Grab vs Go-Jek: Hitting the gas

After raising $4.5 billion in a single funding round, most technology start-ups would want to catch their breath. But Grab’s Series H is far from over: The Southeast Asian ride-hailing and online-to-offline (O2O) services platform recently announced that it plans to raise another $2 billion before the end of 2019, bringing its valuation to $11 billion and cementing its status in the decacorn club.

Few market observers missed that the real target for the announcement was Go-Jek, Grab’s Indonesian counterpart that has trumpeted its own fundraising progress in recent months with the first installment of a $2 billion Series F round at an anticipated valuation of $10 billion. Grab has made no secret of the fact that it sees Indonesia as its highest priority, and with the support of financial sponsors like SoftBank – which has committed $1.5 billion to the Series H – as well as strategic backers Toyota, Ford, and Hyundai, the company believes it is well-positioned to overcome its biggest local rival.

Go-Jek’s investors acknowledge that the developing arms race will pose a challenge for the company, but they also argue that painting the battle purely in terms of financial muscle is a mistake. Grab would do well to remember the example of previous market leaders that tried to buy their way to dominance and fell short, and prepare itself for a long campaign.

“There was a time when everyone thought Uber would dominate the world. But they got outplayed by some of the local players in China and Southeast Asia,” says Terence Lee, a director with KKR, which has invested in Go-Jek. “I continue to believe that the local players will survive here in the long run.”

While the fight for leadership in Indonesia’s O2O market grabs headlines, the real legacy of the battle between Grab and Go-Jek will likely be the stimulus that both operators bring to the local technology ecosystem. With their infrastructure now available to build the next generation of tech start-ups, and the companies themselves showing an increasing appetite for investment and acquisition, investors believe foundations are being laid that will last for years to come.

Verticals on verticals

As the competition between Grab and Go-Jek has heated up in recent years, one unexpected challenge for market participants has been how to refer to the companies. In their early stages, both seemed to fall into a well-understood segment, inviting comparisons to previous battles that have come to seem almost quaint due to the increasing complexity of their business models.

Neither company would dispute that ride-hailing has always been core to their operations – Grab was originally known as Grabtaxi when it launched in Malaysia in 2012, while Go-Jek takes its name from Indonesia’s ubiquitous motorcycle taxis, or ojeks. But from the outset, both teams didn’t want to restrict themselves to a particular niche. This led to a platform approach that pairs ride-hailing with a plethora of other services and defies easy categorization.

“When the rivalry between Didi and Uber was at its fiercest, it was observed as a battle for ride-hailing, because both Uber and Didi’s businesses were very focused on that. In a way, it was an easier competition to think about,” says Usman Akhtar, a partner with Bain & Company in Jakarta. “Here you have a situation where both of these businesses are trying to make themselves indispensable in the minds of the user, which muddies the waters in terms of competition.”

This platform-building strategy has accelerated since Grab acquired Uber’s Southeast Asia business last year. It prompted both companies to double down on their efforts to add more services, such as food delivery and last-mile logistics. The aim is to consolidate a wide range of operations into a single “super-app” like China’s WeChat, which serves as a platform for most users’ needs. Key to this approach is utilizing the established networks of drivers – Grab claims to have five million drivers across all verticals in Indonesia, while Go-Jek has two million – to reduce downtime as much as possible.

The rivals have touted the positive impact of their platforms, with Grab claiming to have added IDR49 trillion ($3.4 billion) to Indonesia’s economy in 2018 across its services and provided an income to over 300,000 unemployed individuals. Go-Jek said last year that it had added INR3 trillion in 2017, with the benefits largely going to drivers below the age of 40 who had not graduated from university and who used the income from driving to support their families.

“The individuals who are driving on these platforms may have been completely left out of the economy, and this gives them a way to earn a salary,” says Zennon Kapron, founder of research firm Kapronasia. “But the super-app nature of Grab and Go-Jek at the moment is really for the drivers – the big question is can they become that for the consumers? That will be their challenge going forward.”

Payments is the natural link to achieve that much-needed stickiness with consumers, and both companies have focused on aggressively building their capabilities. Go-Jek is seen as having a natural advantage: its local base of operations means that obtaining a payments license for its electronic wallet service Go-Pay was relatively easy.

