On 25 March, Uber has sold its Southeast Asia business to Grab. The Uber Grab deal is another step towards an exit in Asia to focus on North America. With only India left on the map, will Uber exit Asia completely?
In this article, we will highlight the milestones and analyze the implications and opportunities from the Uber Grab deal.
March 25 : Uber sell Southeast Asia business to Grab
April 7 : Philippines orders a halt to the merger
April 16 : Uber exits Philippines
May 2 : Launch of RydeX in Singapore
The Market Size
Despite having a population of more than 600 million people, Southeast Asia's ride-hailing business was worth only $5.1 billion in 2017. As the region develops, the ride-hailing business is expected to reach over $20 billion by 2025.
With such growth rates in Southeast Asia, there is great potential for ride-hailing apps. Why did Uber exit Southeast Asia? Uber exited the region for strategic reasons to focus on the North American market and self-driving cars.
And as part of the deal, Uber received a 27.5% stake and became the largest stakeholder of Grab. Uber will be able to benefit from the growth without a large marketing budget to compete head on with Grab.
Next, we look at the behind the scenes players that influenced the deal. Both Uber and Grab have financial backing from powerful investors, from banks to venture capitalists and tech giants. But who exactly are these investors?
A striking observation is that both Uber and Grab share a common major investor, SoftBank. SoftBank is a Japanese telecom and internet conglomerate and the largest investor in ride-hailing companies globally.
SoftBank's stake in ride-hailing companies include Uber (15%), Didi Chuxing (20%), Ola (30%) and Grab (60%). With billions of investments at stake, SoftBank is probably the largest benefactor of the Uber Grab deal. By supporting this deal, SoftBank ensures that none of its ride-hailing companies wastes marketing dollar competing with each other.
The Uber Grab landmark deal has attracted scrutiny from regulators in Southeast Asia. Anti-competition regulators in the region have threatened to delay and block the deal citing concerns that the deal could create a monopoly detrimental to consumers.
Authorities in Singapore, Malaysia, the Philippines and Vietnam are reviewing the deal and could impose measures that will delay the integration of Uber and Grab services.
“There are reasonable grounds that the said acquisition may likely substantially lessen, prevent, or restrict competition.” - The Philippines Competition Commission
"In the event CCS finds that a merger situation is expected to result in an SLC (substantial lessening of competition), CCS has powers to give directions to remedy the SLC," - Competition Commission of Singapore
Is The Uber Grab Deal Really Anti-Competitive?
According to the Competition Commission of Singapore (CCS), the ride-hailing industry is defined as "chauffeured personal point-to-point transport passenger and booking services". Which includes other service providers such as taxi companies and private car services.
With Uber gone, less competition could mean higher prices, making it more profitable for competitors to enter the market. Competition from taxi operators and other ride-hailing would dilute Grab's market share and provide consumers with alternatives.
What Measures Will Regulators Impose?
Although local regulators cannot force Uber to continue its business, interim measures to restrict pricing, data transfer, algorithms and driver exclusivity clauses can help protect consumers' rights.
In the long term, regulators can possibly attract other ride-hailing competitors by relaxing licensing requirements and with incentives (e.g. tax rebates). Both interim and long-term measures are likely to negatively impact the Uber Grab deal.
New Opportunity For Competition
Uber's exit from Southeast Asia would mean less competition, higher prices and more opportunities for competitors. Which competitors are credible threats?
Go-Jek, Southeast Asia Expansion
Go-Jek, the Indonesian ride-hailing company, has announced its plans to expand in Southeast Asia to countries like Singapore, Malaysia, Thailand and Vietnam.
Go-Jek started with 20 riders in Indonesia but quickly expanded to over 200,000 in the country. Today, Go-Jek dominates the Indonesian market and intends to take the fight throughout Southeast Asia.
"Go-Jek has 50% of Indonesia's ride-hailing market and 95% of the online food delivery market." - Nadiem Makarim, Go-Jek CEO
Ryde, Launches Ride-Hailing App
RydeX plans to attract drivers with a lower commission rate of 10% compared to Grab's 20-30% commission. The lower commission rate will also translate to greater savings for commuters.
"A move into the private-hire car sector is a "natural extension" of Ryde's offerings, which include carpooling for school children and even pets" - Terence Zou, Chief Executive of Ryde
Jugnoo, Reverse-Bidding System
Jugnoo, the Indian ride-hailing app plans to roll out its reverse-bidding system in Singapore on May 1, 2018. When a customer makes a booking, drivers nearby will bid for the ride. Drivers can price the ride 10% higher or lower than the suggested price.
This "free market system" is a great way for the new entrant to understand consumers' willingness to pay and fine-tune their algorithm. This pricing system will better match supply and demand benefiting both customers and drivers.
What Does It Mean For Consumers?
In the short term, average prices are likely to be higher due to lesser competition and marketing promotions by ride-hailing companies. However, the market is unlikely to see much disruption as consumers have alternatives such as taxis and public transport.
As regulations come into effect and competition enters the market, market forces will eventually cause prices to stabilize.
What's Next For Grab?
With the merger with Uber, Grab will expand its presence in the region and cement its position as the largest ride-hailing player in Southeast Asia. By acquiring UberEats, Grab intends to establish a strong foothold a dominant player in the food delivery industry.
With rapid expansion, Grab needs to be learn from Uber's mistakes and avoid them. They need to work together with regulators, build trust with consumers and partners. Grab also needs to conduct regular market research to understand the market and its competitors.
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