How Tokopedia’s everyday innovation culture transformed ecommerce in Indonesia

From its early efforts to woo a technology and ecommerce averse Indonesian population, to its most recent forays into an AI-driven bespoke offering for its customers, a culture of innovation has been a constant at Tokopedia 

When Tokopedia, an Indonesia-based technology company with the largest marketplace platform first came up with its vision of “democratising commerce through technology”, there were few takers. Technology was regarded with suspicion or ignored entirely, and commerce was rooted in geography, with traditional trade dominating the landscape.

Over a decade later, there is ample evidence that a rapid shift is underway. Today, Tokopedia has over a 100 million active users every month, over 11 million merchants, and covers 99% of the sub-districts of Indonesia.

It took the firm a decade to get over 6 million merchants on its platform. That number shot up to over 11 million through 2021, with the changes brought about by the pandemic acting as an accelerant. In addition, Herman Widjaja, CTO & Sr. Vice President at Tokopedia said, “7 out of 10 Tokopedia merchants experienced 133% increase in sales volume, and 68.6% of sellers who joined Tokopedia during the pandemic were the sole breadwinners of the family.” The new merchants come not just from areas where Tokopedia expected to see a boom – Jakarta and Java, but from provinces like Bali, Central and South Sulawesi.

And while traditional trade is still dominant in Indonesia, ecommerce penetration is now on a clear growth trajectory and has a lot of room to expand.

From the US to China and India, the time taken for a market to attain digital maturity is shrinking. Speaking of the impact these shrinking timelines have on digitalisation in Indonesia, Southeast Asia’s largest market, Herman said, “It pushes us. How do we balance growth, and the need to invest? How do we make sure that our talent can support that growth? How do we ensure that the national infrastructure supports logistics, and that the ecosystem matures in step with the business?”

And so, Tokopedia has placed itself at the forefront of supporting digitalisation, removing as many friction points as possible. None of this was easy, immediate or by accident. And all of it was driven by a consistent approach to innovation.

The DNA of innovation

The DNA of innovation at Tokopedia is built around knowing who its customers are and using a growth mindset to address their pain points.

The first of these challenges was existential: trust concerns that struck at the core of the digital economy. When Tokopedia began almost 12 years ago, many merchants didn’t see the need for a platform or ecommerce, and consumers were skeptical about the quality of an online purchase.

One of the first innovations at Tokopedia was an escrow system. Money was released to a seller only after the buyer was satisfied, solving for the tricky issue of trust.

Another relatively early innovation took Herman by surprise on his return from the United States to Indonesia. He said, “I was used to two-day delivery and in the US one day or same day delivery was offered in a few places. But when I moved here, I was surprised to find that Tokopedia offers same-day or one-day shipping for 65% of the products sold on our platform. This was despite Indonesia being one of the largest archipelago countries, and still regarded as a developing nation.”

It was the result of an early partnership between Tokopedia and ride-hailing companies. In fact, Tokopedia was the first technology company in Indonesia to introduce delivery through such alliances.

Bridging the online to offline divide

With tier 1 and 2 cities embracing digitalisation, Tokopedia turned its attention to the hinterlands. This involved the creation of Mitra Tokopedia – a retail business where mom and pop stores are brought online and become a digital centre for a village. Herman said, “We offered them easier and cheaper access to a greater variety of goods. Even if a whole village lacks digital literacy, they are able to jump right into Mitra Tokopedia and experience the benefits of digitalisation.”

While conceiving of the Mitra Tokopedia app, Herman was very clear that his team should design it to be extremely lightweight – a download size no greater than 1MB. He assumed that the target audience would only own an underpowered phone.

