 2011 0.7 9.8% 1.4% 1.7 8.9% 2012 0.8 9.2% 1.5% 1.9 8.3% 2013 0.8 6.0% 1.6% 2.0 5.1% 2014 0.8 2.5% 1.6% 2.0 2.3% 2015 0.9 1.8% 1.6% 2.0 1.0% 2016 0.9 1.8% 1.6% 2.0 0.9% Note: includes connections with permanent access to the internet via cable modem, DSL and wireless/satellite technologies; excludes mobile Source: eMarketer, April 2012 139005 www.eMarketer.com A significant impediment to fixed broadband access is that many people in Indonesia simply can’t afford it. An Accenture report from June 2012 found that fixed broadband could cost almost $36 per month. Another cause of the low penetration rate is the obvious logistical problem that arises from attempting to provide internet to a geographically fractured area. The government is in the midst of building out the Palapa Ring, a fixed broadband network consisting of submerged cable laid along the coasts of the country’s major islands. Although the latest estimates put the Palapa Ring’s completion date sometime in 2014, this massive investment in infrastructure has been plagued by delays. And the question of who will build “last mile” infrastructure to link local governments and rural areas to the Palapa Ring remains unanswered. Internet cafes known as “warnets”—a portmanteau of warung, the Indonesian word for cafe, and internet— still play a significant role in providing rural users with internet access. However, their popularity has waned among city dwellers, who are more likely than those in less-developed areas to be able to afford a PC and a fixed broadband plan or an internet-enabled mobile phone. But warnets in urban areas have not yet completely disappeared, and many use them as gathering spots for online gaming.The prominence of warnets in rural areas is likely to erode as mobile phones begin to penetrate these markets.

5. INDONESIA ONLINE: A DIGITAL ECONOMY EMERGES, FUELED BY CHEAP MOBILE HANDSETS ©2013 EMARKETER INC. ALL RIGHTS RESERVED 5 September 2012 data from Roy Morgan Research showed that the use of warnets began to decline in late 2009 as home access increased. However, it’s important to note that the data does not specify whether those going online at home were using mobile devices or fixed broadband. % of respondents Internet Users in Indonesia, by Access Location, Sep 2007-Sep 2012 Warnet/internet cafe Home Work Educational institution Wireless hotspot Sep 2007 55% 7% 17% 14% 0% Sep 2008 55% 8% 18% 14% 2% Sep 2009 64% 13% 17% 14% 3% Sep 2010 60% 23% 15% 9% 5% Sep 2011 55% 32% 13% 9% 4% Sep 2012 46% 45% 18% 10% 4% Note: ages 14+; ever accessed the internet Source: Roy Morgan Single Source Indonesia, Feb 1, 2013 151468 www.eMarketer.com As in most developing economies, growth in internet access will largely come through the adoption of internet- enabled mobile phones. eMarketer estimates that there will be 160.5 million mobile phone users in Indonesia by the end of the year, representing a 64% penetration rate. millions, % of population and % change Mobile Phone Users in Indonesia, 2010-2016 2010 106.9 44.0% 43.5% 2011 130.2 53.0% 21.8% 2012 148.9 60.0% 14.4% 2013 160.5 64.0% 7.8% 2014 169.7 67.0% 5.7% 2015 179.0 70.0% 5.5% 2016 185.9 72.0% 3.8% Mobile phone users % of population % change Note: mobile phone users are individuals of any age who own at least one mobile phone and use the phone(s) at least once per month Source: eMarketer, April 2012 139308 www.eMarketer.com Smartphone adoption is still in its early phase, with eMarketer projecting that smartphone users will account for 24% of all mobile phone users by the end of 2013. But the mobile landscape is changing quickly; cheap smartphones made in China have substantially lowered entry costs for many consumers seeking regular internet access for the first time. According to eMarketer estimates, smartphone penetration among mobile phone users will climb to 47% by 2016—a total of 87.4 million users. Smartphone Users and Penetration in Indonesia, 2010-2016 2010 2011 2012 2013 2014 2015 2016 Smartphone users (millions) 4.3 11.7 23.8 38.5 