Grab, on the other hand, chose to partner with local operator Ovo rather than adapt the GrabPay wallet it operates in other countries. Industry observers attribute this to the company’s inability to obtain a license of its own. Having to share control with another player – ownership of Ovo is split between Grab, the company’s management, and local e-commerce operator Tokopedia – could prove to be a problem for the company over the long term, though Grab’s backers say they see no cause for concern.

“We are confident that Grab can pull this off –  their payments ecosystem spans six of the major ASEAN countries and they know the consumer and regulatory landscape,” says a GP that has invested in Grab. “From a capital perspective, Grab has strong support from financial and strategic investors, and it will be interesting to see if the investment community is willing to support Go-Jek in light of this.”

The maneuvering over payments demonstrates some of the challenges in predicting a winner in the fight between Grab and Go-Jek: both companies have clear advantages in Indonesia that will be difficult for the other to overcome. Grab can boast a larger war chest to cover the subsidies that are still essential when building market share for online businesses, but Go-Jek is playing on its home turf. The company hasn’t hesitated in portraying itself as a local tech hero, endorsed by figures as highly placed as President Joko Widodo.

The next generation

Regardless of how the fight ends, Indonesia’s broader technology sector is likely to be the biggest winner. By pushing hard for customer engagement across its verticals both Grab and Go-Jek have spread awareness of a range of business models that were virtually unknown in the country just five years ago. Meanwhile, start-up founders are already using their infrastructure to pursue even more innovative strategies.

“With these very reasonably-priced transport options in place, people can now explore what it means to get food delivered and start to get comfortable putting money on their online wallets,” says Shane Chesson, a co-founder of Openspace Ventures and early backer of Go-Jek. “The fact that both of these players are well-capitalized, and have been working to get more and more customers lined up and encourage their loyalty, has been great for the development of the ecosystem overall.”

Halodoc, a healthcare services app backed by Openspace, is one beneficiary of the growth that the rivalry between Grab and Go-Jek has encourage in the market. The company was founded in 2016 to help connect consumers with doctors for live consultations, after which they can order medications to be delivered within the hour through Go-Jek’s driver network.

“We couldn’t have built the business as fast as we have if not for Go-Jek’s previous investment in a very efficient and integrated last-mile capability, and a technology ecosystem with connections between the team in Indonesia and support base in India and Singapore,” says Chesson.

In addition to their contributions to the country’s tech infrastructure, Go-Jek and Grab are playing an active role in developing the sector as investors. Both companies have partnered with other technology companies to enter new verticals, and they also manage venture arms through which they back promising start-ups in sectors relevant to their core businesses.

The strategy provides founders with instant access to a massive user base that they could never hope to reach on their own, while putting the larger companies in a position to deepen their collaboration or even acquire the investees when their technology matures. Grab acquired Indonesian e-commerce start-up Kudo in 2017 and transactions of this nature are expected to become an increasingly attractive exit route for Indonesia’s early-stage investor community.

“Given the sheer scale that Grab and Go-Jek have assumed, and the huge amount of investment that they’ve received, it’s fair to say that if you are at the same stage today you are probably thinking about whether one of these businesses could absorb you,” Bain & Co’s Akhtar says. “In that case, the way you think about growing your business can become very heavily connected to them.”

The rapid growth of two tech giants, and their potential to reshape the market around them, has prompted comparisons to China, where a handful of technology companies – some of which are now backers of Grab or Go-Jek – have assumed a prominent role both in daily life and in the tech community. Investors say the China market, in which a thriving collection of start-ups, including several unicorns, has grown up around the early movers, can provide a useful model for the community in Indonesia.

“In China, Alibaba Group trained everybody to use e-commerce, and all the other e-commerce companies benefited. Tencent Holdings trained everyone to play games and use chat, and all the companies that do similar things also benefited,” says KKR’s Lee. “Without someone driving improvements in infrastructure like logistics, payments, and so on, the growth of the country as a whole would be limited.”

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Southeast Asia
• Technology
• Expansion
• Indonesia
• TMT
• Grab
• Go-Jek
• KKR
• Openspace Ventures