Ride-hailing app Grab gears up for payment dominance
Singaporean company aims to become the first big-data king in Southeast Asia
TOMOMI KIKUCHI, Nikkei staff writer
TOKYO -- In late January, a long post on online publishing platform medium.com created a buzz. It was written by an ex-Google engineer, Steve Yegge, who just left the global technology giant after nearly 13 years to begin working at Grab, a Singapore-based operator of a ride-hailing app in Southeast Asia.
"I have never been so excited," he said about the job switch. "I feel like I've joined a literal revolutionary war, surrounded by and fighting alongside guerrilla troops, and it's win or die."
As Yegge rightly suggests, the ride-hailing battle is heating up in Southeast Asia, and Grab is on the frontlines. Launched in 2012 and operator of the first regional ride-hailing app from Southeast Asia, Grab is the region's largest "unicorn" -- a startup valued at $1 billion or more before it goes public -- with a current valuation of roughly $6 billion, according to venture capital tracker CB Insights.
The company operates similarly to other ride-hailing competitors, like U.S.-based Uber Technologies, by charging registered drivers fees for rides booked through the app. Urbanization and a shortage of public transportation in Southeast Asia has fueled Grab's growth. The app is now available in eight countries in the region and it processes 4 million rides a day, making it the largest player in Southeast Asia and the third-largest globally after China's Didi Chuxing and Uber.
In January, the tech news website KrAsia, citing people familiar with the situation, reported that Grab was in talks to acquire Uber's Southeast Asian business, following a new investment from Japan's SoftBank Group, which reportedly told Uber to focus its energy on Europe and the U.S.
SoftBank is among Grab's earliest investors. Since 2014 it has injected $3.5 billion into the company along with other investors, becoming its largest shareholder.
When asked about a possible deal at a press conference on Feb. 7, SoftBank Chairman and CEO Masayoshi Son said such decisions are "up to the management of the respective companies," and that SoftBank does not "force them in any way." However, if the companies agreed that such deals would bring about the best shareholder value, SoftBank "will consider them seriously," Son said.
Uber declined to comment.
If a deal to acquire Uber's Southeast Asia operations happens, it would not be the first time SoftBank has attempted to merge multiple competitors in which it has invested. In India, SoftBank attempted to merge Flipkart and Snapdeal, the top and third-largest e-commerce players in the country, respectively, but the deal fell through.
But some analysts suspect there is a chance an Uber deal could materialize. "Personally, I think it is possible," said an M&A strategist at a global consulting firm. "The advantages of eliminating pretty much the sole rival would be huge," this person said, especially given the consuming nature of competition as drivers and users switch between apps to look for cheaper prices and best incentives.
Chris Jones, chief analyst for automotive at research company Canalys, said in an email response to the Nikkei Asian Review that he expects consolidation in the ride-hailing industry "in the months to come" and that Uber will likely need to sharpen its geographic strategy. "It must decide whether to continue to operate in a country or exit [and] how to use its capital. Where it feels it cannot compete, it will exit," he said.
The ride-hailing business in Southeast Asia is a vast market. U.S.-based consultancy Frost & Sullivan estimates the market of ride-hailing services for two- and four-wheel vehicles reached $20.4 billion in 2016. By 2021, it is estimated to grow 37% to $27.9 billion. The market potential has attracted a number of tech and automotive companies to invest in Grab, including Japan's Toyota Motor's trading arm Toyota Tsusho, Honda Motor, Hyundai Motor and Didi Chuxing, the Chinese ride-hailing company and another investee of SoftBank.
With ample support from major investors, Grab seems confident that it can win the ride-hailing game in Southeast Asia. In a recent interview with the Nikkei Asian Review in Tokyo, Grab President Ming Maa did not confirm or deny the media reports about a potential takeover of Uber's regional arm, but he exerted confidence that the market already knows who the winner is.