57.7 71.6 87.4 —% change 474.1% 174.0% 103.4% 61.6% 49.8% 24.1% 22.0% —% of mobile phone users 4.0% 9.0% 16.0% 24.0% 34.0% 40.0% 47.0% —% of population 1.8% 4.8% 9.6% 15.4% 22.8% 28.0% 33.8% Note: smartphone users are individuals of any age who own at least one smartphone and use the smartphone(s) at least once per month Source: eMarketer, April 2012 139339 www.eMarketer.com Using data from consulting firm Canalys, eMarketer calculates that smartphone shipments in Indonesia will hit 15.7 million units in 2013—a year-over-year increase of 51.7%. millions of units and % change Smartphone Shipments in Select Developing Countries, 2012 & 2013 2012 2013 % change China 185.7 239.8 29.1% India 16.4 26.5 61.4% Russia 14.4 18.8 30.7% Brazil 12.3 17.2 40.0% Indonesia 10.3 15.7 51.7% Source: Canalys as cited in press release; eMarketer calculations, Jan 17, 2013 150413 www.eMarketer.com These devices are already more commonly owned by those in younger age groups. An August 2012 survey conducted by BBG and Gallup found that more than one-quarter of consumers ages 15 to 24 owned a smartphone.The ownership rate fell to 16% for those ages 25 to 34 and was only 7% among those ages 35 to 54. % of respondents in each group Smartphone Ownership Among Consumers in Indonesia, by Age, Aug 2012 15-24 26% 25-34 16% 35-54 7% 55+ 2% Total 13% Source: Broadcasting Board of Governors (BBG) and Gallup, "Media Use in Indonesia 2012," Oct 16, 2012 150269 www.eMarketer.com

6. INDONESIA ONLINE: A DIGITAL ECONOMY EMERGES, FUELED BY CHEAP MOBILE HANDSETS ©2013 EMARKETER INC. ALL RIGHTS RESERVED 6 Although the mobile device trend is clearly shifting toward smartphones, internet-capable feature phones remain an incredibly popular means of getting online. WhenYahoo! andTNS Global asked mobile internet users in urban Indonesia which devices they used to go online, 86% said they used feature phones, compared with 20% who used a smartphone and 7% who used a tablet. (The total exceeds 100% because respondents were able to choose more than one answer.) % of respondents Mobile Devices Used to Access the Internet According to Mobile Internet Users in Urban Indonesia*, Q1 2012 Feature phones 86% Smartphones 20% Tablets7% Handheld gaming devices2% Portable media players1% Note: ages 15-50; *Bandung, Botabek, Denpasar, Jakarta, Makassar, Medan, Palembang, Semarang, Surabaya andYogyakarta Source:Yahoo! and TNS, "Net Index - Indonesia," June 27, 2012 150303 www.eMarketer.com Deregulation has led to increased competition among mobile service providers, resulting in lower costs for both data and voice plans. A January 2013 report from Credit Suisse found that the average monthly bill for mobile phones had decreased to about $8.22 per month, down from roughly $8.54 the previous year. “There are packages for surfing the web on mobile that are semi- unlimited or so-called unlimited, all-you-can-eat packages on mobile networks for less than $5 a month.These are fueling internet usage in Indonesia,” said Nanda Ivens, COO at digital agency XM Gravity. “I think in the battle between feature phones and smartphones, the feature phones are losing because you can pay almost the same amount of money for a smartphone, and that is a massive shift in rural areas. Chinese-made smartphones rule. They’re selling so many units it’s unreal,” he added. Cheaper devices and plans will have a disproportionate impact in rural areas, which have historically been underserved by access to both fixed broadband infrastructure and power grids.The reduction of entry costs is especially important in Indonesia since, unlike in the US, carriers don’t subsidize devices and then recoup their initial outlays over the life of a service contract. Instead, consumers usually pay the full cost of the phones up front and then acquire service through a prepaid model. Although competition has increased, the provision of mobile services is still concentrated in a handful of companies that control most of the market:Telkomsel, a subsidiary of the majority