It's fare play as taxis fight for business in South-East Asia

Fare play in South-East Asia

Uber has attracted protests in Malaysia, but GrabTaxi is winning over taxi operators there by providing health insurance and free medical check-ups for elderly taxi drivers.

By Annie Hariharan

Trying to get a taxi in South-East Asian cities such as Bangkok, Kuala Lumpur and Manila used to be an arduous task. First you would struggle to find a taxi that was willing to take you to your destination. Then, if you managed to flag one down, you would have to haggle with the driver, perhaps pray for your safety, and still pay a hefty charge for the ride.

As in many other places around the world, the South-East Asian taxi business is being transformed by “e-hailing”, as customers adopt smartphone apps that connect them to new taxi operators. The apps match the customer’s current location and destination (demand) with a willing driver (supply).

Both parties pay a booking fee, which forms the revenue of the taxi app operator. Analysts Frost & Sullivan noted in a March report that the advent of e-hailing “has changed customer perceptions of taxi commutes”. US-founded Uber, the best-known operator in this new market, is fast gaining traction in South-East Asia, but it faces challenges from other e-hailing apps, such as the Malaysian-founded GrabTaxi and Easy Taxi from Brazil.

All the new operators are challenging the taxi industry incumbents and pushing customers to demand better services. Their reward? A piece of the global taxi industry, which Stern School finance professor Aswath Damodaran estimates as earning US$100 billion per year worldwide.

The regulatory battle

The various South-East Asian ride operators do not run on identical business models. As it has done in other regions, Uber matches demand with private vehicle owners, raising legal questions about regulations, permits and licences. Easy Taxi and GrabTaxi, on the other hand, target licensed drivers and operate within their countries’ regulatory frameworks.

“GrabTaxi understands the behaviour of the locals and uses that knowledge to its advantage.”

This is an important distinction, because South-East Asian governments often enjoy substantial power over businesses. Easy Taxi and GrabTaxi have won buy-in from the regulators, a move which has helped to solidify their position in the region. For example, GrabTaxi has funding from Vertex Venture Holdings, the subsidiary of a Singapore sovereign wealth fund, which highlights the level of government acceptance for the company.

Uber and GrabTaxi now have services in both the premium and standard taxi markets. Easy Taxi competes only in the standard taxi market, but has about 200,000 registered drivers on its platform across more than 25 countries.

The battle begins

These new taxi services appeal to middle-class, tech-savvy urbanites across the region. They’re a group who are tired of dealing with taxi cartels and keen for a more efficient way to travel in their congested cities. As South-East Asia becomes more urbanised, this is becoming a substantial opportunity. 

Major cities such as Singapore, Bangkok, Kuala Lumpur and Manila have all become battlegrounds for these new operators as they launch aggressive price wars to gain a customer base, build a reputation and win a place on consumers’ smartphone screens. Each is targeting initiatives at customers and drivers. 

“Easy Taxi and GrabTaxi have won buy-in from the regulators, a move which has helped to solidify their position in the region.” Dennis Wang, CEO of Easy Taxi Servicos SA, in a taxi in Singapore.

GrabTaxi launched in Singapore in 2013 by waiving the S$3 (A$2.80) booking fee for customers for a month to gain traction among the locals. Uber gives drivers more money if they drive during particularly busy times of the day or when demand surges unexpectedly. There are also unconfirmed stories of the app operators using their rivals’ apps to order and cancel rides to disrupt their operations by throwing off demand-supply estimates.

The next phase of this turf war could be a consolidation of the players. China’s taxi app industry has gone from more than 30 players to two major brands, Alibaba’s Kuaidi Dache and the Tencent-backed Didi Dache. In February, Kuaidi Dache and Didi Dache announced a merger valued at US$6 billion.

What makes a winner?

Capital investment is a major requirement for any operator to stay ahead of its competitors. Uber, one of the most highly valued start-ups on the planet in recent months, has deeper pockets than almost anyone: it raised US$1.2 billion (A$1.5 billion) in its series D funding in mid-2014, topped that up with another US$2.8 billion (A$3.6 billion) of funding in late 2014 and early 2015, and was recently reported to be in talks to gain access to another US$1.5 billion (A$1.9 billion).

But Uber has a global focus and must stretch that funding across more than 200 cities in 58 countries (at last count).

