Uber bets the farm on expansion in Asia
WATARU SUZUKI, Nikkei staff writer
JAKARTA Uber Technologies is burning cash to expand its ride-hailing services in Asia's emerging markets, taking on a rising crop of homegrown competitors.
Founded in 2009, the U.S. technology startup is now operating in 360 cities across 67 countries. It has been increasing its presence in Asia, entering India in 2013 and China in 2014. The company has also rolled out operations in most major cities in Southeast Asia.
In many of these markets, Uber initially introduced the same service -- the premium car-hailing service UberBlack. But more recently, the company has been investing heavily in services that compete head-to-head with local rivals. On April 13, Uber launched its motorcycle taxi service in Jakarta. It's the latest of a series of similar moves, including services rolled out in Bangkok in February and India's Bangalore and Gurgaon in March. Through Uber's smartphone app, registered users can hail motorcycles to a designated location.
In Jakarta, motorcycle taxis known locally as ojek are commonly used due to a lack of public transportation. Hailing rides through a smartphone became popular after Go-Jek, a local operator, launched its smartphone app in the beginning of 2015.
Singapore-based Grab followed suit with its own motorcycle taxi service, triggering fierce competition between the two companies. Go-Jek claims to have 200,000 drivers registered on its platform, while Grab has pledged to take a 50% market share by the end of this year.
Uber is looking to make up for its late entrance through lower pricing. The company charges a base fare of 1,000 rupiah ($0.08), 1,000 rupiah per kilometer and 100 rupiah per minute. Some people initially complained on Twitter about the service's lack of availability, apparently due to a shortage of drivers. But one user who was able to book a ride described the fare, only 5,000 rupiah for a 2km trip, as "stunning." Go-Jek and Grab charge at least 10,000 rupiah per ride.
Uber is also following the low-price strategy in India. On April 12, the company said it is slashing fares by up to 22% in 10 non-metropolitan cities. This means the rate has come down to around 5 rupees ($0.08) per kilometer in some areas, lower than local rival Ola.
Backed by Japan's SoftBank group, Ola is still operating in far more cities than Uber -- but it is feeling the pressure in some. "Earlier, I was hiring Ola, but soon found out that Uber is much cheaper," said Neha Bhatnagar, a New Delhi resident who works for a government-run company. "I'm happy with the service Uber is providing at such a reasonable cost." In Hyderabad, Uber plans to house a team of over 500 customer service specialists by the end of this year.
UBER VS. DIDI Uber CEO Travis Kalanick said in February that the company was losing more than $1 billion a year in China, in part due to subsidies it was using to win market share. It is taking on local competitor Didi Chuxing, which is backed by Jack Ma's Alibaba Group Holding and Internet giant Tencent Holdings. Didi claims to have more than 80% of China's private car-hailing market, with operations in 400 cities, compared with Uber's claim of roughly 40 Chinese cities. Vice President for Strategy Stephen Zhu said Didi would be the "last one" standing in China.
Local Chinese governments are also joining the game. The southern city of Guangzhou, where authorities raided Uber's offices and fined its drivers for unlicensed taxi operations, has bought a ride-hailing app called Ru Yue to offer its own service. Last September, Beijing launched a similar service, Shouqiyueche, whose employees do not have to pay rental or fuel costs.
Uber's track record shows that the company rarely concedes defeat, whether to rivals or the authorities. The company encountered an unusual degree of resistance in South Korea, where prosecutors indicted Kalanick for allegedly running an illegal operation. Uber was forced to halt most services there, giving a boost to local rival Kakao. But in November, Uber fired back by announcing a "relaunch" of UberBlack under a tie-up with Hyundai Motor Group.
Uber's ability to invest heavily while bleeding money is partly made possible by its unrivaled financial backing. Reportedly valued at $62 billion as of December, Uber is considered the most valuable private technology company in the world. The figure is far higher than that of Didi, which is reportedly raising funds at a valuation of more than $25 billion, and Grab, which was estimated to be worth less than $2 billion as of last August.
Uber's business in the U.S. seems to be maturing, enabling the company to pursue opportunities in Asia. "In terms of growth and speed of growth, Asia is by far our biggest priority," Douglas Ma, who heads the company's Asia expansion, said in a recent interview with the Nikkei Asian Review. "Uber has raised a lot of money, and a lot of that is used to invest in Asia."
REGULATORY CHALLENGES Several challenges remain. As Uber's business grows, countries are stepping up efforts to regulate technology-based services. In Indonesia, Uber and Grab recently agreed with the government to only use the cars of business entities that have obtained a permit from the Transportation Ministry.
Singapore followed suit by announcing on April 12 that drivers who use their own cars to transport passengers will need to obtain a "private hire car driver's vocational license," a brand-new licensing category, by mid-2017. To obtain the license, drivers need to sit for a 10-hour course on safety, pass a road test, and undergo background and medical checks. The cars used for such services will have to be registered as well.
In some markets, the perception of Uber as a foreign company can be harmful when it comes to attracting riders and drivers. Indonesia's Go-Jek and GrabBike drivers are recognizable for their bright green outfits, and Uber has its own black uniforms. But one Uber motorcycle driver said he does not wear it due to safety concerns. "It's OK, I don't have to wear it. The company understands," he said.
Meanwhile, ride-hailing companies are teaming up beyond borders to challenge Uber. Lyft, Uber's rival in the U.S., recently said users of Didi and Grab will be able to use the apps to book Lyft rides in the U.S. and vice versa. Such partnerships threaten to eliminate Uber's advantage of being able to provide services in different countries without downloading a new app.
But perhaps the largest risk for Uber is a decline in investor appetite. Recent reports of the declines in valuations of Dropbox, the file storage service, and Snapchat, a photo sharing app, has led some observers to believe that the era of skyrocketing valuations of U.S. technology companies is coming to an end.
As investors increasingly focus on profitability, Uber's spending spree in Asia may start to draw more scrutiny. On the other hand, establishing a strong presence in Asian markets will be a must for the company to defend its high valuation.
Nikkei staff writers Rosemary Marandi in Mumbai, Kiran Sharma in New Delhi, Jennifer Lo in Beijing, Tani Mayuko in Singapore and Yukako Ono in Bangkok contributed to this story.