News of Uber’s demise from many countries has been plastered all over the news in the past few months, and now news of its retreat from Southeast Asia comes shortly after it raised additional investments from Softbank (also an investor in Grab). However, even after almost a year in negotiations, there seems no deal yet.
It is fair to note that in the current state of the market, there are more questions than answers. However, for the sake of discussing the the title we had put forward, we will go ahead and assume the following will happen:
- Gojek is not actively taking steps to expand beyond Indonesia, and perhaps merge (with Grab) in the near future
- Governments in Southeast Asia do not consider the consolidation of companies under Grab, and forming a near monopoly as illegal.
- Uber (or other competitors) willingly sells or concedes Southeast Asia to Grab, and is only stalling at the moment to get a higher sale price.
With the assumptions clearly lined up, we can finally move on to discuss our predictions in the event that Grab becomes the biggest player in Southeast Asia.
Price of rides would go up
In an environment where there is little to no competition, we expect the prices of rides to go up around Southeast Asia. In territories where Grab is consistently cheaper (over the past few years) than taxi, there will be room for a price increase. Ride-hailing apps have notched up a rather inelastic demand in the past few years that it has become a preferred mode of transport for city dwellers.
So, trust us when we say there will be enough people who pay for a GrabCar ride. The profits of course, will justify their ambition for market dominance, as spelled out in the next paragraph.
Funds (and discounts) allocated to other ventures (food, last mile delivery)
With less need to encourage users to ride with Grab rather than Uber, it is expected that fewer discounts would be given, and they will instead resort to a rewards system (i.e. Grab Rewards) to encourage user loyalty. Even though in the short term there would not be any competitor with enough firepower to go against Grab, they would still need to incentivise users. We expect that they will then turn the screw on their competitors in other ventures such as food delivery and last mile delivery.
Discounts or vouchers will be used to entice users to their food and last mile delivery businesses, thus spelling the beginning of the end for smaller players who rely on the on-demand market. However, do not think for a second that Grab would not look for a bigger slice of the pie. All in all, Third Party Logistics (3PL) companies, and food delivery companies (i.e. Foodpanda) should be prepared for an all out battle – which we are sure they would lose someway or the other.
Somehow it still all plays back to Softbank’s hands
Having almost completely dominated Southeast Asian e-commerce, Softbank (through Alibaba) now eyes the creation of a vast ecosystem servings its needs and growth ambitions. Unfortunately, we foresee that its early partners may eventually be phased out, in favour of its own network (i.e. Grab), and there is nothing that the existing players across interconnected industries can do about it.
Either you abide by Softbank’s rules (and make money), or you do not (and don’t). No person, or startup, has as much firepower as Mr. Son, who has as of now raised close to US$100 billion for its Vision Fund, and have already deployed at least a third of it.
Conclusion
There is of course a silver lining in the cloud. Softbank’s lofty ambitions aside, our years of experience tells us that this is the space to watch out for when Grab consolidates the market. As in China, when Didi bought Uber China, it only took a relatively short amount of time before another competitor came along.
In addition, we have previously covered that Grab was not leveraging the use of its payments business very effectively at the time being. Even if all their ventures worked out moderately well, they should be mindful that entrenched interests (in each market) will always be there, so it will be a test of how to build alliances instead of enemies. At least in the near term, it is unlikely that Grab will have everything their own way. Hit us up if you need an advice or two.