state-ownedTelkom Indonesia; XL Axiata, commonly referred to as XL; and Indosat. According to Credit Suisse’s report,Telkomsel remained the dominant service provider with a 43% market share in 2012, a slight decline from 2011. Meanwhile, Indosat controlled 23% of the market, and XL had 12%; however, Credit Suisse reported that both companies had slightly increased their market share over the past year. But providing consumers with access to mobile broadband remains somewhat of a challenge. In December 2012, the government’s Ministry of Communications and InformationTechnology announced that it would auction off more spectrum as part of efforts to improve 3G services. However, the government has not made significant investments in mobile infrastructure, leaving telecoms and other third parties to foot the bill. Although Google’s Android has quickly become the operating system (OS) of choice for smartphone owners, Indonesia’s mobile market is somewhat unusual in that it is one of the few left in which BlackBerry remains a significant player. Projections from International Data Corp. (IDC), published byThe Jakarta Post in January 2013, expected Android to lead OS market share in 2013 with 53% of smartphones running the software. IDC projected that BlackBerry would control a respectable 35% market share, and that the Windows Phone OS would have a 9% share—a significant increase from 2% in 2012. % of total Smartphone OS Market Share in Indonesia, 2012 & 2013 Source: International Data Corporation (IDC) Indonesia as cited in The Jakarta Post, Jan 5, 2013 149852 www.eMarketer.com 2012 2013 Symbian 2% Windows 2% iOS 3% Android 56% BlackBerry 37% Windows 9% iOS 3% Android 53% BlackBerry 35%

7. INDONESIA ONLINE: A DIGITAL ECONOMY EMERGES, FUELED BY CHEAP MOBILE HANDSETS ©2013 EMARKETER INC. ALL RIGHTS RESERVED 7 Part of BlackBerry’s appeal among device users in Indonesia results from cheaper handsets and low-cost service packages. BlackBerry Messenger (BBM) also has a strong user base, but new messaging services running on Android, such as WhatsApp, have begun to erode BlackBerry’s appeal. At the same time, some higher-end users have come to consider the brand a discount option. Perhaps in a tacit acknowledgement of the loss of market share elsewhere, BlackBerry in late 2012 signaled the continued importance of the Indonesian market when it announced that the country would be the first place it would roll out a new peer-to-peer mobile payment system built into BBM, known as BBM Money. In late February 2013, the company announced that it had started testing the program in Indonesia. INTERNET USAGE IN INDONESIA Internet use in Indonesia is still in the early phase of usage—communication and information gathering— with social media figuring strongly into the online behavior of internet users. In a February 2013 poll, Roy Morgan Research found that the most popular online activity among internet users was socializing/entertainment, named by more than eight in 10 respondents.That was followed by accessing general information (57%), email (48%) and website browsing (37%). Online shopping and bill payments barely registered, with only 8% of respondents listing those activities. % of respondents Online Activities of Internet Users in Indonesia, Sep 2012 Socializing/entertainment 82% General information 57% Email 48% Visiting websites 37% Academic/business research18% Promotion/publishing11% Shopping/paying bills8% Note: ages 14+ who accessed the internet in the past four weeks Source: Roy Morgan Single Source Indonesia, Feb 1, 2013 151469 www.eMarketer.com BBG and Gallup’s similar August 2012 survey of internet users underscored just how important social media was to the online activities of those in Indonesia. Ninety-six percent of respondents said they used social networking services when online.The next most common activity was accessing the news, named by 72% of respondents. (The next section of this report will take a closer look at social media’s place in Indonesia.)

