Ride-hailing market is growing. ABI Research forecasts 28 billion ride-hailing trips for 2019, up 27% from 2018’s 22 billion completed rides. However, despite the impressive growth vendors around the world are still losing money – a lot of money!
“Uber has reported a net loss of US$1.1 billion for Q1 2019, despite growing earnings and monthly active users. Revenues from its core ride-hailing business achieved a very muted growth rate of 9%,” says James Hodgson, Smart Mobility principal analyst at ABI Research.
“The scale of the loss throws intense cost pressures into sharp relief and raises questions about most ride-hailing vendor’s land grab strategy and the sustainability of ride-hailing in general,” he commented.
Growing side business
Growing market share and cutting costs are not enough for sustained profitability and to survive, vendors must evolve on-demand mobility beyond ride-hailing. In the United States, Uber Eats brought the ride-hailing company revenue growth rates of 89% in Q1 2019 alone.
Asia-Pacific may be experiencing a similar trend. ABI Research estimates that the region accounted for over 70% of global ride-hailing trips. But vendors like Grab and Go-Jek also recognise the need to expand the business to stave off losses from the traditional business – ride-hailing.
Grab and GO-JEK are expanding into so called ‘super apps’ creating a go-to-marketplace for numerous on-demand services. Tencent is credited by some for having created the super app economy with its popular messaging app - WeChat.
However, what worked for Tencent in China was the country's population of over 1.2 billion people and a period in time when social media and e-commerce were booming, largely driven by the smartphone. One country, large population, one language, one loosely regulated environment.
Hodgons akin it to Uber Eats on steroids. “Offering on-demand services is one of the factors driving the success of Grab and GO-JEK in the APAC region. These on-demand services include food delivery, payments, parcel delivery, prescription delivery, and more,” he explained.
While Grab continues to resist attempts to cede its current 11.4% market share of trips completed and maintain its dominance of Indonesia and Vietnam, it’s playing a major role in the ‘super app’ strategy. “Considering Indonesia alone accounts for 40% of southeast Asia’s GDP, Grab’s offering of GrabExpress, GrabFood, GrabFresh, GrabPay, and GrabFinancial, speak volumes to the opportunity of larger revenue streams well beyond its traditional ride-hailing model,” says Hodgson.
Ranked fifth with 5% share of trips completed, GO-JEK also believes in the importance of offering services beyond ride-hailing. In fact, GO-JEK claims that ride-hailing represents less than a quarter of its overall gross merchandise value. Go-JEK’s super apps range from Go-Pay and Go-Mart to GoClean and GoGlam.
“As ride-hailing operations continue to operate at a loss and vendors attempt to leverage driver incentives and fare subsidies to gain market share, they should also follow pursue the overall objective of becoming a universal, go-to ‘Amazon-style’ platform for smart mobility services as Grab and GO-JEK have successfully accomplished,” Hodgson concludes.
