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Good morning Dear Reader, Â |
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Welcome back to Strait Up, our weekly newsletter that helps you make sense of what’s going on in Southeast Asia.  |
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This week, we’re focused on ride-hailing, where Grab and Gojek are racing towards what could be a final stand-off. All the while, a wily, old cab operator from Singapore born from a merger deal has ridden the waves of disruption and lived to tell the tale.  Buckle up and let’s get moving. |
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The ride-hailing battle returns for the ultimate prize  Jon  Southeast Asia’s ride-hailing rivalry took a break during Covid-19, but the arms race—one of the fiercest in the world—has now resumed. With a new focus.  The rivals have traditionally battled to woo consumers with discounts, attract drivers with incentives, and position their mobile payment services for growth in the digital era. Now, they are busy arming themselves for a new fight: a prospective merger to decide the ultimate winner.  Credible news of talks first emerged in January when The Information reported that there had been discussions over a deal—a prospect that seemed remote until Gojek CEO Nadiem Makarim left the company in November. Makarim and Grab CEO Anthony Tan have a tempestuous relationship; it has evolved from being friends at Harvard to becoming common enemies of Uber and, then, ultimately, fierce rivals after the US firm exited Southeast Asia in 2018.
 The chaos caused by the pandemic caused the deal to take a backseat, as both sides made layoffs to cut costs and retooled operations to prioritise delivery services during lockdowns. However, talks now appear to have resumed. And as the Financial Times reported, SoftBank’s Vision Fund has turned 180° and is now in favour of a tie-up.
 In late 2019, investors began to pressure both companies to get on a path to profitability as global headwinds conspired against unicorns. Including Uber’s lacklustre post-IPO performance and the implosion of WeWork. But Covid-19 made things harder. Grab, for instance, has seen its cash-burn increase; its near-break-even transportation business floundered with less demand, but food delivery—a unit much further from profitability—accelerated during lockdowns, two former employees told The Ken.  That makes the cost-saving case for a merger deal blindingly obvious. That makes it paramount to be the dominant partner who is getting the better rub if any union. And that goes some way to explaining why it hasn’t just been business as usual. The companies are working on landing major deals that will give them leverage beyond business operations and into negotiations.  This week, Bloomberg reported that Alibaba is in talks to invest US$3 billion into Grab, a deal that could see Uber sell some of its Grab stock.
 Alibaba has long been linked with Grab, but a conclusion to these new talks would add another massive (and very strategic) investor to the latter’s camp. Alibaba is a strong counter to Gojek’s recent addition of Facebook and PayPal as investors, a duo it hopes can enable it to crack payments and ride on the popularity of WhatsApp. Alibaba, which has invested US$4 billion to date in Lazada alone, brings more than just money: it has extensive expertise in e-commerce, payments, and financial services.
 Gojek, meanwhile, has quietly beefed up its push in Vietnam—the first overseas market it expanded to. It has bought a controlling interest in a local mobile payments firm, reported Deal Street Asia.
 GoPay has been key to Gojek’s growth and increased user engagement in Indonesia; this acquisition paves the way for it to add mobile payments to its existing bike taxi and food delivery plays in Vietnam, where Grab is the dominant force. Payments is an important wedge that could bring teeth to Gojek’s expansion, which has been little more than lip service to date, as we wrote in March.
 This is just the start. If Grab-Gojek talks do intensify—and there’s no guarantee that an agreement will be reached—we should expect to see more partnerships and deals as they bid to take a lead in negotiations.  As one early Grab investor put it: “It’s hard to imagine two companies dead set on crushing each other sitting down and agreeing terms in a rational and non-partisan way.” The war is very much on again, with the ultimate prize being the driver’s seat in the region’s undisputed winner. |
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A traditional survivor  Ben and Kay  Grab and Gojek have dominated the news, but we shouldn’t forget that taxi operators themselves remain an important player in the ride-hailing equation.  Taxi operators are like the boomers to ride-hailing startups’ millennials; they’re often dismissed as antiquated players that refuse to adapt to technology, instead relying on regulation and lack of choice to maintain their hold.  When ride-hailing startups began to mushroom in Southeast Asia, they were faced with strong opposition from taxi operators. They claimed that their lunch would soon be stolen away by the likes of Uber, Grab, and Gojek.  Except, that isn’t quite the case in Singapore, where the city-state’s largest taxi operator ComfortDelGro has a dominant 60% market share. The company—which itself went through a merger deal in 2003—has actively embraced technology since 1995. |
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Credit: VensenkaPhotography/Flickr  Even back then, you could pay for a cab ride with your credit card in a ComfortDelGro cab. In 2009, the company introduced online booking for cab rides, followed by a mobile app launch in the following year. Just about the same time as Uber started in the US and two years before Grab, which was initially known as MyTeksi, was even founded.  Embracing technology helped the S$3.25 billion (US$2.4 billion) taxi operator become a trendsetter in the industry. From fare increases to moving towards digital terminals to send information to taxi drivers, other taxi operators have had to follow suit shortly after.  Even the public transport business under its SBS Transit subsidiary has its own app to give bus arrival timings at bus stops. Recently, its driving centre added an app to allow learners to book driving lessons.