8. INDONESIA ONLINE: A DIGITAL ECONOMY EMERGES, FUELED BY CHEAP MOBILE HANDSETS ©2013 EMARKETER INC. ALL RIGHTS RESERVED 8 % of respondents Online Activities of Internet Users in Indonesia, Aug 2012 Social network services 96% Latest news 72% Find information about a speciﬁc topic 50% Send or receive email 44% Read a blog 38% Share videos or photos online 35% Watch online videos 32% Listen to online audio 29% Post a comment to a blog 28% Download or watch podcasts 27% Note: in the past week; n=433 ages 15+ Source: Broadcasting Board of Governors (BBG) and Gallup, "Media Use in Indonesia 2012," Oct 16, 2012 150272 www.eMarketer.com Thus far, internet users in Indonesia have strongly favored Western websites for online activities. comScore data from August 2012 found that the top four websites ranked by unique visitors were all foreign-owned. Google sites—among them Google.com, Google.co.in, Blogger. com andYouTube—were at the top of the list, attracting 12.5 million unique visitors and recording a 91.6% reach. Facebook was in second, with 11.1 million visitors and a reach of 81.6%, followed byYahoo! sites in third. It should be noted, however, that many of these sites are offered and often used in the Indonesian language. Media conglomerate Kompas Gramedia, which operates a number of newspapers and magazines, was in fifth, ranking as the site in Indonesia with the highest number of unique visitors and a reach of 32.6%.The online forum Kaskus came in at 11th place. Students from Indonesia studying abroad created Kaskus in 1999 for fellow expatriates, but users living in Indonesia have come to embrace the site, which claims to be the largest online community for the country. thousands and % reach Top 20 Sites Among Internet Users in Indonesia, Ranked by Unique Visitors, Jan 2013 Unique visitors % reach 1. Google sites 12,487 91.6% 2. Facebook 11,127 81.6% 3. Yahoo! sites 8,518 62.5% 4. WordPress 5,646 41.4% 5. Kompas Gramedia 4,446 32.6% 6. Twitter 3,724 27.3% 7. Microsoft sites 3,702 27.2% 8. 4shared.com 3,637 26.7% 9. Wikimedia Foundation sites 3,579 26.3% 10. Detik.com 3,421 25.1% 11. Kaskus.us 2,837 20.8% 12. Tokobagus.com 2,718 19.9% 13. Portal VIVA 2,436 17.9% 14. Kapanlagi.com sites 2,395 17.6% 15. Ask Network 2,381 17.5% 16. Glam Media 2,368 17.4% 17. AOL 2,238 16.4% 18. Berniaga.com 2,172 15.9% 19. CBS Interactive 1,908 14.0% 20. Zynga 1,837 13.5% Source: comScore Inc., Feb 28, 2013 152871 www.eMarketer.com The number of languages and ethnic groups found in Indonesia complicates the country’s online landscape. While English has served as something of a common language for the internet in Indonesia, growth in internet use will be sped along by the creation of content in Indonesian, the country’s official language, as well as languages such as Javanese. “Without localized content creation—in the form of tweets,YouTube videos, blog posts and other social content—Indonesia’s internet use probably wouldn’t have grown so fast,” said PanduTruhandito, president of GrowMint, a digital marketing agency.

9. INDONESIA ONLINE: A DIGITAL ECONOMY EMERGES, FUELED BY CHEAP MOBILE HANDSETS ©2013 EMARKETER INC. ALL RIGHTS RESERVED 9 SOCIAL SOCIETY, SOCIAL MEDIA If there’s one lesson to learn about the behavior of internet users in Indonesia, it’s that they love social media. Social networks are an indelible element of the online world in Indonesia and a reflection of the social nature of the country’s culture. Internet users in Indonesia are leapfrogging PCs and going straight to mobile devices for access, and the smartphones and internet-enabled feature phones they’re snapping up often come with social media apps pre-installed. On feature phones, these apps have been simplified in order to work within the limitations of both feature phone screens and slower 2G networks. eMarketer estimates that social networks had an 87.5% penetration rate among internet users in Indonesia in 2012. % of internet users Comparative Estimates: Social Network User Penetration in Indonesia, 2012 BBG, Oct 2012 comScore Inc.*, June 2012 eMarketer, Aug 2012 Ipsos**, March 2012 2012 96.0% 92.6% 87.5% 83.0% Age 15+ 15+ All ages 16-64 Usage Used in the past week Unique visitors Use via any device at least once per month Visited in past 3 months Note: *data is for April; **visitors to social network sites, forums or blogs Source: eMarketer, Aug 2012; various, as noted, 2012 152551 www.eMarketer.com eMarketer’s figure falls comfortably between estimates provided by comScore and Ipsos. While comScore did not define a social network user in its report, its figure relied on data culled from only one month. Meanwhile, Ipsos’ number considered only those ages 16 to 64 who visited a network over the past three months. BBG’s data pulled from respondents older than 15 and included those who had used a social network in the past week. In comparison, eMarketer assessed users of all ages who accessed their account by any device. eMarketer projects that social network use in Indonesia will continue to speed up in 2013 and 2014. Social Network Users and Penetration in Indonesia, 2010-2014 Social network