The Evolving And Mercurial Cab Aggregator Universe Of Indonesia: An Analysis

Indonesia: Sun. Sand. Beaches and bikinis. Friendly people and an image of the ubiquitous ‘ojek’ driver. These are the images conjured when one thinks of this archipelago nation, are they not?

But, this cluster of islands, which is markedly more than a tourist’s paradise, has entered the twenty-first century on the back of unprecedented smartphone penetration and a millennial population hungry for tech, knowledge, and careers. All of which led to the beginning of that robust culture taking a fever hold on emerging nations across the world – startups.

Like, most emerging economies, the Indonesian startup boom of 2011 too, came riding on the back of ecommerce-driven ventures. It saw various innovative and disruptive models of ecommerce startups that in turn led to a huge demand of logistics service providers – someone has to ship that which the consumers buy. Both the segments grew hand in hand, where the rise of one, led to the demand of other.

With logistics emerging as a full-fledged sector in Indonesia in 2012, to facilitate the demands of ecommerce, the transportation sector saw a subsequent need for newer, more efficient modes of facilitating logistics and thus, came in startups like Go-Jek. The long-term attraction of this space, low auto penetration, a large middle class, and high traffic congestion make it an ideal market for taxi companies and ride-sharing apps.

With the advent of Go-Jek, followed by intense competition from fellow contender Grab, and globe-trotter Uber’s entry in the picture, the taxi scene in Indonesia has produced competitive prices, better services, and livelihood opportunities for people – all with the use of technology, and technology-driven business models.

Consider this: Indonesia’s peculiar geographical nature creates an indigenous transportation industry as well. Stretching across 17,500 islands, 5 Mn square kilometres of sea and a total land area of 1,919,317 square kilometres, the country is geographically immense.

These companies and their increasing penetration have highlighted that transportation in Indonesia is not only a serious pain point that needs to be solved, but it’s also one of the biggest opportunities in the region. With rapidly shifting economic dynamics and emerging players, the cab aggregator industry of Indonesia offers some interesting insights about the country’s growth.

This new competition, along with the slowdown in the economy, is changing the competitive dynamics of the taxi market in Indonesia as well. Here is our attempt to analyse the Indonesian cab hailing industry in all its details.

Ride Hailing – The Past And The Present

Transportation has always been a tricky business here, because the geography of Indonesia posits a unique situation which calls for the need of innovative business models. Go-Jek has largely been successful in capitalising on that, whereas Grab and Uber are closely following.

In the bigger cities of Indonesia like Jakarta, Surabaya, and Bali, taxi services are an essential part of the transportation system and an effective solution to travelling in the city. Indonesia’s public transportation is scarce and and its taxi tariffs are among the lowest worldwide, so, the young, expanding, urban middle class increasingly prefers to use taxi services instead of other transportation services.

Indonesia saw the advent of motorcycle taxis or “ojeks” in the early 1990s and quickly became one of the country’s major modes of offline transport. It allowed licensed drivers to capitalise upon the opportunity to generate livelihoods for themselves, as it allowed them to situate themselves outside a popular tourist destination and offer services for a flexible price. Then came Go-Jek in 2015, that legitimised Ojeks, followed by GrabTaxi and UberMotor.

Uber, Grab, and Go-jek are essentially referral services that function with Android, iOS, and/or Windows phones/tablets. The GPS capabilities of these gadgets allow both drivers and passengers know each other’s location. This removes the question of when the ride will arrive. Competition from these new technologies is disrupting the market for the traditional players.

Mobile app players arrived in the industry with a bang. It caused some controversy as these services were poorly defined and not properly regulated by Indonesian laws, in accordance with the traditional industrial policies – with some claiming that these mobile app players were illegally running their businesses in the taxi sector.

However, the Indonesian Transportation Ministry has granted temporary operational licenses to these app-based taxi services, while still drafting new regulations for ecommerce businesses, meaning that these new competitors are here to stay and undermining the position of existing taxi services companies.

The Three Frontrunners: Go-Jek, Uber, And Grab

Go-Jek: Go-Jek is the name that has become synonymous with ubiquitous green jackets anywhere in Jakarta and other big cities including Surabaya, Yogyakarta, and Bali. What started off as a call centre, has now expanded to a full-fledged ride hailing and payments ecosystem in Indonesia.