 Hungry for more innovation, ComfortDelGo carved out a US$100 million corporate venture fund in 2018 to invest in mobility startups. So far, it has made three investments. This year, the company even hired its first chief digital officer. Other companies had done so earlier, but ComfortDelGo still stands head and shoulders above most taxi operators.
 Did we also mention that ComfortDelGo is in its third autonomous vehicle trial with French operator EasyMile at the National University of Singapore?  The enemy of my enemy…  Still, it was a challenging time for ComfortDelGro when Uber and Grab officially entered Singapore in 2013 and 2014. While Uber was focused on decimating taxi operators everywhere, Grab was on a slightly different track, choosing to work with taxi drivers for its GrabTaxi option.  However, ComfortDelGro sprang to action when Grab poached its taxi drivers. Months later, ComfortDelGro decided to join hands with Uber to take on Grab.
 The relationship with Uber would eventually morph into an attempt for ComfortDelGro to take over the startup’s rental car business in Singapore, Lion City Rentals. But these plans were ultimately for naught as Uber chose to merge with Grab in a move that surprised most people in their Asia Pacific office, not to mention its partner ComfortDelGro.
 However, ComfortDelGro still has many reasons to smile. Despite the huge gains Grab made into the private transport business in Singapore, many drivers eventually returned to being cabbies as incentives shrunk or disappeared with the death of competition following Uber’s Southeast Asia exit.
 That said, Covid-19 has proven to be the greatest leveller of any transport business. Both ComfortDelGro and Grab suffered equally as ridership plummeted in the face of movement restrictions and the move to working from home. Even as restrictions are eased, drivers are still seeing a slow pickup of business.
 ComfortDelGro is staring at the Covid-induced losses suffered by its taxi business. But thanks to the Grab-Gojek merger talks making headlines this week, ComfortDelGro is probably breathing a huge sigh of relief.
 That’s because, ultimately, any consolidation within the ride-hailing space is nothing but good news to ComfortDelGro, as it continues to strengthen its fort from within. The world is its oyster once again. |
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SEA Briefs  Jum  There has been a diverse mix of news in Southeast Asia this week. Let’s start with the biggest. A consortium led by South Korean internet giant Naver has injected US$80 million into Singapore classifieds platform Carousell, bringing its valuation to over US$900 million. The deal follows Carousell’s late 2019 merger with rival 701Search, then a unit of Norwegian telco Telenor.
 Also in Singapore, five fintech startups bagged a total of US$11.5 million from Hong Kong-based financial services group AMTD. They include SME digital financing platform Funding Societies, digital banking solutions provider Active.ai, credit card enablement provider CardUp, cross-border payments service Transwap, and insurtech company PolicyPal. (We wrote about AMTD’s Southeast Asia strategy in July.)
 In more big deal news: British insurer Aviva sold its US$2 billion majority stake in its Singapore business to a consortium led by Singlife; and Indonesia-based logistics startup Waresix raised a US$100 million Series B round.
 Spotify’s podcast push is coming to Southeast Asia. The European firm added eight podcasts from Indonesia to its streaming service.
 Grab made headlines for less-than-positive reasons: it was hit with a US$7,300 fine after the personal data of more than 21,000 drivers and passengers was exposed. The breach happened when Grab updated its app on 30 August, forcing the company to roll back to its previous version.
 But it’s not just Grab. A data breach was uncovered at gaming hardware firm Razer, too. It was discovered that Razer’s server had been misconfigured for public access, exposing sensitive personal information of some 100,000 customers, including phone numbers, and billing and shipping addresses.
  Meanwhile, Chinese internet giant Tencent has picked Singapore as its headquarters for Asia. Tencent joins Chinese rivals Alibaba and ByteDance in building up a presence closer to home after expansion troubles in the US and India. VC firm Lightspeed is also setting up operations in Singapore, which will house its newly-announced Southeast Asia operations.
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Something for the weekend  Durga  Good TV nowadays is all about catching up on the latest season from something you already like. We’re all caught in this loop of familiarity—makes a lot of sense at a time when the world is completely strange. So imagine my surprise when I encountered a completely fresh, unique show which is both an anthology of short stories and a larger story with connectivity.
Tales from the Loop, which is based on a series of paintings by Swedish artist Simon Stalenhag, operates in a universe inside, well, a loop. The show came out earlier this year and is available now on Amazon Prime Video. If you loved Stranger Things, here’s a less hyped show you’d enjoy. Give it a watch this weekend, and let me know what you think.
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That’s it from this issue of Strait Up. We’ll return to your inbox with our weekly recap email on Sunday and more stories from Monday.  Cheers, |
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Strait Up is a weekly newsletter that cuts through the noise of the week to give you the need-to-know business, tech, and startup analysis. This is a paid newsletter that’s available exclusively to premium subscribers of The Ken Southeast Asia
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