There are only 18 ‘decacorn’ start-up companies in the world – and one-sixth of them are ride-hailing services in Asia. According to the Unicorn Companies List released by CB Insights in early 2019, China’s Didi Chuxing, Singapore’s Grab, and Indonesia’s Gojek are 3 of 18 private companies listed exclusively as ‘decacorn’ companies.
A “decacorn” is a start-up that is valued at more than $10 billion – making it bigger than a “unicorn”. “Unicorns” is a term for new businesses that have reached a valuation of more than $1 billion in a very short time.
This year, Didi and Grab managed to reach a valuation of $56 billion and $14 billion respectively. Meanwhile, Gojek was founded in 2016, and is now valued in 2019 at just over $10 billion, making it the highest-valued start-up in Indonesia.
The rapid growth of the ride-hailing business in Asia is in line with the expansion of market volume. Based on Statista data, ride-hailing services revenue in Asia will reach over $52 billion in 2019. This number is estimated to grow 14.6% annually over the next four years, culminating in a market volume of $90 billion by 2023. In China alone, the services will generate $35.5 billion this year and $62.1 billion by 2023.
Battling to dominate the ride-hailing market in Asia
The ride-hailing business model was first pioneered by Uber Technology Ltd in 2009. The company provides on-demand services such as transportation and food delivery through a mobile application. Customers obtain a fare quote before ordering the service, to simplify the transaction and payment process.
Didi launched similar services in China in 2012, followed by Grab in Singapore two years later. In 2016, Gojek started its first operation in Indonesia with the same idea, but focused on utilising motorbikes instead of cars. Grab and Gojek are now competing in several southeast Asian markets, including Vietnam and Thailand.
Didi currently boasts about 550 million users with 60% of market share in China. It also recently expanded to the Japanese market by launching their services in Kyoto and Tokyo, as well as Osaka. They mainly target tourists in Japan. Uber entered the Kyoto market around the same time, pitting the companies against each other in head-to-head competition.
Grab claims to hold 62% of the ride-hailing market in southeast Asia. Gojek, however, denies this figure. Meanwhile, Gojek itself dominates the Indonesian market with nearly 80% market share and 2 million drivers.
As the apps offer a variety of services, from paying bills to booking concert tickets and hotel rooms, they have transformed into super-apps with the integrated payment system. According to Gojek’s founder, Nadiem Makarim, payment services have generated about $6.3 billion in annual transactions. That said, Makarim claims that his company does not aim to be profitable anytime soon in the transportation sector.
Uber out: Asia’s ride-hailing services kick out the pioneer
Interestingly, the dominance of regional ride-hailing start-up companies in Asia has edged Uber – the pioneer of the service – out of the market in the past few years. In 2016, Didi Chuxing acquired Uber’s operations in the Chinese market. After losing $2 billion trying to catch up with Didi, Uber decided to sell the business to its Chinese competitor for $35 billion. In exchange, Uber and its investors received a 20% stake in Didi.
Two years later, Uber merged its operation in southeast Asia with its competitor, GrabTaxi Holdings Pte. Ltd., which operates in eight countries in the region. Amidst tight competition, Uber gave up its operation in southeast Asia. The deal left Uber with a 27.5% stake in Grab.
Leveraging its knowledge of the regional market, Grab managed to double its revenue in transport service within three fiscal quarters following its Uber acquisition. Meanwhile, food-delivery company GrabFood, a spin-off of Uber Eats, saw its revenue shoot up to 45 times more than nine months earlier.
Investing in ride-hailing services: a lucrative idea
The battle between ride-hailing companies in Asia has been going on for more than five years. The business dynamic also heavily attracts prominent investors to bet on the strongest player.
Leading Japanese venture capitalist Softbank has invested in Uber, Grab, Didi and India’s Ola. Last March, Grab secured around $1.5 billion from the firm. Microsoft also bet on Grab, together with Toyota and Hyundai.
Gojek, on the other hand, got a powerful backing from tech-giant Google, who invested $500 million in 2018. Additionally, the Jakarta-based ride-hailing company has also received funding from Chinese internet group Tencent Holdings, as well as from US private equity firm KKR, for its expansion.