Go-Jek is one of the highest-funded homegrown startups – and counts Sequoia Capital India and Yuri Milner’s DST Global as its backers. It recently secured $550 Mn, at $1.3 Bn valuation and Indonesia’s ride-hailing and on-demand services startup Go-Jek and officially become a unicorn. Now Go-Jek works across different parameters in different segments. It is a transportational service, it offers digital payments, e-wallets, and has recently also entered hyperlocal services, the first one being Go-Food.

The 12 services offered by the startup include motorcycle taxis, courier, food delivery, and cars. Currently operational in 15 cities, it claims to have more than 250K drivers in its network.

The app calculates the estimated cost of product that needs to be transported or a person that needs to be transported. The startup facilitates digital payments via GoPay, Go-Jek’s digital wallet which allows users to add money to their GoPay wallets by going to most ATMs in most cities in the country. Users can also add money to their wallet by also giving cash to their Go-Jek drivers. This ensures that every driver works as a deposit machine for GoPay and a walking machine to withdraw cash from some selected ATMs as well. So essentially, every driver works as a mobile ATM.

The company currently claims to have $26 Mn app downloads, and traction has apparently increased by 900 times since inception. In February 2016, in keeping with its policy of rapid expansion, it acquired two Indian startups: C42 Engineering and CodeIgnition. Then, in September 2016, it acquired Bengaluru-based on-demand healthcare marketplace Pianta for an undisclosed amount. Following that, in November 2016, it acquired Pune-based mobile application developer, Leftshift.

Uber: Across 57 countries of the world, Uber has become the go-to service provider when it comes to app-based taxi hailing services. It entered Indonesia in 2014, and after losing China to Didi in 2016, shows no plans to back down in the archipelago. In Indonesia, Uber connects the customer with a driver using its mobile app, by collaborating with rental companies like Express Taxi, (Uber obtains a service fee for each payment). The company mainly focusses on Jakarta but has expanded to Bandung (West Java), Surabaya, Yogyakarta, Malang, and Bali.

Globally, the company is facing huge monetary losses at the moment. Reports suggest that Uber lost significantly more than $2.2 Bn in the first nine months of 2016. But the company generated about $3.76 Bn in net revenue in the same time period.

Despite Uber’s global reach, it is faltering behind Go-Jek in the Indonesian ecosystem. This can be attributed to the fact that the country faces a huge problem due to lack of proper infrastructure including maintained roadways where bikes work better than taxis. Additionally, a greater number of people can afford an ojek instead of hailing a cab, and therefore, in Indonesia’s emerging economy, drivers would prefer to be connected with Go-Jek than Uber.

In its traditional markets, Uber is only just now starting to offer an increasing number of additional services, such as, food delivery and is well behind what is offered by its rivals in emerging markets. Go-Jek currently offers a host of services in addition to ride-sharing and logistics as well. Changes in regulation introduced in 2016 have further constrained Uber, forcing it to work through rental car companies and limiting its use of surge pricing.

In addition, taxi companies in most Indonesian cities are obliged to have a licence and pay taxes to the government. These tariffs are determined by the transportation ministry and it applies to all the public transportation companies, without any exception. Uber considers its business model to be different from a traditional taxi service, and monetises on surge pricing and thus, this rigid regulation is creating barriers for Uber. It has faced similar problems in India where Karnataka state government did not issue it an operational license for similar reasons.

In order to beat competition and government regulations, towards the end of 2016, Uber entered into a strategic partnership with Indonesian taxi company, Express. The deal gave Uber access to Express’s fleet of more than 11,000 taxis and 17,000 drivers.

 

Grab: This Singapore-based taxi service was launched in 2011 and rebranded itself from GrabTaxi to Grab in January last year. It entered Indonesia in May 2015. It operates in six countries in 21 cities in Southeast Asia. With an aim to capture the Indonesian local market, it also offers – Grab Bike services. To ensure the safety of its passengers, in accordance with the governmental policies as well, Grab only issues license to verified drivers and cars under its taxi network. It functions via the process of customer-to-driver interaction.

