The growth story of the biggest unicorn in Southeast Asia

The article was originally written in Chinese by Yiwen Guan of Caijing, and published on LatePost, a media brand under Caijing. 

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“If you ask which company understands Southeast Asia the best, can you point to anyone other than Grab?” says a Singapore-based internet veteran. 

In Southeast Asia, you can use Grab to hail a ride, in a car or on a motorbike; you can send parcels and order food delivery; you can also watch videos, book tickets and even go out with your pet. All of these are enabled by the payment option of Grab – the “super app” model is turning Grab into a magic box for Southeast Asia’s consumers. 

Grab started in June 2012 as a taxi hailing company, and has kept expanding its boundaries. At the moment, it is valued at US$14 billion, making it the biggest unicorn in the region. It clocks more than 6 million orders every day across 336 cities in 8 countries. And the workforce has surpassed 6000. 

On 26 March 2018, Grab acquired the Southeast Asia operations of Uber, five years after the latter had entered the region. After the takeover, Grab grew quickly, launching food delivery services, financial platform as well as the open ecosystem. 

Now you can see Grab as “Alipay + Meituan + Didi + Shansong”. 

More importantly, if we say that Didi’s biggest regret is missing the opportunity of dominating the payment space, the reality in Southeast Asia where the majority of the society leapfrogged into the mobile internet gave Grab a perfect chance to seize the payment opportunity. 

A good story has attracted a good lineup of investors: Softbank first invested in 2014, and has been following up with fresh rounds ever since. Other important investors include Toyota, CIC, Yamaha, Huyndai, Didi and GGV. 

We went to Grab’s headquarters in Singapore in June, and interviewed eight senior executives of the company, including co-founder Hooi Ling Tan. 

The office is at Marina One, an office complex in Singapore’s CBD area. Soon, Grab will move to its own office tower located in One North Business Park in West Singapore, which can accommodate up to 3000 employees. 

On our day of the interview, we saw new employees joining. They were young and looked very motivated. The front desk told us that each week, about 30 new employees join this office. 

Many capitals in Southeast Asia are bustling and full of motorbikes. The young internet users in the region come from different backgrounds and speak different languages; this is still the developing world but the super rich here rival the top across the globe. This is where the boom of internet opportunities is happening. 

The role of the family

When GGV Managing Partner Jixun Foo first saw Grab Founder Anthony Tan, the latter was still working at his family business Tan Chong Group, and was just about to focus full time on building Grab. 

What attracted Foo was Anthony’s strong desire to prove himself and build something great outside the family. Foo led the series B investment in 2014. 

Tan Chong is a famous listed company originally from Malaysia. It does not only own the Nissan distributorship in Singapore and Malaysia, but also operates multiple car-related businesses in the region. 

Tan’s father was quite strict on his three sons, and when Anthony first mentioned his idea of building an app business, he faced rejection from the father. 

Interestingly, Antony’s mother chose to support him and invested in the business. Not only that, she helped Anthony on pitches with other investors. 

Two years into the company’s founding, Anthony faced the key turning point – the investment from Masayoshi Son. 

Although Anthony did not get the support from his father, the importance of his family background should not be neglected. 

Because the family has been in business with the Japanese for decades, Anthony knew how to work with the Japanese. In Grab’s cap table, you can find many Japanese investors. 

Seeing how the family business is run also helps Anthony operate his own business later on. The Harvard background not only gave him a global perspective, but also made him more open and comfortable in trying new things. 

Founders’ ambitions

Hooi Ling recalled that when they first started Grab, everyone thought they were crazy. 

The inspiration for the duo came from a case study at HBS “Business at the base of the Pyramid” or B-BOP. The theory behind it is that the biggest opportunity in emerging markets came from serving the billions of people who are connected to the modern economy for the first time. 

“We had the same passion for solving the biggest problems in Southeast Asia, so much that we actually forgot about our existing career path,” said Hooi Long, who is now running Grab’s strategy, operations and new businesses. 

What are the problems of the region? Crowded cities, lack of safety, and the complexities across different countries. 

Grab’s head of Trust, Identity, Safety and Information Security Wui Ngiap Foo told us that Hooi Ling used to work for McKinsey before HBS. During that period she often left work late and had to pretend to be on a call with her mum while in a taxi to make sure she was safe. 

Jonathan Zhong, Partner of Southeast Asia focused VC fund ATM Capital, is stationed in Jakarta, Indonesia. “As Indonesia constitutes more than 40% of Southeast Asia’s population, any pan Southeast Asian business will have to focus at least 50% of their attention in this market,” he says. 