Post launch, he insisted that engineering managers talk to the customers directly. On heading into the hinterlands with the sales team, the engineers discovered they were right about the phones and uncovered a few additional problems: black spots for coverage, and customers occasionally turning off data. The app was tweaked accordingly. Herman said, “Innovation doesn’t need to be something with a wow-factor. It may not be part of the original plan. But it becomes ‘worthy enough’ if we consider the customer’s needs. Our employees should possess the genius to identify it. We hire people to be leaders – to make things happen.”

An innovative approach to fintech and savings

Tokopedia was soon to realise that financial inclusion would have to be a critical part of its vision of democratising commerce. This overlapped with one of Herman’s personal passions – fintech. There were multiple challenges: a large unbanked and underbanked population. And no credit scores, since these ratings depended on having an insight into the financial history of a consumer.

The first task was to eliminate barriers to entry with an app which was designed from ground up to be very simple. The next step was to introduce this audience to a wider universe of financial services. Herman said, “According to a World Bank study, a 1% increase in financial inclusion facilitates an annual GDP growth per capita of ~0.03%.” The financial services included loans that may otherwise have needed to be sourced from a loan shark at an extortionate interest rate; payment services; credit card applications and easy access to insurance.

The portfolio of offerings grew to include investment options: conservative mutual funds and savings in gold. Herman said, “When we started, many Indonesians believed that gold is an investment for the rich. The cost of entry is very high and even 1 gm is priced at around $50. Given the normal Indonesian salary is less than the GDP, buying even a gram is difficult.”

Inspiration struck from Herman’s time in the United States. Giant retailers offered to round a bill to the nearest dollar and donate the money to charity, saving consumers the inconvenience of being saddled with loose change. Herman said, “We realised consumers come to Tokopedia not to invest, but to purchase.”

The workaround was via a savings instrument where the surplus, rounded off to the nearest dollar, formed the basis of a gold investment. The scheme was launched three years ago.

The Apollo journey

While favouring a frugal approach, Tokopedia is not averse to spending money when needed – for instance, it has internationally popular K-pop stars BTS and BLACKPINK as its brand ambassadors. It also bought time on TV – the most expensive and popular medium in Indonesia – to advertise its first annual sale, three years ago. Herman said, “It was an attempt to expand our customer base and get the brand to everyone in Indonesia.”

The campaign succeeded beyond the team’s wildest expectations generating a surge in traffic that was significantly higher than anticipated. However, the team had no time for self-congratulation. Herman said, “Our technology backend wasn’t ready for such a surge and our system went down.” While it is tempting to think of this as a ‘good problem to have’, Herman recalled the mood at the company as being very sombre. He said, “Our codename was Apollo: because it was like an attempt to go to the moon. Apollo 1 was a complete failure. Our immediate priority was surviving Apollo 2.”

The team had a better experience the next year,  and Tokopedia has moved from an annual to a monthly sale cycle, starting on the 25th– payday for large parts of Indonesia – to the end of the month.

An AI-driven future

With an increase in scale and complexity, collaborating with other companies is the need of the hour. A big believer in a marketplace system, Tokopedia’s partners include payment and logistics specialists as well as digital aggregators. Herman said, “It’s our job to transform many of these partners into technology companies. The challenges that we have right now is something that older technology will be unable to solve.”

AI is becoming an increasingly critical part of the next leg of innovation at Tokopedia. Herman, however, remained realistic about its scope and potential and said, “AI is wonderful jargon right now and people quite honestly abuse it. AI is not the solution; it is merely the transportation towards a solution.”

An AI-based approach helps Tokopedia to offer its large base of customers hyperlocal and bespoke offerings. This is beyond the scope of traditional rule-based computer science. Herman cautioned, “Before we deploy AI, we need to start changing our concept, mindset and get more comfortable with experimentation. One of the most important things is a buffer for failure. When you experiment, 80% will succeed and 20% will fail. But as we mature, it will be the opposite. AI-first is Tokopedia’s next decade vision.”

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This article was created in partnership with Tokopedia. Please visit the website for more information on Tokopedia’s innovation-driven approach to building an ecommerce marketplace