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.
Southeast Asia comprise of multiple countries with each economy governed by local regulation and business tradition. Many of the countries have multiple dialects and sub-cultures at varying stages of development.
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.