users (millions) —% change —% of internet users —% of population 2010 22.7 54.8% 74.2% 9.3% 2011 34.4 51.4% 80.0% 14.0% 2012 52.1 51.6% 87.5% 21.0% 2013 67.1 28.8% 92.3% 26.8% 2014 79.2 18.0% 94.8% 31.3% Note: internet users who use a social network site via any device at least once per month Source: eMarketer, Aug 2012 143778 www.eMarketer.com Similar to website browsing behavior, social media users in Indonesia are turning to Western platforms in large numbers. According to Socialbakers.com, there were 47.2 million Facebook users in the country as of mid-February, making it the social network’s fourth-largest user base behind only the US, Brazil and India. BBG and Gallup’s poll found that 95.7% of social network users in Indonesia were on Facebook, compared with 47.6% forYouTube, 37.6% for Google+ and 29.4% forTwitter. % of respondents Social Networks Used by Social Network Users in Indonesia, Aug 2012 Facebook 95.7% YouTube 47.6% Google+ 37.6% Twitter 29.4% Note: in the past week Source: Broadcasting Board of Governors (BBG) and Gallup, "Media Use in Indonesia 2012," Oct 16, 2012 150275 www.eMarketer.com However, anecdotal evidence suggests that Facebook’s popularity may be declining, at least among the digitally savvy users in the country’s larger cities who are turning toTwitter and Path, a US-based network. Part of Path’s strong appeal in Indonesia may lie in the fact that it was originally designed as a mobile app and not as a counterpart or evolution to an older iteration created for use on a PC. Its rise neatly coincides with mobile’s rise as the default platform for internet use.

10. INDONESIA ONLINE: A DIGITAL ECONOMY EMERGES, FUELED BY CHEAP MOBILE HANDSETS ©2013 EMARKETER INC. ALL RIGHTS RESERVED 10 ECOMMERCE: BUILDING A PEER-TO- PEER ECONOMY Ecommerce has not taken root in Indonesia yet.The country suffers from the same problems as many emerging economies: a lack of delivery infrastructure (exacerbated by the fact that the country is spread across multiple, often distant, islands), as well as internet users’ unfamiliarity with online payment methods, worries about security and widespread inability to make online payments at all. Still, eMarketer estimates that business-to-consumer ecommerce sales in the country will total $1.79 billion in 2013 and reach $4.49 billion in 2016. Annual growth is hardly eye-popping for such an early stage market. billions and % change B2C Ecommerce Sales in Indonesia, 2011-2016 2011 $0.56 15.4% 2012 $1.04 13.3% 2013 $1.79 9.8% 2014 $2.60 7.1% 2015 $3.56 6.7% 2016 $4.49 5.6% B2C ecommerce sales % change Note: includes travel, digital downloads and event tickets purchased via any digital channel (including online, mobile and tablet); excludes gambling; converted at the exchange rate of US$1=IDR9,364.91 Source: eMarketer, Jan 2013 150108 www.eMarketer.com eMarketer projects that there will be 4.6 million digital buyers in Indonesia by the end of 2013 and 8.7 million by 2016, a figure equal to only 10.6% of internet users. Digital Buyers in Indonesia, 2011-2016 Digital buyers (millions) —% change —% of internet users —% of population 2011 2.0 69.7% 6.0% 1.1% 2012 3.1 54.8% 6.7% 1.7% 2013 4.6 47.5% 8.0% 2.4% 2014 5.9 30.1% 9.0% 3.1% 2015 7.4 24.8% 10.0% 3.8% 2016 8.7 17.4% 10.6% 4.4% Note: ages 14+; internet users who have made at least one purchase via any digital channel within the past year, including online, mobile and tablet purchases Source: eMarketer, Jan 2013 150109 www.eMarketer.com A poll conducted in July 2012 by Asosiasi Penyelenggara Jasa Internet Indonesia (APJII), an association of internet service providers, cited a fear of fraud as the top concern internet users had about making a purchase online. But respondents also expressed trepidation about the inability to see and touch online products firsthand in order to gauge their quality and to make sure they were getting what they paid for. High prices also concerned shoppers, an indication that ecommerce has not yet developed to the point where consumers see it as a valuable tool for price comparison shopping. % of respondents Reasons that Internet Users in Indonesia Do Not Buy Online, July 2012 Fear of fraud 34.6% Items cannot be seen directly 21.5% High prices 13.8% Not interested/not needed 12.7% Quality of items not guaranteed 9.3% Don't know how 6.0% Not practical 5.2% Items don't match the offer 4.7% Items are not in accordance to anyone's liking 4.1% Items don't match the picture 4.0% Process is long 2.4% Source: Asosiasi Penyelenggara Jasa Internet Indonesia (APJII), "Indonesia Internet Proﬁles 2012," Dec 12, 2012 151157 www.eMarketer.com Hesitant to embrace a more traditional ecommerce model, online shoppers in Indonesia have instead developed a peer-to-peer model aided by the popularity of both mobile devices and social networks, which effectively serve as marketplaces for consumers seeking to sell goods to other consumers. April 2012 data from online payment processor Veritrans and tech media and research blog DailySocial found that Facebook was the most popular site for ecommerce, used by half of buyers making an online purchase in Indonesia.

