How LINE is turning Instagram into an ecommerce app in Thailand

February 17, 2015

Siam ParagonOn a recent exploratory visit to Bangkok, I witnessed first-hand a consumer shopping behavior that absolutely blew my mind and underscored how the West does not have a monopoly on business model innovation. Incidentally, my secret for glimpsing generalized consumer behaviors in a foreign country is to eschew the convenience of taxis or Uber in favor of public transportation whenever I can. In this case, I observed an intriguing pattern on the trains, and then began actively querying random people about it.

Few e-commerce specialist investors in Europe seem to be waking up to the mind-boggling potential of e-commerce in Southeast Asia, at least beyond Singapore. Rocket Internet represents the notable exception. Not only are they proving that their model of ruthless execution works in Southeast Asia (cue Zalora and Lazada, to cite two examples), but they are also seeding the market with entrepreneurs trained in operational excellence. Outside of Rocket and the recent attention lavished by Sequoia Capital on Indonesia, venture funding for the region appears to be limited to a handful of smart local VCs, based in Bangkok or Singapore, or savvy Japanese investors. I am surprised that not more Western LPs are seeking exposure to the region.

According to some sources in the know, e-commerce penetration currently stands at 10~15% in China right now (which incidentally in absolute volumes already rivals that of the West). Meanwhile, in Thailand, experts peg e-commerce penetration at a mere 0.5% presently.

During my stay in Bangkok, it seemed that every single person outside of young children and elderly walking down the street or riding the metro was cradling their iPhone or (more commonly) Android device. Mobile networks were strong and reliable (4G in some parts, with 3G ubiquitous). Granted I did not leave urban areas, but when I read that mobile penetration in Thailand is almost 150%, with smartphone penetration at 35~40% today and expected to double, this strikes me as credible.

So to summarize, with a population of 65 million, Thais have over 90 million mobile sim cards; internet access connects around 20 million individuals; and online commerce only just surpassed $1 billion USD which represents a mere 0.5% penetration (the entire GDP for Thailand exceeds $600 billion). Talk about potential.

On this backdrop, let’s take a look at LINE and Instagram usage in Thailand.

LINE is the dominant messenging platform in Thailand, with over 33 million registered users. Based on more recent data direct from LINE corporate, we can make an educated guess that LINE’s MAU count in Thailand is close to 29 million. Usage on the platform has become so quotidien — for example, one entrepreneur told me about how her mother operates several different LINE groups for her various circles of friends — that the platform has emerged as arguably the most trusted channel of interaction outside a physical encounter. I’ve even heard of cases where people send LINE photos of bank transfer confirmations to provide proof of payment: this almost suggests that people trust LINE more than the credit card processing infrastructure !

 line_stats_oct2014

As for Instagram, Thailand arguably boasts the most engaged user base on Instagram in the world. Estimates place Instagram accounts in the range of 2 million today; however, the Siam Paragon Mall in Bangkok represented the top Instagram location in 2013 (and ranked fourth in 2014).

 top_instagram_locations

Which brings us back to tinstagram_line_commerce1he mind-blowing consumer shopping behavior I witnessed. Technically, I would not characterize this as pure M-Commerce, it was more like IL-Commerce, as in Instagram-LINE Commerce.

IL-Commerce works as follows: A merchant creates an Instagram account and post photos of their wares. Merchants selling women’s fashion seemed to be the most common, but I did notice other product categories. In her Instagram Bio, the merchant may mention a few commercial words about the product, but inevitably also includes her LINE ID. Here’s a typical example (see right). Notice how the second phrase of the bio says, “Contact us via line: amisbrand”.

Consumers that stumble onto the Instagram page and like what they see use LINE to contact the merchant and ultimately make an online transaction. By using LINE, merchants are able to engage directly with each prospective customer and build trust. By way of this interaction over LINE, the merchant and the customer complete the transaction, agreeing on the product, any potential discounts, even payment terms. Consumers seem to prefer this method because it gives them a direct contact with a live person, not an anonymous online shopping cart. Sometimes the merchant will even use this LINE chat to persuade the customer to come into the store.

Notice how the following merchant very cleverly set her Instagram location as her LINE ID, such that it appears in the top heading bar of the Instagram page.

instagram_line_commerce2

So what is the relevance for Europe in all of this? Beyond the obvious one that performance-seeking investors who like e-commerce should be thinking about Thailand now, it feels like there’s some other inspiration to derive. At a time when brick-and-mortar retailers across Europe are grappling with how to adapt their rigid fixed cost structures to the flight of disposable income toward online channels, the notion of tapping into the customer’s need for engagement via a messenger app like LINE feels like it could be part of a solution to their troubles.