Traffic is a big issue in Jakarta the capital of Indonesia. With more than 30 million people living in the metro area (Jabodetabek), the density is quite high. Quite often people spend two to three hours to just travel a couple of kilometres – some studies estimate the annual cost of traffic to be more than US$7 billion. 

Jonathan mentioned about an interesting phenomenon. Many Indonesian consumers will give a one star rating to an app they just downloaded – and only revise it up when they receive good service. 

On the day of this article, Grab’s Google Play rating is 4.5 stars. 

The six major countries of Southeast Asia (Indonesia, the Philippines, Vietnam, Thailand, Malaysia and Singapore) collectively boosts almost 600 million people – however, to gain a foothold in each market is not easy as they are diverse. It requires strong localisation and operations capabilities in each country. 

“One of the reasons why people thought we were crazy was because nobody believed that we could solve these issues using tech in the region, at that time,” Hooi Ling says. 

Jianggan Li, Founder of Momentum Works, used to head Southeast Asia for Easy Taxi, a ride-hailing business under the portfolio of Rocket Internet. He recalls that when Uber first came into the market, credit card payment was the only option – however, the problem was that only less than 3% of the consumers in Indonesia had access to credit cards. Cash payment, which was more than 90% of all the transactions, and motor taxis, which are omni-present, were only rolled out on Uber much later on. 

Grab is much more at home than Uber in this region. Every senior executive interviewed emphasised the biggest advantage of Grab is its ability to localise. This is not an easy feat – it requires strong local understanding and customer demands in each locality. Grab has 12 options in ride hailing alone. 

In Vietnam/Thailand/Indonesia, Grab has GrabBike; Cambodians can use GrabTukTuk; and GrabTrike roams the streets of Manila. GrabPet and GrabFamily each serves its dedicated demographic. 

The strategy at the very beginning was aimed at the whole of Southeast Asia. Ride-hailing was the way to break into the markets, additional services are added on later, to form the Super app. 

Its competitor, Go-Jek, has an opposite strategy. Its founder Nadiem Makarim, was Anthony’s classmate at HBS. Go-Jek also aims to build a super app, covering ride hailing, on demand services, and mobile payment. Currently Go-Jek is valued at US$9.5 billion, the second largest unicorn just after grab. 

The difference is, while Go-Jek was founded earlier than Grab in 2010, it for a long time only focused on Indonesia. Go-Jek’s regional expansion, into Vietnam, Thailand and Singapore, only started last year. 

A Southeast Asia focused investor told us that Go-Jek’s major strategic mistake was not to expand earlier, when it had the choice back in 2017. 

Instead of expanding regionally, the company chose to expand horizontally into other verticals. “They did everything, but the problem is, only three services were valuable: ride hailing, food delivery and payment. The other services did not add much value to the company,” this investor said.  

Go-Jek received investment from Google, Tencent, JD.com and Meituan. Max Xu, an investor from Chuxing Capital, drew parallel of Go-Jek’s culture to that of Tencent. “Very innovative and creative, and also always has a heart for gaming,” he said. Go-Jek invested US$30 million into Indonesian eSports company Mobile Premier League (MPL) last year. 

In comparison, Max said Grab’s culture is much more focused, and much more execution driven. 

Anthony made a vision “Drive Southeast Asia Froward” – and it is hard not to draw parallel between this and Jack Ma’s vision “make all businesses in the universe easy”.  The earliest companies in China, Baidu, Alibaba and Tencent, occupied fertile grounds, and had ability to expand strategically. The newest giants, Meituan and Didi (MD), had to work much harder in their respective verticals. 

The difference in Southeast Asia is, there is no BAT here. So the likes of Grab can be both BAT and MD. 

These are the first truly global elites from Southeast Asia, who understand both China and US, as well as their home turf. They have the best in front of them. 

More than Didi

Up until March 2018, Grab in the eyes of Chinese media had always been “Southeast Asia’s Didi”. 

However, although Grab counts Didi as a major investor, there are stark differences. Didi spent a year adjusting itself after acquiring Uber’s China business, while Grab accelerated in almost no time. 

“The merger with Uber allowed us to focus on other, non-transport, verticals, such as Food and Financial Services,” Hooi Ling says. 

In the past year, Grab’s food delivery service expanded to 199 cities across 6 countries. Hooi Ling said it is already the top player in Singapore, Thailand and the Philippines. The Payment service, GrabPay, is rolled out across six major countries (through OVO in Indonesia and MOCA in Vietnam), serving more than 600,000 merchants. 

Why Grab and Didi went different paths after eliminating the closest competitor in their markets (Uber for both cases)? 