11. INDONESIA ONLINE: A DIGITAL ECONOMY EMERGES, FUELED BY CHEAP MOBILE HANDSETS ©2013 EMARKETER INC. ALL RIGHTS RESERVED 11 % of respondents Ecommerce Sites Used to Make an Online Purchase by Online Buyers in Indonesia, April 2012 Facebook 50.0% Kaskus 49.2% Disdus* 19.5% Tokobagus 13.6% Dealkeren* 11.9% Amazon 8.9% eBay 8.5% Bhinneka 5.5% Multiply 4.7% Blibli.com 4.7% Tokopedia 3.8% Other 22.5% Note: ages 15+; *numbers may be inﬂated for these group buying sites as Disdus assisted with survey distribution Source: veritrans and DailySocial, "eCommerce in Indonesia," Aug 16, 2012 148992 www.eMarketer.com While sites founded in Indonesia figure prominently on the list, many of them are now foreign-owned. Groupon acquired group-buying site Disdus, and LivingSocial absorbed DealKeren and rebranded it as LivingSocial Indonesia. DailySocial and Veritrans also noted that the response rates for group-buying sites might be inflated because they distributed their survey through Disdus’ mailing list. The homegrown Kaskus, used by 49.2% of online buyers in Indonesia according to Veritrans and DailySocial’s study, operates a popular peer-to-peer marketplace known as Forum Jual Beli, or FJB, which simply translates to “buying and selling forum.” Rahmat Harlyadie, vice president of marketing for DailySocial, said that estimates for the daily volume of transactions on Kaskus were around $54,000. But sellers use any number of networks to alert prospective customers that they have goods available for purchase, including Facebook, BBM and WhatsApp groups andTwitter. Inventory can include just about anything— from a car to a pair of shoes. Buyers and sellers connect via SMS or phone call to negotiate prices, and payments often take place offline through bank transfers. The April 2012 study conducted by Veritrans and DailySocial showed that 70% of online buyers surveyed used bank transfers, making it the most popular payment system.That method was followed by a proprietary electronic payment system provided by the bank Klik BCA (41%), credit cards (30%), cash on delivery (24%) and a payment service provided by Bank Mandiri (15%). % of respondents Payment Methods Used for Online Purchases According to Online Buyers in Indonesia, April 2012 Bank transfer* 70% Klik BCA** 41% Credit card 30% CoD 24% Mandiri internet**15% Note: ages 15+; *includes ATM payments, cashier payments or transfer of funds electronically to a speciﬁed bank account; **transfer of money using the bank's proprietary electronic payment network Source: veritrans and DailySocial, "eCommerce in Indonesia," Aug 16, 2012 148993 www.eMarketer.com Clearly customers still feel uneasy about making payments online, instead preferring to use bank transfers and other methods to complete their purchases. “As a customer, even if I don’t know you, I’m more comfortable sending you money through transfer than I am using a payment gateway to pay for something,” said XM Gravity’s Ivens. But he sees that practice changing in the near future as various players compete to provide new shoppers with online payment services. “There are a lot of local companies in Indonesia that are starting up payment gateways. It’s gaining trust and traction in terms of usage,” he noted. Those efforts to develop online and mobile payment methods are also taking place among foreign firms, with BlackBerry’s new BBM Money payment system serving as an example of this trend.