[Credits: I’d like to thank for the fact-checking and indirect inspiration: Orn Euaungkanakul (Instagram/LINE user), Prinda Pracharktam (Co-Founder Glazziq.com), Aim Charoenphan (MD of Hubba), and Adrian Vanzyl (Co-Founder of Ardent Capital).]

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posted in technology, venture capital by mark bivens

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  • great insight, thanks !

  • orthorim

    I think the main reason for this is that Thailand is a true mobile first country. People here don’t have PCs; people here never bought anything on a PC or on a website. I mean, they did, but it was always a small tech-savy minority that did these things.

    For the average Thai person, the internet started with a smartphone. So there is not this baggage of expectations – web forms, websites where one has to clumsily enter all the things on the credit card. Credit cards aren’t done here either, it’s all debit and ATM cards. Transferring money by ATM has worked well for a long time, and it’s pretty secure.

    I recently bought some goods from a vendor in Bangkok. We agreed on price, product ID, address, shipping cost via Line – which was very easy and natural, no need to send long emails or to have confusing phone calls. We used internet addresses and photos of product. Then he sent me his bank number. I took that, pasted it into my mobile banking app, and made a transfer of the amount, then posted the transaction slip back on Line. Products were delivered a week later, we kept in touch, during the week. He sent me the tracking number on Line as well.

    I don’t think this kind of workflow was intended by either Line or the Bank making the banking app, but its what works right now. If you streamlined this a bit, there’s a huge potential to do better.

    BTW I trust my mobile banking app because it has a separate 6 digit passcode, different from my ATM code, and it only works over mobile internet – it doesn’t even work over WiFi for fear of fraud. It’s a lot easier and also from my end safer than entering credit card details. I am just transferring cash, not giving the vendor a way to take cash from me.

  • Daniel Lu

    Thanks! I missed b) and that makes sense. I think 104m total seems low, but I don’t have anything to support that.

  • oh yeah, i have a “cousin” like that too !

  • great observation. this ratio feels high to me too, which i why i qualified this as an educated guess. however, there is some logic behind it. my calculation is based on the following data points and assumptions:

    a) from Line corp’s announcement on 2015.01.29: “The Monthly Active User (MAU) count for LINE is at 181 million, and in the 3 countries (Japan, Taiwan, and Thailand) where LINE holds the top share, the MAU is 92 million.” [http://rude.vc/EXqw]

    b) from this October 2014 report, in those top three countries — Japan, Taiwan, Thailand — the registered user count from was 54m, 17m, and 33m respectively (104m in total). [http://rude.vc/TtdI]

    Assumption #1: both of these reports are accurate.
    Assumption #2: the ratio of active users / registered users in those top three countries is consistent. so Thailand MAU = 33m RU / 104m RU * 92m MAU = 29m. by this same logic, there would be 48m MAU in Japan and 15m MAU in Taiwan as of January 2015.

    Is Assumption #2 reasonable? arguably, yes, as it merely assumes that the Line activity ratio in the very 3 countries as determined by Line Corp as its top 3, is roughly the same. Line Corp itself has isolated these 3 countries and grouped them together in its analysis, suggesting that user behavior in them is consistent and exceeds usage in the rest of the world. furthermore, in the likely event that the RU count grew from Oct-2014 to Jan-2015, this logic would hold if the growth were comparable across the top 3 countries during that 3-month period.

    All that being said, however, unless this point is corroborated by Line, it remains at best an educated guess.

  • code_duck

    Essentially. “Bongs for dabs” has been the most thriving sector of the artistic glass market for several years now. The tag #glassofig is a good place to start for anyone interested in checking out the artistic glass smokeware and jewelry market on Instagram.

    The majority of borosilicate flameworking artists are independent and Facebook and Instagram are important to most people’s marketing, if not sales. Some people make a living solely from selling on Instagram. Payment is a problem in this market, as pipes are forbidden by PayPal and other processors, despite being sold in all 50 states and being without question of legality in many.

  • chatmasta

    Glass blowers = selling bongs for dabs (highly concentrated thc oils)

    My cousin showed me over Christmas what this scene looks like. There’s a bustling market on Instagram of “glassheads” buying and selling wares under pseudonyms. It’s super interesting, and people are spending a lot of money. Obviously transactions take place offsite, but instagram is entirely the conduit.

  • sirn

    Personally, I believe this is a chicken and egg problem. Lack of a good way to accept online payment is partly the reason why online services here couldn’t take off as fast as they should, and that in turn caused the lack of pressure for innovation in the space you speak of.

