Local dotcom companies adapt swiftly to stay alive

Local dotcom companies adapt swiftly to stay alive

By John Ruwitch

JAKARTA (Reuters): Indonesian Web company Kopitime.com is not
afraid of change.

In the last two years it has changed its name three times,
evolved from a "bricks-and-mortar" advertising firm into a multi-
portal dotcom, sprouted an Information Technology solutions arm
and listed on the Jakarta stock exchange.

"In this new industry if you're stuck against a wall, you turn
right, and if you're stuck again, you turn left," Kopitime
President Director Indrajaya Putra Januar said in an interview.

As dotcom fever fizzles out around the world, Indonesian firms
that morphed to win a piece of the action now face grim reality.

In a country with little Internet penetration, they realize it
is going to be a while before they rake in the money.

So two of Indonesia's listed dotcoms -- the other is financial
information portal Indoexchange.com -- are casting their nets
wide in the hope IT solutions will see them through.

IT solutions could be almost anything a software house might
offer -- for instance, packages to help people buy and sell raw
or finished materials, then help them track their movement to
market or factory, besides applications in communications and
banking.

Adaptability is proving crucial in the battle to survive.

"If you solely depend on the Internet business in the
beginning, you're going to die," Kopitime's Januar said.

His company saw first-quarter losses of about 1.5 billion
rupiah and is now pitching IT solutions to Indonesia's roughly
2.5 million small and medium enterprises.

Writing on the wall

Indoexchange.com, which plans to offer online stock trading,
has also read the writing on the wall.

"The market itself won't really allow us to focus just on pure
e-commerce," Director David O'Neil said.

He and his colleagues weighed their firm's prospects last year
and decided on sweeping changes.

"We have (implemented) cost reduction programs in the portal
areas...(and) we are skewing our business towards cash flow
generation over the short- to medium-term by focusing on IT
solutions as well," he said.

Few of Indonesia's vast population -- at 210 million, the
fourth largest in the world -- ever look at a computer screen.

Even in the cities of this vast archipelago, only about 4
percent -- or about 1.3 percent of the total population -- had
ever used the Internet by last year, says a recent study by
consultancy CastleAsia along with AC Nielsen.

And just three percent of that small number -- around 80,000
people -- bought something online in 2000, the study said.

"A lot of people look at Indonesia and they look at all the
top line figures and it looks an extremely promising area for any
business," Bettina Cavenagh, one of the report's authors, said.

"But actually you've got to look at the reality checks and
then it becomes a lot more realistic looking at the figures."

Headquarters moved

To cut costs, Indoexchange, which saw first quarter losses of
1.8 billion rupiah ($158,400), moved its headquarters out of
Jakarta's high-rent central business district and changed the way
it pays employees.

"We see e-commerce starting to take off to a material degree
in 2004," O'Neil told Reuters.

By then, Cavenagh's study says, there will be more than six
million Internet users in Indonesia -- still only roughly three
percent of a population projected at around 225 million by 2005.

But up to half will be students, with little money to spend.

Bargain prices

For Indoexchange, that means focusing in the meantime on IT
solutions at bargain prices to overseas clients. It says it has
two major overseas projects in the works.

"It's like we're exporting IT... The depreciating currency
assists our margins in Indonesia," O'Neil said.

With the rupiah at lows not hit since the economy crashed in
1998, savings in foreign currency terms could be significant.

"Effectively, we're looking at a 50 percent reduction in cost
over...doing it in Germany or Europe," he said.

Indoexchange also recently launched two B2B websites hoping to
grab the niche oil and gas and textile markets.

"We're not going out to create demand. We're looking for
pockets of demand and fulfillment of demand. That's where the
Internet sector got it wrong," in the past, O'Neil said.