7 trends to note as the SEA digital economy progresses to profit

SEA is emerging as a global hub for AI innovation and adoption. With significant investments in AI infrastructure and a thriving ecosystem of startups and developers, the region is poised to unlock the transformative power of AI across various sectors, said Google, Temasek, and Bain & Company in 9th edition of the economy SEA report.

The region is well positioned to compete and attracted more than US$30 billion in AI infrastructure investment in the first half of 2024 alone. Additionally, there is an increasing consumer interest in exploring and adopting AI solutions, with searches for AI growing by 11 times in just four years.

With its young and growing population, coupled with high rates of digital literacy, and smartphone penetration, SEA provides a large and receptive market for AI-powered products and services. From AI-powered travel planners to Generative AI-powered fraud detection, AI is driving value for the region’s digital economy through sector-specific and broader business use cases.

Pro-innovation policies that support AI growth and governance will help create more opportunities in the digital economy.

The report added that specifically Singapore's digital economy has demonstrated remarkable resilience and is projected to reach US$29 billion in GMV in 2024, up 13% from 2023. Singapore is among the top 10 countries in the world in terms of interest in AI-related topics, with education, marketing, and travel driving AI search interest. There is a strong demand for mobile apps with AI features such as content creation, photo apps, and AI assistants.

Interestingly, AI has also played a key role in fuelling the growth of Singapore’s tourism sector, with chatbots powering personalised recommendations, analysing visitor data to optimise marketing strategies, and enhancing visitor experiences through interactive exhibits and bespoke guides.

In the first half of 2024, investments to build AI-ready data centres in Singapore reached US$9 billion, second to Malaysia, where US$15 billion was invested.

“Singapore's digital economy thrives on government support, investor confidence, and AI innovation. Strong growth is projected in e-commerce, travel, and digital financial services, while SGX initiatives aim to improve the exit environment. The country embraces AI with high levels of interest and adoption, supported by government initiatives and a dynamic tech ecosystem,“ said Sapna Chadha, vice president for Southeast Asia and South Asia Frontier, Google.

“We are optimistic that Singapore’s digital economy will continue to do well as it matures, driven by strategic government initiatives and strong tech infrastructure that has fostered innovation and rapid adoption of advanced technologies. As digital adoption accelerates, it is crucial that digital security evolves in tandem to safeguard data, maintain trust, and ensure the sustained progress of the digital sector,” said Florian Hoppe, Partner, Bain & Company.

Region's digital economy progresses towards profit

After years of investment and development, key players in the region’s digital economy have progressed towards profitability while maintaining double-digit growth for GMV and revenue. Deeper digital participation among users, effective monetisation strategies, and the recovery of pandemic-impacted sectors are expected to drive continued growth.

1. eCommerce fuelled by video

E-commerce, poised to reach US$159 billion GMV by 2024, is now driven primarily by existing customers who account for up to 70% of expansion, a departure from past years when first-time shoppers were driving growth. Incumbents are reinvesting into GMV growth and defending their market share as international players disrupt the market. Revenue is projected to surge 13% YoY to US$35 billion in 2024.

2. Video Commerce gives a big boost

Video commerce has surged to 20% of e-commerce GMV, up from less than 5% in 2022. Video commerce is reshaping the e-commerce landscape in SEA, driving impressive growth and transforming the consumer shopping journey. From live shopping to creator-led content, video is now an integral part of how people shop online.

3. Food delivery gains momentum

Food delivery is gaining momentum as dining-out patterns stabilise and new monetisation pathways such as in-app advertisements and subscriptions emerge. In 2024, revenue is set to grow by 54% YoY to reach US$1.7 billion, while GMV is expected to increase by 7% to US$19 billion. Platforms are testing new recipes for future profitability such as improving visibility on restaurant selection pages while tapping on AI to optimise their operations.

4. Transport surpasses pre-COVID days

Transport sector has surpassed pre-COVID levels with revenue projected to grow by 36% YoY to US$1.5 billion, driven by rebounding demand and pricing, while GMV is expected to increase by 18% to US$9 billion. Consumer demand remains robust in spite of inflationary pressures, owing to the strategic expansions of incumbents into second-tier cities and rural areas, combined with aggressive promotions by new entrants in pursuit of user growth. There is still headroom to further enhance profitability through strategic pricing mechanisms.

5. Online travel outperforms

Online travel has outperformed the overall digital economy in terms of Gross Travel Bookings (GTB) growth, which is driven by intra-regional travel within Asia Pacific. Increased airfares and shift in travellers’ preference for luxury options will continue to drive GTB, which is projected to reach US$46 billion in 2024, representing a 21% YoY increase. Revenue is also expected to grow by 18% to US$20 billion. While direct channels remain dominant, online travel agencies continue to successfully monetise their core business and travel-adjacent offerings such as financing and insurance.

6. Online media on track

Online media is on track for significant growth due to video-on-demand and gaming, with GMV expected to surge to US$30 billion, representing an 11% YoY increase. Developers in SEA are carving out a niche in casual gaming and hyperlocal gaming content. Advertising remains a proven revenue stream, while hybrid models incorporating in-app purchases, subscriptions, and ads are increasingly being adopted to cater to various player segments. The popularity of gaming creators have paved the way for a thriving creator ecosystem as other verticals also tap into livestreaming to facilitate two-way interaction between sellers and customers.

7. Digital Financial Services booms

Digital Financial Services (DFS) are experiencing rapid growth, with revenue expected to increase 22%, from US$22 billion in 2022 to US$33 billion in 2024. Digital payments and lending, accounting for over 90% of the total revenue from DFS sectors, are driving this expansion. Digital payments have become ubiquitous, with e-wallets partnering with major payment card networks and QR code usage on the rise. A generational shift in investor behaviour is contributing to a more dynamic wealth landscape. This momentum should continue as merchant acceptance of digital payments expands, risk underwriting capabilities improve and consumers migrate online for their insurance and wealth needs.