"We have almost three times the market share of Uber now," said Maa, a private equity veteran who served as a vice president at Goldman Sachs from 2000 to 2012. "If you look at the history, Didi acquired [the Chinese business of] Uber, Yandex acquired [the Russian operations of] Uber. I think that gives us confidence that hyperlocal companies will always win," he said.
Much like Yegge, the ex-Google engineer, Maa also joined Grab with conviction that the hyperlocal business would be a force to be reckoned with. Maa joined Grab from SoftBank after leading the company's investments in Grab in 2014 and 2016. Son was supportive of Maa's decision to leave SoftBank, saying "everybody should be an entrepreneur," Maa recalled.
Grab's foundation gives it the necessary credentials to back up its hyperlocal, on-the-ground principles. When it was first launched in 2012 in Malaysia, the app was called "MyTeksi," meaning "my taxi" in Malay.
The company's two Malaysian founders -- Anthony Tan and Tan Hooi Ling -- came up with the idea of a ride-hailing app in 2011 while studying at Harvard Business School. The app was initially aimed at improving the quality of taxi service in the country, where drivers were known for overcharging customers and even assaulting them on occasion.
By helping drivers fetch riders more efficiently, the founders thought the app could increase their income while creating a hand-picked network of drivers with good reputations to ensure a high level of service. They returned to Malaysia and began pitching the app to taxi drivers, many of whom had previously never touched a smartphone.
Grab has since become a regional behemoth operating in about 180 cities in Cambodia, Indonesia, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.
Maa is hoping the company will add an additional 70 cities in the region this year. Plans to launch operations in Brunei and Laos are also underway.
In addition to taxis, Grab now offers rides on motorbikes and shared rides in private cars, shuttle buses and even trial rides on self-driving cars. The variety of services has opened doors to cheaper rides to the mid- to low-income customers who most needed them.
In Jakarta, Mulyanto, who goes by his first name and works at a furniture company, commutes a total 40km roundtrip daily on his motorbike. He picks up riders on Grab's social car-pooling function GrabHitch, collecting fares of as much as 1 million Indonesian rupiah ($74) a month. "It's nice to have some pocket money for gas and eating out," he said.
Mulyanto has a group of around 160 regular co-riders who are connected through Instagram and Twitter accounts. Grab also has a function that lets users connect their apps to their Facebook accounts, allowing them display their names, profile photo and mutual friends with drivers and riders. These functions help create communities built on personal connections and trust, helping the app expand its user network.
The company says these personal communities are essential in rolling out operations in the region.
"Southeast Asia is unique. In order to bring people online, we first need to go offline," co-founder Tan Hooi Ling said. "We are now building the largest O2O platform," she said, adding that it works in reverse order from what developed economies have -- it is offline-to-online, rather than online-to-offline.
With the O2O platform, the company wants to transform the entire transportation system in Southeast Asia -- and, ultimately, how people pay for it.
Bolstering GrabPay, the app's mobile payment function, is another priority for the company. Maa sees GrabPay as an important strategy in Southeast Asia, where roughly half the population is unbanked and has no credit cards. "The goal of GrabPay is to kill cash and make payment much more efficient," he said.
A number of players are already advancing in that market, including Ant Financial's Alipay, an affiliate of China's Alibaba Group Holding. But no regional winner has emerged yet because most of these mobile-wallet services require bank or credit cards to add funds. Some convenience stores and ATMs do accept cash to add credit, but there often is a high service charge involved with the transaction in Southeast Asia, Maa said.
Grab is overcoming that problem by turning its 2.3 million drivers into collection points for users to turn cash into mobile-wallet credits. The company is rapidly increasing the number of merchants accepting GrabPay, from local food stalls to convenience stores.
Last year, Grab made its first major acquisition -- Indonesian startup Kudo, which it says has hundreds of thousands of "agents" across 500 cities in the country that accept cash and transact online payments on behalf of their customers. These agents -- often small-store owners with strong connections to the local community -- have also become recruiters for Grab drivers. In 2017, around 200,000 drivers signed up through Kudo agents, helping expand Grab's ride business into rural areas.
