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Traffic-heavy Jakarta becomes a taxi battleground

Go-Jek drivers cruise past taxis on a street in central Jakarta.

JAKARTA -- Go-Jek motorcycle drivers have appeared in central Jakarta over the past half year, wearing green helmets and with people on their back seats. They work for a service that hails the city's ojek motorcycle taxis via smartphone.

     Go-Jek's app, launched in Jakarta in January, quickly registered more than 10,000 drivers and was downloaded more than 650,000 times. The service has since expanded to three more cities. App-based services are posing a fresh challenge to established taxi companies.

     After the user enters the location and destination on the Go-Jek app, the fare pops up on the smartphone's screen. Once the user confirms the order, a nearby driver arrives within a matter of minutes.

    Ojeks can squeeze their way through the capital's traffic jams, making them particularly useful during rush hour. But many people did not like negotiating fares with drivers, as there were no meters. They also hated wearing smelly helmets and inhaling car exhaust.

     Another issue was that ojeks were unauthorized. Anyone with a motorcycle could become a driver. This made it difficult for drivers to earn a stable income.

Seeing opportunity

"Ojeks were, in fact, a highly undervalued asset," said Nadiem Makarim, CEO of Go-Jek Indonesia, the maker of the app. "There wasn't a level of trust and there was no supporting technology."

     Go-Jek's app connects drivers with customers, and offers transparent pricing. Passengers are also given free face masks and shower caps to wear under their helmets. Users can rate their driver after the trip, allowing them to force bad drivers out of the business. "I can earn 300,000 rupiah (more than $20) per day," said Paturaman, a 35-year-old Go-Jek driver. "It is more than what I made before."

     Rivals are quickly joining the game. Malaysia's taxi-hailing app operator GrabTaxi launched its GrabBike motorcycle taxi service in Jakarta in May with an aggressive promotion campaign, giving rides within the city for 5,000 rupiah. To lure drivers, the company gives 90% of the fare to them, compared with 80% for Go-Jek.

     In less than two months, GrabBike received more than 500,000 orders and some 2,000 drivers signed up for the service. A spokesperson said it is the fastest-growing product ever for the company, which operates in six Southeast Asian countries.

     GrabTaxi has so far raised over $340 million in total disclosed investment. With strong appetite from venture capitalists, these companies don't need to worry about making profits in the short term. "Indonesia's public transportation is broken," said Willson Cuaca, managing partner at East Ventures, a venture capital firm. "We need innovation to disrupt and both companies are well-positioned to do that."

When in Rome ...

The business models of both Go-Jek and GrabBike are similar to that of U.S.-based Uber Technologies, which dispatches drivers via a smartphone app. Uber entered Jakarta last August, and is committed to staying for the long term.

     Alan Jiang, who is responsible for launching Uber in new markets, recently said the company is planning to establish a wholly owned local subsidiary to comply with Indonesian regulations. The move came amid rising pressure on Uber from local authorities to shut down. Prior to the announcement, five Uber drivers were detained for questioning by the police in response to complaints by a transport industry group.

     "We definitely want to be here long term," said Jiang.

     Uber's service has been ruled illegal by some local authorities, who said it does not have the required public transportation license. Uber has claimed that it is not a transport company because it does not own any vehicles, and has continued to roll out new services and lavish promotions. Jiang said Uber will not rule out the option of launching a motorcycle taxi service.

     Traditional taxi companies, such as Blue Bird, the top player, have grown as Jakarta has motorized. The city now has some of the world's worst traffic jams. Taxis faced relatively little competition as public transportation is limited -- Jakarta's first subway system is scheduled to open in 2018. Favorable policies to reduce the number of cars on the road have also helped. The Jakarta government introduced a "three-in-one" rule in the early 2000s, in which passenger cars with fewer than three passengers were forbidden from traveling on major streets.

     Blue Bird has also improved its services to lure customers. Its 24-hour call center can deliver a taxi in a matter of minutes. Last year, it launched a taxi specially designed to carry disabled passengers. Its fleet of iconic blue taxis has now grown to some 25,000 vehicles, operating in more than a dozen cities across the archipelago. It is regarded as one of the most reliable taxi chains in Southeast Asia.

New rivals

As Internet companies take a bite out of its business, Blue Bird is investing heavily in technology. It will soon introduce a new version of its taxi-hailing smartphone app, with additional features such as one that estimates fares, one that sends promotions and another that allows users to share their trip status through social media. The company is also working to add in-app payment options, either by credit card or via an electronic wallet.

     "We are learning from their technology," said Noni Purnomo, the president of Blue Bird's parent company Blue Bird Group Holding, referring to smartphone-based services.

     The challenge for Blue Bird comes at a time when the economy is sluggish. Blue Bird's net profit in 2014 only grew 4% from the previous year to 735 billion rupiah. "On the back of weak domestic purchasing power, we expect continued lower demand for taxis," said Agustinus Reza Kirana, an analyst at local brokerage Bahana Securities.

     Indonesian conglomerate Rajawali is currently looking to sell its majority stake in Express Transindo Utama, the No. 2 taxi operator. "We want to focus on businesses that give us a larger scale," Darjoto Setyawan, Rajawali's managing director, recently told the Nikkei Asian Review.

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