Southeast Asia’s (SEA) digital economy has reached a turning point in 2024, with businesses shifting from rapid growth to disciplined profitability.

The region’s digital landscape, once defined by high user acquisition costs and heavy promotional spending, has evolved. Companies across sectors such as e-commerce, online travel, and food delivery are now taking a more strategic approach to revenue and cost management, inspired by mature markets such as China.

The emphasis on effective monetisation, operational efficiency, and adapting to changing consumer behaviour drives sustained profitability, further supporting the region’s digital economy.

But how do companies make it happen?

Monetisation strategies: Leveraging core and adjacent revenue streams

In this digital economy, one of the primary ways businesses are achieving profitability is through innovative monetisation strategies that optimise core revenue sources and create new income streams.

Increased commissions and take rates

Many SEA companies are maximising earnings by raising commission rates across sectors. Online travel agencies (OTAs), for example, have increased their commission rates to levels seen in more established digital economies such as China, substantially boosting their profitability.

In e-commerce, platforms are similarly optimising take rates and exercising greater discipline in promotional campaigns. These adjustments are leading to higher margins without alienating customers or reducing the value offered.

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Expanding revenue streams with high-margin offerings

Beyond core services, businesses are exploring adjacent revenue streams with strong profit potential. In e-commerce, for instance, advertising has become a significant revenue driver, thanks to the rapid growth of video commerce and new ad formats like live ads during livestreams.

Food delivery platforms are also benefiting from in-app advertisements and subscription models, which add incremental revenue without the need for additional service offerings.

Travel platforms have expanded their services to include car rentals, guided tours, and financing options for trips, all of which provide new revenue sources with higher margins.

Cost optimisation and operational efficiency: Reducing expenses and improving productivity

In parallel with revenue-boosting efforts, companies also optimise costs to improve profitability. This focus on cost management is critical for maintaining sustainable growth in competitive markets.

Scaling back on customer and partner incentives

For years, customer incentives were a staple in attracting and retaining users, but today, companies are rethinking this strategy to improve unit economics. Food delivery platforms, for example, have scaled back on discounts and free food offers, focusing instead on promoting cost-effective alternatives like self-pick-up.

Similarly, transport platforms have reduced customer incentives and introduced surge pricing mechanisms to enhance profitability. These steps allow businesses to maintain service quality without the unsustainable expense of extensive promotions.

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AI-driven operational efficiency

Technology, particularly AI, is central to many companies’ efforts to streamline operations and cut costs. Food delivery services use AI for order batching and route planning, significantly reducing delivery times and minimizing cost per order. These efficiencies enable companies to serve more customers while keeping operational expenses under control.

Transport platforms also improve profitability through AI by refining payment processing and streamlining service operations. These AI-driven improvements enhance productivity and reduce overhead, allowing companies to maximise returns on every transaction.

Strategic market expansion

Expanding services into new geographic or demographic markets can be a profitable growth strategy if approached carefully. For example, transport platforms are broadening their reach by entering second-tier cities and rural areas where competition may be lower and demand for motorbike services is rising.

This selective approach to expansion helps companies capture new customer segments without incurring the high costs often associated with rapid, widespread expansion into already saturated markets.

Shifting market dynamics: Adapting to a maturing digital landscape

As the digital economy matures, businesses are adjusting to a new set of market dynamics. The race for new users is giving way to a focus on maximising revenue from existing customers.

Deepening engagement with existing users

User acquisition costs in SEA were previously driven by the need to scale rapidly. Today, businesses are focusing more on increasing engagement with their current customer base, a strategy that is both cost-effective and profitable.

In e-commerce, for example, the main revenue drivers are now repeat purchases by existing customers who are spending more frequently online. By prioritising engagement over expansion, companies find sustainable ways to grow revenue without excessive marketing expenditures.

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Video commerce as a growth engine

Video commerce has become a pivotal factor in reshaping the SEA e-commerce landscape. In the digital economy, this form of media not only boosts GMV but also provides a powerful avenue for customer acquisition and advertising revenue. The interactive and engaging nature of video commerce attracts users, increases shopping frequency, and provides advertisers with high-impact placements.

As video commerce becomes more ingrained in the regional e-commerce experience, it will likely drive continued revenue growth and contribute significantly to sector-wide profitability.

In 2024, the path to profitability in the SEA digital economy is calculated decisions and strategic execution. By balancing revenue diversification with cost discipline and adapting to changing consumer preferences, businesses in SEA are positioning themselves to survive and thrive in an increasingly competitive market.

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