Last month, Grab announced the acquisition of India-based payment startup iKaaz, whose technology was built to work in the country's challenging internet infrastructure, making it what Grab called "ideally suited for Southeast Asia's diverse payments landscape and large unbanked population." GrabPay today facilitates more than 3.5 million daily transactions.
With GrabPay, Maa thinks the region can leapfrog the banking system and move straight to mobile payment as an alternative to cash, which is more difficult to use and store securely.
"The ride-sharing service and transportation service are very important to kick-start payments," he said. "But in [the] longer term, we think the addressable market for payments is much larger -- easily a hundred times."
But Grab has competition in the mobile market. Its Indonesia-focused rival Go-Jek also is bolstering its digital payment service.
In December, Go-Jek announced that it will acquire three local payment-processing companies ahead of its plans to expand its electronic wallet Go-Pay as a payment tool for restaurants and shopping websites. Today, the wallet can be used to pay for a suite of on-demand services.
Google announced in late January that it had made an investment in Go-Jek. With Google now in the game, Grab, Go-Jek and Uber are now on the frontline of the battle among global internet players, like SoftBank and Alibaba, for Southeast Asian consumers' mobile wallets.
Grab is also competing with Google on self-driving taxis -- a business it plans to commercialize before 2022. The company is aggressively forging partnerships in the field. In Singapore, Grab has already tested self-driving taxis with nuTonomy, a robocar startup based in Singapore and Boston. Last year, Grab led a $15 million investment round for Drive.ai, a Silicon Valley-based robocar startup born out of Stanford University's artificial intelligence research team.
With self-driving cars, Grab wants to reconcile the divide between urban and rural areas, where public transportation is nonexistent. "Even in a very small country like Singapore, there are areas where a taxi driver would refuse to go after 8 to 9 p.m., and the public transportation is somewhat limited," Maa said. "An autonomous vehicle can connect the passengers that live in those remote regions into the broader grid of transportation," he said.
Grab's big data on transportation patterns is a critical component in making autonomous driving possible in Southeast Asia. It is aiming to offer users multiple modes of transportation for single trips -- say, a taxi, then a transfer train and another taxi -- at various price points.
Securing fleets of vehicles is also key to becoming a region-wide transportation operator. Through its partnerships with investors in the automobile industry, Grab aims to collaborate on designing vehicles customized for ride-sharing -- durability for long driving hours and smaller car trunks, for example. In China, Didi Chuxing recently struck agreements with 12 car companies including Kia and Renault-Nissan-Mitsubishi Alliance, with possible future collaborations on car designing and leasing.
If Grab succeeds in both ground transportation and payments, the company could become the first to understand how Southeast Asians move around and shop, both online and offline. "If we are able to leverage on GrabPay, ride-sharing and the transportation services, we [can] create the real first uniformed data platform on the ASEAN consumer," Maa said.
In the age of autonomous driving where mobility becomes a part of the online network, the winner in transportation will equate to the winner in the data war. That seems to be SoftBank's aim through its investments in ride-sharing services. "SoftBank is trying to overhaul Google's and Amazon.com's dominance in big data," said a venture capitalist close to SoftBank's Son.
The number of rides processed daily on ride-hailing apps in which SoftBank has invested has reached 45 million. "Cars can one day become commoditized as a functioning piece in the broader transportation network," Son said. "This is when platform operators can become winners, just like Google, Facebook, Tencent and Alibaba won over hardware manufacturers," he said.
And Grab is a key player in SoftBank's future. Jones, the analyst with Canalys, said that with its self-driving taxi plans, Grab has the potential to "become the one-stop shop everything we can do, buy or visit in a city." But he points out the company needs "more strategic partnerships and more acquisitions" to create fleet-management solutions and an app that enables its visions.
With payments, big data and self-driving cars under its belt, Grab's possible business areas seem limitless. "There is no one specific company that has all of the characteristics we aspire to be," said Maa. "I hope it's just us, but later."
Staff writer Sadachika Watanabe in Tokyo contributed to this report.