Southeast Asia's internet economy is predicted to exceed $240 billion by 2025 as affordable mobile internet drives rapid growth in sectors such as e-commerce and ride-hailing, according to a new study released by Google and Singapore's Temasek Holdings on Monday.
That's $40 billion more than a previous estimate the companies made in 2016. The study focused on six Southeast Asian countries — Singapore, Indonesia, Malaysia, Vietnam, Thailand and the Philippines — across four main areas: ride-hailing, e-commerce, online media and online travel. Within those areas, the report added new sectors such as online food delivery, music subscriptions and video on demand.
By the end of 2018, the region's internet economy is predicted to be about $72 billion, up 37 percent from a year earlier, as measured by gross merchandise value — a key industry metric measuring total dollar value of merchandise sold online.
Indonesia has the largest and fastest-growing internet economy in Southeast Asia, and is predicted to grow to $100 billion by 2025 and account for 40 percent of the region's spending, according to the report.
Affordable mobile data and improvements in connectivity has led to more internet users in Southeast Asia; more than 90 percent of them are accessing the world wide web through their smartphones, the report said. The six countries studied in the report have around 350 million internet users today compared to only 260 million in 2015, making Southeast Asia among the fastest growing internet regions in the world.
"We're adding about 3 million net new internet users every single month. They're accessing the internet almost entirely through a mobile device," Rajan Anandan, vice president for India and Southeast Asia at Google, told CNBC's "Squawk Box" on Monday.
He explained that for the average user in Southeast Asia, their first point of connection to the world wide web is through mobile internet — unlike in the West, where people mostly first connected to the internet through fixed connections from their homes, likely on their desktops.
In recent years, mobile internet has also become more affordable as the price per gigabyte of data has dropped by nearly 50 percent over the last two to three years, according to Anandan.
"As data gets more affordable, they're spending more and more time, and doing a lot more, which is what's driving e-commerce, ride-hailing and all the other sectors that we've studied," Anandan said.
Online shopping has been the fastest growing sector of the internet economy and is set to cross $23 billion in 2018 — crucial developments in the sector was helped by three of the largest e-commerce companies in Southeast Asia, according to the report.
"This year the e-commerce industry has grown at over a 100 percent year-on-year, and we have 120 million consumers who are buying online with the top 3 players — Shopee, Tokopedia and Lazada now counting for 70 percent of this market," Anandan said.
The report estimated that e-commerce will exceed $100 billion by 2025, on the back of growing consumer trust in online shopping; the growth will be led by Indonesia, which already accounts for more than $1 in every $2 spent in the region.
Meanwhile the ride-hailing sector, which includes transport bookings on the internet and online delivery, reached $7.7 billion in 2018, with services available in more than 500 Southeast Asian cities due to the presence of players such as Grab and Go-Jek. The ride-hailing sector is predicted to be nearly $30 billion by 2025.
When Google and Temasek issued the first edition of the report in 2016, an early concern was that there would not be enough money available for Southeast Asia's tech economy to realize its potential, according to Rohit Sipahimalani, joint head of the investment group at Temasek.
"But now in these three years, you have about $24 billion raised in Southeast Asia, which is about half of what we thought would be needed over a ten-year period to meet the potential," Sipahimalani told CNBC's "Squawk Box."
"This year, particularly in 2018, the first half of 2018, total amount raised has been over $9 billion, which is just about equal to what was raised in all of 2017," Sipahimalani added.
Majority of the funds went to nine internet unicorns in the region — they're basically start-ups that have valuations of $1 billion or more. Several prominent companies have also raised funds: Ride-hailing giant Grab said it's on track to raise $3 billion by the end of the year; its Indonesian rival Go-Jek reportedly raised about $1.5 billion in funds in February while Lazada received an additional $2 billion from Alibaba in March.
Investment in nascent sectors of the internet economy, including financial technologies, health care and education, have also grown in recent years but those numbers are not yet included in the report. Financial technology companies in the region attracted more than $500 million of investments in the first half of 2018, which was twice as much as the amount in the whole of 2017, according to the study.