Jakarta – One of the news that is widely discussed by Indonesian netizenslately is the closure of Uber’s business in Indonesia. Uber is the first and most popular online taxi service in Indonesia a few years ago. But at the beginning of 2018, the issue of selling Uber’s business in Southeast Asia began to be widely discussed by netizens . Actually what is the cause of the ‘collapse’ of this giant online taxi business in several Asian countries?
Let’s go further back by looking at China, the country with the highest number of online transportation users in Asia. Around mid-2016 Uber sold the onlinetransportation business-to local company Didi Chuxing. Business sales occurred after Uber lost its market share in China. Entered with trust and huge funds, but Uber ultimately could not conquer the ‘great wall’ of China and lost more than 2 billion USD while running its business in the country.
Uber CEO Travis Kalanick at that time was not too worried about the loss and slow business operations of the company. Even though investors are starting to worry about the difficulties faced by Uber which seem to never end. However, in the end UBER took the decision to sell the business to Didi Chuxing to stop the swelling losses.
Shortly after, we moved to Russia; in 2014 Uber entered the Russian onlinetransportation market with a business model similar to that in China. There Uber competed again with a local player named Yandex Taxi. Yandex is a big player who has a business core on search engines. When Uber expanded in Russia, Yandex launched similar services about 3 years before Uber arrived.
While operating in Russia, Uber is often involved in tariff wars with Yandex Taxi. As a result, the two companies suffered substantial losses during the period. Besides tariff war, Uber also has to face cultural differences and regulatory restrictions by the local government.
Culture, Regulation, and Burning Cash
Giant companies that have operated in more than 600 cities in the world and now seem increasingly adopted in various parts of the world, but Uber often faces difficulties when a tariff war occurs. In addition, local government regulations also put pressure on the expansion of online transportation companies such as Uber.
We start from regulation, take an example in Indonesia, with the regulation of determining minimum and maximum tariffs for online transportation providers . This is a direct attack on Uber’s core transportation business that implements a dynamic pricing business model. In addition, the policy of limiting the number of vehicles, testing vehicle licenses, and the necessity of forming a corporation became an obstacle to the transportation businessonline like Uber so far.
Meanwhile, Uber’s failure to expand business in China and Russia is not only related to capital issues. However, the important thing to realize is cultural differences including language and local government regulations. This is reflected long ago; Yandex application is Google in Russia, and Baidu is the most popular search engine in China.
In the sharing economy ecosystem such as online transportation , the elements involved influence each other. In the ‘ sharing ‘ transportation business , business operations are not only intended for sharing vehicles, but also sharinguser and driver. For example, if we see reality, many drivers use Uber and Yandex simultaneously, as a result this tariff war is not entirely effective for business continuity.
Another thing that concerns me is the popular cash burning strategy in the online transportation business . Uber has implemented this strategy in various countries which are the wings of its operations. The strategy of burning cashthat has been carried out for years has brought a huge business impact to Uber. The positive impact is there, but keeping the negative impact is very large.
Initially, this strategy was aimed at one of them to win business competition by increasing market share. But,burning cash has proven to be unsuccessful in various countries such as China where Uber spends 2 billion USD for 2 years, and secondly in Russia where Uber has difficulty competing with Yandex, and the latest Southeast Asia where the burning cash strategy does not last long against players Local people like Go-Jek and Grab are more deeply rooted in the community.
Finally, Uber also experienced difficulties in conquering the Indian and Brazilian markets when competing with local online taxi players . I see if Uber still relies on the strategy of burning cash as a business motorbike to win the competition and soar market value, it will fail in the next few countries.
This strategy is indeed an aggressive way to expand the business, but it cannot last long. In the midst of limited investor funds and strict regulations, Uber needs to find a new expansion model.
Grab is a company that began to move its business from online transportation services . This Singapore-based company is noted to be very aggressive in expanding and innovating business. Grab is currently regarded as one of the big players labeled unicorn in the Southeast Asia region.
The latest and inviting attention is of course the news Grab has acquired the online transportation giant Uber in the Southeast Asia region. Grab’s success will improve the start-up investment climatein Singapore, and became the beginning of the country’s local start-up to dominate the Southeast Asian market. This is also in line with increasing investor confidence in the pilot business in the Southeast Asia region.
However, the story doesn’t stop there. What are the consequences for similar companies, namely Go-Jek, which are deeply rooted in Indonesia?
The departure of Uber from the Southeast Asia region will lift the dominance of two companies namely Grab and Go-Jek to the surface. I predict the head-to-head competition between Grab and Go-Jek has just begun. The competition is not only limited to online taxis , but also extends to the digital payment sector, ordering products and food, and other delivery services .
Indeed, currently Go-Jek still controls the Indonesian domestic market, which is called the largest market in the ASEAN region. However, Grab had already made an expansion in other Southeast Asian countries. Today Grab is expanding its business through Uber, and is becoming increasingly competitive. This gives a warning signal to Go-Jek, that the pressure of competition in this business is getting bigger.
The current reality is that the Go-Jek application is faster and more complete than Grab. However, the aggressive business, innovation, and execution of Grab and the support of Softbank classmates are of particular concern. This will make Go-Jek depressed if it is not aggressive in developing innovation, execution and business expansion.
Head-to-head competition between Grab and Go-Jek it just started. Both companies have similar services such as online taxis , product or food delivery, and digital payment systems. One thing that concerns me is innovation in financial technology ( fintech) . Go-Jek has Go-Pay, and Grab has Grab-Pay. Well, innovation and development of fintech technology is the key to winning the next market.
Online services such as transportation, ordering goods, courier services etc. require fintech infrastructure as a motor to accelerate business so that it becomes efficient. At present, Go-Jek has more than 900,000 driversfrom motorbike or car units, with partners of around 125,000 merchants , more than 15 million active users per week, and transactions exceeding 100 million transactions per month. This is a rapid progress achieved since 2016.
With the maturity of the application of fintech in the Go-Jek application, it is predicted that the company made by Nadiem Makarim can double the achievements above. Some time ago Go-Jek made an important business agreement with several start-ups in the fintech sector, first with Kartuku, a start-up engaged in domestic payments. Second Midrans, start up which is called the national payment gateway, and Mapan,start up engaged in the savings and loan business.
Seeing the growing size of the Go-Jek business, the opportunity to create innovation and business expansion with fintech is very open. In addition to merchants , Go-Jek must certainly build more networks with the national banking sector so that the application of fintech in Indonesia is increasingly widespread.
Another reality that must be realized is that Indonesia with a population of more than 260 million, around 60 percent has not had formal banking access for many years. This is the right moment to catapult fintech technology to answer the limitations of formal banking access for internet service users throughout Indonesia.
Competition in digital businesses like Uber, Grab, and Go-Jek will not stop. Local and foreign start ups compete with each other to win the market. In the end, innovation and efficient business models will be able to survive there. Now, with the release of Uber from Southeast Asia, it was the right moment for Go-Jek to expand in the region.
In short, one of the lessons that can be taken is the success of Go-Jek, proving that local players can win digital business competition through innovation, business models and mutually supportive environments.
Putra Wanda , an information technology observer, PhD student in Computer Science, HRBUST, China