As an investor into both Didi and Grab, GGV’s Jixun believed that Cheng Wei of Didi was more visionary. China is the most competitive tech market globally, and the regulators are much tougher to deal with. 

As a result, Cheng Wei had to focus on many of the integration, management and regulatory issues, instead of exploring new business opportunities. 

Currently, 7-year old Grab has three key business areas: mobile services including transportation, food and parcel delivery; financial services including payment, loans and insurance; and open platform for third-party partners. 

As cash transactions are still prevalent, Grab could not charge commission as easily as Didi does. A Grab driver told us that he had to top up the GrabPay wallet, to make sure there is enough money to pay Grab for the commission. 

Hooi Ling says a key challenge is still to execute faster, and she believes collaboration and talent are the ways to go. 

That’s why Grab started its open platform, which has already brought in partners in hotel booking, movie tickets, video streaming, route planning etc. 

Jerald, who is in charge of Grab’s product design, told us that Grab plans to add 500 more partners by year end, and opening Grab’s payment, account management and delivery services to these partners. 

When Didi first started, it could already count on talent that grew with PC-based internet companies. While in Southeast Asia, the first real internet companies grew up on mobile. “There is not enough experienced talent in this region, and how to find talent from elsewhere and integrate them with local teams was a challenge,” says Jixun. 

At present, Grab has 7 R&D centres across the world, in Bangalore, Beijing, Ho Chi Minh City, Jakarta, Seattle, Singapore and Malaysia, employing almost 2000 people. Each R&D Centre has its own focus. For example, Bangalore is focused on mobile technology, while Seattle is responsible for data security. 

Hooi Ling emphasises the difference between Grab and Didi/Uber a few times during the interview. “We have much more services, including our comprehensive payment network,” she says.

Grab’s financial and especially payment services are something Didi and Uber do not have – and form a key to its future valuation growth. The open platform allows the company to expand its horizons and strengthen its market positioning.

Softbank’s warchest

“Hot money will distort the market, and Masayoshi Son is the biggest believer and practitioner of modern monopolies,” says head of strategic investor of a unicorn. “Didi or Uber or Grab, they all believe in this story.”

In 2014, Anthony Tan went to Japan to meet Masayoshi Son, with the introduction by Tiger Global, an existing investor of Grab. According to a Fortune article, Son told Anthony he would regret if he did not take the money from Softbank. 

Since Series D, Softbank has participated in every round of investment, and also played a key role in the merger of Grab and Uber’s Southeast Asian business. 

Earlier this year, Son again committed billions in Grab’s current (H) round funding, and Anthony said Softbank will provide unlimited support to Grab’s growth. 

According to data, before series H Grab’s 3 biggest shareholders were Uber, Softbank and Didi. With the new funding from Softbank, its share percentage will grow in comparison to Uber’s. 

The relationship among Softbank, Uber and Didi is quite interesting. After Uber sold its China operations, it became one of the major shareholders of Didi; Softbank is a major shareholder of both; Uber and Didi are fighting against each other in Latin America. 

Softbank’s ambitions in the global transportation market can’t be more obvious. Grab received not only funding, but also Ming Maa, a Softbank executive who now serves as President of Grab. He joined in 2016 to take care of financing and fundraising. 

Ming told us that Softbank also provides its ecosystem and knowhow to Grab, allowing the company to grow in key areas other than transportation. 

Of course, not everyone is a fan of Softbank. A strategic investor told us that without such massive amount of capital, the growth of Southeast Asia’s tech market would have been more rational and healthier. 

The Series H round has attracted more than US$4 billion of capital from investors including Toyota, Yamaha, and Kia, in addition to Softbank. 

Sufficient funding gives Grab a lot of confidence. Hooi Ling said from a funding point of view, “we are in a very good position to carry on our growth plan. We do not have any immediate plan for IPO.” 

Qu Tian, Founding Partner of ATM Capital believes that as a two sided platform, ride hailing is a very capital intensive market. “Whoever has more money would acquire more market share,” he says. “I can get in at any time, of course if I have a sufficiently deep pocket”. 

Jixun once asked Anthony if Grab would merge with Go-Jek, at a time where Go-Jek’s valuation was at US$6 billion. Anthony was very confident that Grab could beat Go-Jek with half that much. 

A friend of Go-Jek Founder Nadiem Makarim said Nadiem is a typical Silicon Valley type founder, and would not give up control of Go-Jek easily. 

In contrary, Anthony is very business driven. He is more focused on competition and capital operations. 

“The real winner of this episode is highly likely to be Softbank,” says a renowned strategy professor based in Singapore.