12. INDONESIA ONLINE: A DIGITAL ECONOMY EMERGES, FUELED BY CHEAP MOBILE HANDSETS ©2013 EMARKETER INC. ALL RIGHTS RESERVED 12 ADVERTISING Advertising spending in Indonesia still remains wedded to traditional forms of mass media.Television, especially, commands a large share of advertising budgets, but digital spending is beginning to ramp up as media buyers adjust to the online world. A December 2012 study by GroupM projected that TV ad spending would total $1.6 billion in 2013, with newspapers commanding the second-highest ad budget ($501 million). At $147 million, internet ad spending was expected to exceed magazines, outdoor, radio and cinema advertising. millions and % change Ad Spending in Indonesia, by Media, 2011-2013 2011 2012 2013 TV $1,172 $1,413 % change 22.0% 20.5% Newspapers $411 $462 % change 21.2% 12.5% Internet $47 $97 % change 200.0% 105.0% Magazines $77 $84 % change 6.6% 8.4% Outdoor $61 $68 % change 10.0% 11.4% Radio $54 $59 % change 7.5% 9.1% Cinema $9 $9 % change 5.0% 10.7% Total $1,832 $2,192 % change 21.9% 19.7% $1,628 15.2% $501 8.5% $147 51.5% $90 7.8% $78 14.8% $65 9.6% $11 12.5% $2,520 14.9% Note: numbers may not add up to total due to rounding; converted at an exchange rate of US$1=9,631 Indonesian rupiahs Source: GroupM, "ThisYear, NextYear: December 2012," Dec 17, 2012 149342 www.eMarketer.com eMarketer estimates that total ad spending growth will jump from 12% in 2013 to 15% in 2014—and then slow to 9% by 2016.Total ad spending will reach $7 billion this year and climb to $9.6 billion in 2016. Comparative Estimates: Total Media Ad Spending in Indonesia, 2011-2016 Total ad spending (millions) PPPI, Jan 2013 (1) PwC, June 2012 (2) ZenithOptimedia, June 2012 (3) eMarketer, Dec 2012 (4) GroupM, Dec 2012 (5) SPS, Jan 2012 (4) Total ad spending growth (% change) ZenithOptimedia, June 2012 PPPI, Jan 2013 GroupM, Dec 2012 eMarketer, Dec 2012 MAGNAGLOBAL, June 2012 Media Partners Asia, April 2012 SPS, Jan 2013 Nielsen, April 2012 2011 - $7.1 $5.3 $5.5 $1.8 $9.1 18.9% - 21.9% 10.0% - - - 25.2% 2012 $9.8 $8.3 $6.3 $6.2 $2.2 $10.5 19.6% - 19.7% 13.0% 16.8% 15.0% 14.7% - 2013 $12.1 $9.7 $7.5 $7.0 $2.5 - 19.1% 18.0% 14.9% 12.0% - - - - 2014 - $10.9 $9.3 $8.0 - - 22.6% - - 15.0% - - - - 2015 - $12.0 - $8.8 - - - - - 10.0% - - - - 2016 - $13.2 - $9.6 - - - - - 9.0% - - - - Note: (1) converted at the exchange rate of US$1=IDR9,364.91; (2) converted at the exchange rate of US$1=IDR8,779.0; (3) converted at the exchange rate of US$1=IDR8,770.40; (4) converted at the exchange rate of US$1=IDR8,767.81; (5) converted at the exchange rate of US$1=IDR9,631.0 Source: eMarketer, Dec 2012; various, as noted, 2012 & 2013 150296 www.eMarketer.com Digital ad spending, unlike overall ad spending, will see significantly higher growth rates over the next two years as advertisers move to establish themselves online for the first time. eMarketer projects that digital ad spending will hit $231.8 million in 2013 and grow to $1.2 billion by 2016. Comparative Estimates: Digital Ad Spending in Indonesia, 2011-2016 Digital ad spending (millions) eMarketer, Dec 2012 (1) GroupM, Dec 2012 (2) (3) PwC, June 2012 (4) ZenithOptimedia, June 2012 (3) (5) SPS, Jan 2012 (6) BCG, March 2012 - Digital ad spending growth (% change) eMarketer, Dec 2012 GroupM, Dec 2012 (3) PwC, June 2012 2011 $88.0 $47.0 $4.0 $1.0 - - 50.0% 200.0% 0.0% 2012 $136.4 $97.0 $5.0 $2.0 $114.1 55.0% 105.0% 25.0% 2013 $231.8 $147.0 $5.0 $2.0 - - 70.0% 51.5% 0.0% 2014 $405.7 - $6.0 $2.0 - - 75.0% - 20.0% 2015 $697.8 - $7.0 $2.0 - - 72.0% - 16.7% 2016 $1,158.3 - $9.0 - - $200.0 66.0% - 28.6% Note: (1) converted at the exchange rate of US$1=IDR9,614.14; (2) converted at the exchange rate of US$1=IDR9,631.0; (3) excludes mobile; (4) converted at the exchange rate of US$1=IDR8,779.0; (5) converted at the exchange rate of US$1=IDR8,770.40; (6) converted at the exchange rate of US$1=IDR8,767.81 Source: eMarketer, Dec 2012; various, as noted, 2012 150800 www.eMarketer.com

13. INDONESIA ONLINE: A DIGITAL ECONOMY EMERGES, FUELED BY CHEAP MOBILE HANDSETS ©2013 EMARKETER INC. ALL RIGHTS RESERVED 13 Many global research firms have difficulty measuring ad spending—especially in emerging markets—without a local office in the country or region. For example, PricewaterhouseCoopers relies heavily on figures from the Interactive Advertising Bureau, which doesn’t have an office in Indonesia. eMarketer believes that such firms underestimate ad spending by accounting only for the local advertising market and failing to take into account overseas marketers who spend more heavily than local players do.The local sources that eMarketer uses, such as Serikat Perusahaan Pers (SPS), tally the spending of both domestic and international advertisers. EMARKETER INTERVIEWS Marketing in Indonesia: Nation Enamored by Social Networks Reaches Internet via Mobile Nanda Ivens COO XM Gravity Interview conducted on January 30, 2013 Rahmat Harlyadie Vice President, Marketing DailySocial Interview conducted on January 31, 2013 Tuhu Nugraha COO Pingfans Interview conducted on January 31, 2013 Debnath Guharoy Regional Director, Asia Roy Morgan Research Interview conducted on February 8, 2013 PanduTruhandito Co-Founder GrowMint Interview conducted on February 2, 2013

14. INDONESIA ONLINE: A DIGITAL ECONOMY EMERGES, FUELED BY CHEAP MOBILE HANDSETS ©2013 EMARKETER INC. ALL RIGHTS RESERVED 14 RELATED LINKS Asosiasi Penyelenggara Jasa Internet Indonesia (APJII) BlackBerry Boston Consulting Group (BCG) Broadcasting Board of Governors (BBG) Canalys comScore Credit Suisse DailySocial Disdus Facebook Frost & Sullivan Gallup Google Indonesia GroupM GrowMint Ipsos Indosat International Data Corporation (IDC) InternationalTelecommunication Union (ITU) Jefferies Kaskus LivingSocial Indonesia MAGNAGLOBAL MarkPlus Insight McKinsey & Company Media Partners Asia Ministry of Communications and InformationTechnology Nielsen Indonesia Path Persatuan Perusahaan Periklanan Indonesia (PPPI) PricewaterhouseCoopers Roy Morgan Research Serikat Perusahaan Pers (SPS) Socialbakers.com Telkomsel TNS Global Twitter Veritrans Indonesia XL Axiata XM Gravity Yahoo! ZenithOptimedia EDITORIAL AND PRODUCTION CONTRIBUTORS Cliff Annicelli Senior Editor Kaitlin Carlin Copy Editor Joanne DiCamillo Senior Production Artist Stephanie Gehrsitz Senior Production Artist Dana Hill Director of Production Nicole Perrin Associate Editorial Director Allie Smith Director of Charts

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