It’s Tuesday and today we are focusing our attention on Waterhub, an Indonesian company aiming to provide drinking water in a more affordable and sustainable way. Founded by Lyonda Huwaidi, the company recently completed a seed round led by Archipelago VC, with participation from The Radical Fund.

The fact that many countries struggle with providing access to clean water is crazy.

What’s worse, that even if on the face of it there are no issues with drinking water, if we dive a bit deeper, there actually are.

That’s the case in Indonesia. Just over 5% of the population lacks access to clean water, which might not seem unusual for a developing country. In countries like Chad or the DRC, the figure is over 35%. Still, because of Indonesia’s size, this translates to more than 14 million people without safe drinking water.

Supply of clean water, however, has major issues.

Roughly 70% of drinking water in Indonesia comes either from wells/groundwater or from packaged/refill channels. But the water coming from wells isn’t necessarily clean, and bottled/refill consumption has a severe negative impact on the environment.

Let’s unpack both.

While 90% of Indonesians have access to what’s called ‘improved’ water, just 11.8% actually drink safe drinking water.

You, as did I, are probably wondering why this massive difference. The short version: “improved” is about the type of source (pipes, boreholes, wells, packaged) that can deliver safe water by design. That, however, doesn’t mean that the water is being rigorously tested. “Safely managed” adds tougher checks. It’s about insuring that the water is free of contamination. And that’s where Indonesia has work to do.

Tens of millions of Indonesians rely on wells, yet those sources are often contaminated. One study found that in 2019 in Jakarta, 50% of aquifers were slightly polluted and 20% were moderate–highly polluted. With the city sinking 15-25 cm/year along the north coast, flooding and saltwater intrusion have worsened the water-quality problem. That challenge is amplified by sanitation: 86% of wastewater is released without adequate treatment, which allows contamination to seep into the very wells people use.

And Jakarta is just one example. When you consider that there are many remote areas in the country where proper infrastructure isn’t available, you can imagine the situation being even worse. The result of all this mismanagement is that 7 in 10 Indonesians consume water contaminated with E. coli.

Because of the country’s geography and the challenges of developing continuous supply through pipes, for 43.6% of Indonesian households, packaged water (both refill jugs and branded bottles) is the main source of drinking water. That creates two major problems.

First, water ends up selling at very different prices because transportation and access costs vary. And vary they do. In Papua a single water bottle can cost about $1.5, while in Jakarta that same bottle costs 6–7 times less.

Second, much of that water is transported in plastic, which adds to already high plastic pollution in the country. As I mentioned in my Rekosistem piece:

Beverage bottles constitute 16% of global plastic packaging by weight. Since packaging is 40% of all plastic waste, that implies beverage bottles are on the order of ~6–7% of total plastic waste worldwide. If we apply that figure to the total plastic waste generated by the country, that would come out to be ~0.5 million tonnes. And that’s probably on the low end, since global figures likely underplay Indonesia’s reliance on packaged/refill water.

To provide access to clean water while minimizing environmental impact, Waterhub reengineered how water is distributed. The company created its own refill stations that can process whatever source is locally available (municipal supply, rainwater, groundwater, even seawater) so the drinkable water is produced on-site. That reduces both plastic use and transportation costs.

The machine can be transported to any location and set up to draw from the specific water source at that site. Once the water enters the machine, it goes through a purification process (reverse osmosis plus monitoring) to produce drinking water. All machines are equipped with IoT sensors so Waterhub can monitor performance, uptime, and quality remotely.

On the user side, everything works through the app. Each user has a QR code in the app; they scan the code, press a button, and water comes out. The only options a user has are whether they want cold or room-temperature water.

What differs Waterhub from many other eco-conscious solutions is how it positions the value of the offering. For Indonesians, despite what some surveys may claim, the most important thing is for a product to be financially accessible. Being green is a feature, but water’s price is the actual value. With Waterhub, consumers can save up to 7.5 times by using Waterhub instead of purchasing bottled water.

Today, Waterhub operates in schools (and is being rolled out in 150), gyms, hotels and other types of public places. The company operates in Jakarta, Bali and Bandung, with 36 physical machines installed: 32 “Communal” dispensers and 4 “Heavy Duty” systems. The goal is, in five years, to distribute 5,000 of these machines across various public spaces.

From the start Waterhub targeted a mass B2B market: schools, malls, gyms, offices, transport hubs. All the places where Waterhub wants to be have three things in common:

These traits make the model scalable. If one school with 200 people uses about 200 liters per day, you can safely assume that a school with 150 people will use about 150 liters. Variable costs exist, but they’re predictable, so is maintenance like replacing filters.

Initially the company wanted to give out water for free and make money through advertising. However, they quickly realized that the model wasn’t viable. Which makes sense. Say a gym is visited by 100 people a day, every day. That’s 3,000 people a month. Let’s say an advertiser is willing to pay $15 per 1,000 impressions1. And let’s say each person sees the machine twice. That’s 6,000 impressions and $90 revenue — not viable at all.

That’s why currently the company employs a dual monetization strategy:

I think there are three bear cases with the business. One has to do with adoption on the consumer side, one on the partner side, and one with expansion.

Let’s start with the consumer side. The basic argument here is that as a Waterhub user you have access to the machine in a particular place, be it a gym, a school, or whatever else. However, you still need water in other places, so how much are you really saving? And even if you do save some money, are you willing to go through all the calculations? If Waterhub can’t be your single source of water, there may be no point in engaging with the product at all.

The partner side is interesting. A business collects rent payments from Waterhub, which is great. But that same business may also sell bottled water, or have tenants that do. So Waterhub has to find property owners that either don’t make supplemental income from selling water, or are willing to accept Waterhub’s terms because they’re better than the current setup.

Finally, the expansion piece. The big hurdle I see is maintenance: the team has to provide service at every location. Finding and managing those people may get tricky, especially in remote regions.

For me the biggest opportunity for the company is to insert itself into spaces where public money is used to finance the operations of the institution. Schools are a great example. The government doesn’t want to overspend on things like supplying students with water, so if Waterhub can convince local authorities that their solution is reliable, there’s no reason not to implement it.

There are two advantages to this approach. First, Waterhub probably doesn’t need to sell to each school individually, but rather by district. If they sell to a district, that means onboarding, say, ten schools at once instead of just one. Second, these are government institutions: it takes a lot of time for them to make a decision, but once they do, they are unlikely to switch quickly.

If Waterhub scales in the public sector, that will also open the doors to commercial institutions. The brand will be more visible, they’ll have a track record, and they’ll gain some economies of scale.

It’s rare to see a business where the founder and the customer value different things, yet the model still works. For the founder, the value is reducing plastic use. For the customer, it’s paying less for drinking water. As long as both sides get what they want, the company can succeed. The eco-friendly product space is unusual in that way: what matters most to the founder and what matters most to the customer don’t have to be the same, and the product can still thrive.

1: That’s extremely high for Indonesia, but let’s assume that showcasing your product before a specific audience on a consistent basis requires paying a premium.