Vietnam poised for the next level of social commerce via innovative startups

Thao Nguyen - Senior investment manager Ascend Vietnam Ventures

Social commerce, a subset of e-commerce that refers to the process of buying and selling goods or services directly within social media platforms, is not new. In Vietnam, long before traditional e-commerce established a foothold with tech-savvy consumers, such activities largely took place on major social media platforms.

Serving both big-city shoppers and the majority of the population who live outside of core urban centres, social commerce made up about 65 per cent of Vietnam’s $22 billion e-commerce in 2020, presenting the highest rate in Southeast Asia, according to Bain & Co.

Within the last two years, we have been seeing a new wave of startups emerging in this sector and beginning to harness the untapped potential of Vietnam’s social commerce playing field. Some of those have attracted almost $14 million in funding in Q1 this year.

Compared to the regional rate of 44 per cent, Vietnam’s social commerce accounted for 65 per cent of its e-commerce market size, leading the region and representing a significant opportunity for businesses.

The country is a large market for social media, with almost 77 million active social media users as of February. On average, Vietnamese internet users spend about 2.5 hours per day on social media, with Facebook being the most used social media platform, accounting for 93.8 per cent of the number of internet users aged 14 to 64.

Geographic and regional dynamics also play an important role. Only about 20 per cent of the Vietnam population lives in large cities, and conventional e-commerce is primarily targeted at these consumers. The failure of e-commerce platforms to effectively penetrate regions outside of Vietnam’s larger cities means there is a large, underserved market in the rural areas where social commerce has an advantage.

It is not just the market size that makes Vietnam an ideal place. The unique social and consumer behaviours of Vietnamese people are also vital factors.

Consumer research even before social media platforms became popular in Vietnam showed that Vietnamese people significantly rely on recommendations from friends and family about products and services. That’s why, despite the success of Tiki, Shopee, and Lazada in building large conventional e-commerce businesses and marketplaces, a large portion of e-commerce in Vietnam is still happening as “low-fidelity” social commerce on Facebook pages or in Zalo chat groups. Digitalised social commerce is simply a natural evolution of that pre-existing behaviour.

Currently, startups are capitalising on the existing social commerce behaviours through three different business models: content social commerce, reseller-led social commerce, and social group buying. Reseller-led solutions (for example Selly, On, and Mandu) are growing as a popular business model in Vietnam because of the central role that resellers play in the majority of social commerce transactions.

Despite their vital role in driving social commerce growth, online resellers face numerous hurdles that hinder even the best performers from achieving scale. They manage a complex, multi-step process that requires sourcing products from different suppliers, then introducing and selling products to customers, providing logistics for orders, as well as after-sales support. These nuances make it challenging for online resellers to scale their businesses.

Three out of the four companies that raised funding in Q1/2022 have reseller-focused business models. The economic impact of reseller startups is profound because they make entrepreneurship accessible for all, especially those who are easily affected by economic fluctuations.

Vietnamese social commerce startups are still at an early stage and no single player has won a significant market share. The influx of funding to several social commerce companies in Q1 alone, however, is an indicator of an expanding sector and changing competitive dynamics. Increased investments and fierce competition, combined with the innate characteristics of Vietnam’s social commerce market, could mean that the next big Vietnamese company will evolve from this space.

To get there, adopting an asset-light and capital-efficient model that allows companies to scale quickly while maintaining healthy unit economics is critical for startups. For example, a company that engages quality resellers with a high retention rate sells a diverse selection of products sourced directly from brands, and does not need to pay for inventory can have a higher chance of achieving scale and profitability.

Companies that can offer more reliable logistics support and purchase-enablement tools to allow online sellers to operate more efficiently, while creating a seamless purchasing experience for customers, have a higher chance to seize the opportunity for social commerce.