    However, with the recent stories of Ookbee and Stock Radars, or even how Uber becoming a real threat to Taxis, I’m sure the demand is only growing larger and larger, even more so now that prepaid cards are really easy to get (you can buy one at 7-11). If the payment experience is good enough that it increase sales, people might eventually quit bothering about the fees. So to me, the missing link right now seems to be a payment gateway.

    I have been working with Omise under contract for a while (I’m omise-python[1] maintainer). I’m not sure to what extent I’m allowed to speak about the plans, so I can’t really answer your question (sorry). In my opinion, I’m really glad that Omise is tackling the payment gateway problem. Especially how nearly all other players in Thailand require redirection to their payment page to accept payment (some even require successful redirect back to merchant’s callback url to finish a transaction) having someone who say “you hate that redirect? we too!” is really reassuring.

    [1]: https://github.com/omise/omise-python

  • stephenr

    As a foreigner with a new company in Thailand (and a couple of companies setup around the same time in Australia too) I don’t think the banks specifically are the problem.

    It’s a lot of f*cking around to get a merchant account in Australia too – it’s only because of newer payment providers like Stripe and Pin (AU only) who don’t require a merchant account, that it’s feasible for a small bootstrapped company to consider accepting credit card payments in Australia.

    Here in Thailand it seems there is much less demand for online services, so there has been much less pressure/incentive for innovation in the payments space.

    Omise are a reasonably new player (similar concept to Stripe or Pin), and seem to be tackling this gap in the market, however I’m not sure how fast they’re taking off. I’m still waiting for USD support (I want to be able to charge foreign clients in a known currency) but no specific word yet on when it will be available.

  • unicornporn

    Or it could possibly mean that people don’t fully understand the backpinnings of the technology they are using.

  • stephenr

    Online credit card payments are not ubiquitous or well supported in Thailand.

    When we first got here, my wife couldn’t pay our phone+internet bill (using the third largest telecom in the country) online, because they need to whitelist card numbers on accounts because of fraud (or so we were told).

    When we tried it once with my (then) Australian Visa card, it failed miserably and the app dumped out a PHP stack trace in its web view with a SCARY amount of information exposed to me.

    Even things like using a banks’ “Pay Bill” feature is apparently not reliable here, because payments somehow don’t turn up in a timely fashion or they don’t know they’ve arrived or something.

    People do what they’re comfortable with and what they know – just like how staff always ask for a signature on the bottom of a credit card slip that clearly says “signature not required” because I used a PIN.

  • dlu

    Curious that payments isn’t anywhere near the same revenue as Stickers and Games

  • sajal83

    “this almost suggests that people trust LINE more than the credit card processing infrastructure”

    And to think that until recently LINE used to send things unencrypted over plaintext when using mobile internet.

  • corv

    I’m not convinced “social media e-commerce” is a better way to sell.

    Blurring the lines between commerce and friendship creates false assumptions of trustworthiness.

    I’ve witnessed people walk into stores demanding discounts they saw on unofficial social media merchant accounts. Needless to say no sale was made and both parties were worse off.

    Ordering something as simple as a Raspberry Pi was a tedious process involving several emails and a walk to the bank. Very personal and yet utterly inefficient for everyone involved.

    There might be a great demand for a user friendly e-commerce app here.

  • s_baby

    To me this looks like an organic extension of how Thai people go about engaging retail and service industries. This is a country where you step out your door and there are street carts soliciting you with every product and service you could want. This is taking that type of p2p business interaction which Thai people are comfortable with and expect and moving it to the internet.

  • code_duck

    Using Instagram/Kik in a similar fashion is quite popular among glassblowers in the US. People post their wares on IG and say ‘kik me for prices’.

  • hackerboos

    “Few e-commerce specialist investors in Europe seem to be waking up to the mind-boggling potential of e-commerce in Southeast Asia, at least beyond Singapore.”
    That’s because there are huge barriers to overcome for e-commerce in Thailand.
    1. Lack of access to bank cards and credit cards that work online. Most people bank here with paper books. This is why 7-Eleven pay (cash for vouchers that work online) and other offline solutions have taken off.
    2. People don’t trust banks, the sellers and most importantly the Thai postal service to get the item to them. Sure you could use private couriers, but they are prohibitively expensive.
    3. It’s hard for Companies to find payment processors. Paypal operate in Thailand but are more stringent that other countries because of the fraud that goes on here.

  • xenonysf

    Instagram is used a lot to promote similar products in Turkey as well. In fact people try to create popular accounts and get advertisements for different products. I see promotions so often in some comic accounts I follow, bothers me sometimes.

  • sajalkayan

    “this almost suggests that people trust LINE more than the credit card processing infrastructure”

    And to think that until recently LINE used to send things unencrypted over plaintext when using mobile internet.

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