In comparison, GrabTaxi raised US$250 million (A$316 million) from Japanese telecom giant SoftBank in its series D funding in December 2014, and is focused on 20 cities in six South-East Asian countries. GrabTaxi has spent some of that money to re-emphasise its regional focus, investing US$100 million (A$94 million) in a research and development centre in Singapore.

This might have raised some eyebrows in its native Malaysia, but it is a logical move for a company that wants to be a regional player and attract global talent to develop new tools to solve transportation and logistics concerns.

Meanwhile, investors’ interest in Easy Taxi seems to be cooling: the company only raised US$40 million (A$51 million) in its series D funding. The company is also gradually retreating from the broader Asian market by closing operations in Pakistan, Hong Kong and Indonesia, scaling operations in Thailand, and not pursuing a launch in India.

A race for hearts and minds

But it’s the race for customer acceptance that everyone most wants to win. Here, GrabTaxi currently has a clear lead. The operator understands the behaviour of the locals and uses that knowledge to its advantage. 

While most of us assume that a taxi is synonymous with a car, GrabTaxi has challenged that in Hanoi, Ho Chi Minh City and Jakarta, where it has introduced motorcycles as part of its service. In cities where motorcycles are more widespread than cars, they have boldly created a new revenue stream for themselves. 

“The advent of e-hailing has changed customer perceptions of taxi commutes.” Frost & Sullivan

GrabTaxi also uses a cash-based payment scheme for its customers, because credit card penetration is low in most South-East Asian countries. (Singapore is a possible exception, so in March 2015 GrabTaxi announced it was trialling a cashless payment system in the city-state.) In comparison, Uber’s default payment method is a credit card or PayPal account linked to the customer’s Uber account. This is not surprising given Uber’s start in the US, but its inability to adjust to developing countries appears to be limiting its customer base.

GrabTaxi has also carefully navigated around regulatory concerns by winning the hearts and minds of taxi drivers. In the Philippines, it introduced micro-financing for smartphones for taxi drivers. In Malaysia, it provided health insurance and free medical check-ups for elderly taxi drivers. As far as financial benefits go, GrabTaxi’s founder and CEO Anthony Tan said in an interview last year that his drivers’ incomes rose by between 30 and 300 per cent as the GrabTaxi app better targeted their rides and reduced their idle time.

Uber drivers might have the same type of financial gain, but the company’s disruptive business model also means it has to deal with a lot of regulatory problems. Authorities in Indonesia and Thailand have classified Uber as an illegal service, as its drivers do not have permits. In Malaysia, taxi drivers have protested against Uber for taking away business from registered drivers. 

The current score seems to be GrabTaxi: 1, Uber: 1. 

These developments, however, are a reminder that not all of South-East Asia’s economic changes need to be driven by governments. Sometimes, change can be driven by an entrepreneur with the right idea, the tenacity to challenge the status quo and the skill to work with governments.

Going private?

A year ago, GrabTaxi ventured into new territory with its GrabCar service, which mirrors Uber’s model by booking rides in private vehicles. The new venture was designed to complement GrabTaxi’s own taxi fleet, especially during peak hours.

But the gamble has not paid off in Malaysia. By venturing outside the normal regulatory model, GrabCar and Uber have attracted the attention of Malaysia’s Land Public Transport Commission (SPAD).

It has declared that although Uber and GrabCar are legal as “service matching” businesses, the way they operate is not, as the drivers are not licensed service providers. In June, SPAD showed it meant business by towing and impounding almost 50 private GrabCar vehicles. 

Just a few days later, however, GrabCar scored a win in the Philippines, when it was officially accredited as a “transportation network company” by the Philippines’ Land Transportation Franchising and Regulatory Board.

“Uber ... has deeper pockets than almost anyone.”

The two episodes emphasise the need to get buy-in from local authorities when attempting new business models.

From people to parcels

GrabTaxi and Uber are quietly evolving from on-demand car ride providers to logistics services providers. Uber has already trialled on-demand services to supply ice-cream on a hot day and roses on Valentine’s Day.

These publicity-catching, one-day-only events were teasers for its more sustainable parcel delivery business, Uber Rush, which was launched in New York in late 2014 and relies on bikes and on-foot messengers. GrabTaxi has since gone further by trialling a next-day parcel delivery service in Thailand.

This article is from the August issue of INTHEBLACK

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