It offers rides with licensed taxis, which are significantly less lucrative than Uber’s rides, for example. It functions differently from Uber as, for every GrabTaxi licensed taxi ride service, Grab charges only a booking fee of $1-$2, with the driver keeping the complete fare. It does not follow the Uber way, where it charges a certain percentage cut from every ride.

Grab Bike charges PhP (Philippine Peso) 40 to cover the first 2 kilometers as its base fare. Then, the system charges an additional PhP 10 for every kilometer up to 7 kms. Once the mileage has exceeded 7 kms, the charge is PhP 5 for every succeeding kilometer.

In the Indonesian market, it is giving a tough competition to its homegrown counterpart, Go-Jek. Recently, it even launched a ‘Grab 4 Indonesia’ 2020 master plan. The plan aims to work in conjunction with Indonesia’s goal of becoming Southeast Asia’s largest digital economy by 2020. Under the plan, Grab will invest $700 Mn in Indonesia over the next four years.

As per its plan, Grab will open a Grab R&D centre in Jakarta and will develop a local engineering team to work on innovations for the Indonesian market. In addition, it will also launch a social impact fund to invest in companies focussed on deepening financial inclusion and bringing more Indonesians into the digital economy. It will also work towards expanding access to mobile payments and financing opportunities by continuing to launch and enhance Grab’s own mobile services.

Following the announcement, reports surfaced that Grab was in advanced stages to buy Indonesia-based O2O payments startup, Kudo, in a deal that could amount to $100 Mn. Acquiring fintech startup Kudo would help Grab to strengthen its payments platform, which has faced tough competition from Go-Jek’s GoPay.

Where Go-Jek and Uber have always been in a tussle with the regulatory authorities in the country, Grab has maintained good connections with the government that has allowed the company to enter and grow its network seamlessly in the country.

Startups, Transportation, And Technology: The Road Ahead

To solve the problem of transportation and logistics, startups have come up with various innovative ways and strategic partnerships to minimise costs and effectively expand their networks. For e.g., Jakarta-based HappyFresh, which runs an online grocery shopping service, offers one-hour deliveries. In order to facilitate this service, the company analyses GPS data to display products at supermarkets located near its customers.

Along the same lines, Orami, an ecommerce portal for women’s fashion wear, has entered into an alliance with Go-Jek to facilitate its logistics services.

The transportation segment is also witnessing the entry of new players in the game.

For e.g., launched by Brian Mulyadi in 2015, LadyJek is a motorcycle ride-hailing service in Indonesia, exclusively for women and by women. Female travellers can easily book a bike ride through its Android app. The service offers ETA information, distance, and price, for user convenience. The tariff set is Rp 25,000 (US$1.86) for the first 6 kms and IDR 4,000 ($0.30) for each kilometre thereafter.

Then there is Tripves that allows travellers to rent local cars. Users have the option to select cars and drivers based on real photos and detailed information. Being a multi-purpose website, it allows people to list their cars for renting purpose and obtain monetary benefits. Furthermore, users of Tripves can list themselves as drivers on the website to earn a substantial amount of money later.

Editor’s Note

Infrastructural and overall macroeconomic development go hand-in-hand because the rise of one, creates need of the other. Infrastructure development gives rise to economic expansion, by multiplying the avenues to bank upon, while economic expansion gives rise to the need to enlarge existing infrastructure to absorb the larger flow of goods and people that travel across the economy.

The statement holds true in the Indonesian cab hailing scene as well, because startups like GoJek, Uber, and Grab, with their innovative services, gave rise to a new transportation and payments scene in Indonesia, which in turn led to economic growth and innovation in the country.

The Indonesian taxi market is at an interesting stage in its evolution. As per this report by Credit Suisse, it is the only market in Asia with two dominant players who control nearly 50% of an estimated 60,000 cab market. And the attempts by other ride-sharing companies to crack this market are creating intense competition.

However, it will require real breakthroughs to achieve Indonesia’s necessary infrastructure developments both in plans to finance the projects as well as developments to enhance the quality of Indonesia’s investment policies. The Widodo Government, with its plans to develop the country’s infrastructure through state budgets, seems to be on the right road towards a better connected and faster nation in the near future.

[Graphics by Satya Yadav.] 

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