A focus on high-value users, the environmental, social and governance (ESG) theme, digital inclusion and data infrastructure regulations will bring a sustainable digital economy to Thailand, according to Google.
The fields of digital financial services (DFS), health, education, food and generative artificial intelligence (AI) are among the potential growth opportunities to attract private investors to invest in startups, according to the "e-Conomy SEA 2023" report prepared by Google, Temasek and Bain.
"It is remarkable that both Southeast Asia's digital economy gross merchandise value [GMV] and revenue continued their double-digit growth momentum, with revenue breaking the US$100-billion mark in 2023," said Jackie Wang, country director, Google Thailand.
This shows the resilience of the digital economy and that the key digital business players are making progress towards more healthy unit economics and sustainable business models, she said.
Thailand's digital economy remains the second largest in Southeast Asia, driven by e-commerce, and it's projected to reach around $50 billion in GMV in 2025, up from the projected $36 billion in GMV in 2023, representing 16% growth year-on-year. E-commerce remains the key driver of the country's digital economy.
Thailand's online travel sector is growing at the second-fastest rate in the region, recording 85% growth year-on-year, and it's the main growth driver of the country's digital economy in 2023.
Ms Wang said digital skills is also an important area which Thailand needs to develop in order to maintain its position as the second largest digital economy in the region, as well as focusing on profitability, a supportive regulatory environment and increasing payment connectivity in Asean.
High-value users continue to drive sustainable unit economics, but significant growth headroom for Thailand lies in increasing digital participation.
Over 70% of transaction values in the digital economy are made by the top 30% of Southeast Asia's spenders. In Thailand, these high-value users (HVUs) spend more than seven times as much as non-HVUs spend online, according to the report.
In Thailand, it has been projected that HVUs will increase their spending by 64% over the next 12 months -- the highest rate of spending growth across all Southeast Asian countries.
Willy Chang, a partner at Bain & Company, said to attract investment, digital businesses must show clear pathways to profitability and prove to investors that they offer a viable exit pathway, which could be in the form of a more conducive capital market environment and supportive regulations.
Private funding in the Southeast Asian region has declined to its lowest level in six years after record highs, in line with a higher cost of capital globally and issues across the funding life cycle. This trend is typical across all the region's countries.
In Thailand, private funding in the first half of 2023 returned to more typical levels after a spike over the past few years.
In the first half of 2023, $200 million came from 24 deals in Thailand, a bit lower than the first half of 2022 which generated $300 million from 42 deals.
Funding in the second half of 2022 rose to $1.3 billion from 36 deals. For the whole of last year, $1.6 billion was generated from 78 deals.
Meanwhile, in Southeast Asia, dry powder, or the cash reserve of both private equity and venture capital funds, is still on the rise with $15.7 billion recorded in 2022, up from $12.4 billion in 2021, despite investors becoming increasingly cautious amidst limited opportunities.
Dry powder refers to the amount of capital that has been committed minus the amount that has been called for investment.
Mr Chang said to exit this "funding winter", digital businesses need to show a clear path to profitable growth by demonstrating realistic entry valuations, a proven monetisation model, and viable exit pathways to investors who are focusing on exits.
Thailand's growth is driven by economic pick-up as private consumption increases and international tourism returns. He added that it is difficult to predict when funding will rebound, pending a wide range of factors such as interest rates, investor sentiment towards tech opportunities, and the availability of attractive investment targets.
He also sees investment activity shifting from relatively more "mature" sectors such as e-commerce marketplaces, on-demand food/transport, and online travel, towards more nascent sectors such as DFS, health, education, and food.
Mr Chang said DFS has seen strong growth momentum, with Thailand boasting the fastest growth in digital lending in the region so far this year. The regulators, which have focused on supporting underserved communities in Thailand, will continue to support further growth in the DFS sector.
Meanwhile, the Bank of Thailand plans to issue new digital banking licences in 2024 that are designed to provide better customer experiences and increase the reach of financial services across the country. The current expansion of the PromptPay system will support this effort, connecting more Thais to financial infrastructure.
Digital lending in Thailand is expected to rise the fastest at 65% to reach a loan book value of $12 billion in 2023, according to the paper.
The regulatory push in digital banking licences will create new growth opportunities in DFS, while further enhancing financial inclusion for Thais, he said.
Digital wealth is projected to grow the fastest at a 39% compound annual growth rate (CAGR) and the value of assets under management is set to reach $23 billion in 2025.
It is projected that Thailand will be the second-largest DFS market in the region in 2030, said Mr Chang.
In terms of online media, which covers video-on-demand, music-on-demand, and gaming, Thailand has the largest subscription video-on-demand market in Southeast Asia, and the country is expected to be one of the largest online media markets overall between 2023 and 2030.
The sector's GMV is projected to reach $5 billion this year, a 12% increase year-on-year. Online media's GMV is projected to grow at 16% CAGR to reach $7 billion in 2025, with the potential of reaching $15 billion in 2030.