It’s been a rough 12 months for Uber, marked by retreats in both China and Russia. Now, rival Grab is proclaiming supremacy in South-east Asia, boasting a 71 per cent market share in private vehicle-hailing across the seven countries it serves. Can Uber survive in this region?
The answer pretty much depends on how big a cash cushion the world’s most valuable start-up has on hand, and the relative size of its rivals’ cash piles. Neither Uber nor Grab is profitable, and the battle of the ride-hailing apps is basically a cash war to inflate market share.
Ask anyone without a car in Singapore: It’s a promo bonanza out there. Since the year began, Uber and Grab have unleashed an unending stream of discounts to keep people returning to their apps. Call it the Great Transfer of Wealth from venture capitalists to the ride-sharing proletariat.
The long war of attrition has been brewing since Uber entered Asia via Singapore in 2013. Grab, which started in Malaysia in 2012, entered Singapore later that year.
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Grab said last Monday that it had secured a fresh US$2.5 billion (S$3.4 billion) in funds led by Didi Chuxing and SoftBank.
Uber, on the other hand, has become something of a self-driving company, after key investors ousted chief executive Travis Kalanick last month even as the chief financial officer and chief operating officer seats remained vacant.
Grab’s latest funding round is significant. In the battle of Didi versus Uber for China, Uber had been bullish despite Didi dominating the market, projecting early last year that it would turn a profit there by next year.
Then Didi closed a US$7.3 billion funding round in June last year, with Apple investing US$1 billion – easily eclipsing the US$3.5 billion Uber raised earlier from Saudi Arabia’s Public Investment Fund. In August last year, Uber backed out of China.
But the China example is also instructive with respect to what happens next. Uber’s exit coincided with the Chinese government’s roll-out of new rules for the sector, including restrictions on unfair pricing behaviour at the expense of state-owned taxi companies.
As soon as Didi pulled back on its subsidies, ridership fell. In other words, users were price-conscious and hardly brand-loyal.
In many ways, ride-sharing is still a concept rather than a sustainable business model. The fact that Mr Kalanick has said he wants an initial public offering “as late as possible” is a sign that Uber’s fundamentals might not fly with public markets.
For all the resources that have been burned in the race for monopoly power, the race to profitability is still being run on uncharted terrain.
Uber and Grab are taking different approaches to finding a solution.
For Uber, success is also a bet on a a breakthrough in driverless technology, which it believes will help it eliminate the cost of drivers. It began a self-driving car programme in 2015, but whether a fleet of self-driving cars would really be less capital-intensive remains to be seen.
The approach that Grab seems to be taking is to build up a money-making online payments business, to help foot some of the bills for its core business. It is following the example of Indonesian rival Go-Jek, which helps users who don’t have bank accounts to book movie tickets and masseuse appointments on the same app they use to book rides. Grab also partners taxi operators, whereas Uber does not offer taxi-hailing. Of course, the payments space is also crowded.
Purely from the perspective of pedestrians looking for a ride, the best possible world is one where the Grab-Uber price war never ends. But until either company proves that its model is sustainable, it’s hard to say which is the clear winner.