Uber’s defeat in Southeast Asia calls into question its “barge in” expansion strategy worldwide

Hanging up the helmet.
Hanging up the helmet.
Image: Reuters/Darren Whiteside
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A years-long competition is coming to an end now that Uber is ceding its business in Southeast Asia to Grab, its chief rival in the region.

According to the companies, Uber will hand over its ride-hailing and UberEats food delivery services to Grab in Cambodia, Indonesia, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam. In exchange, it will take a 27.5% stake in Grab. Uber CEO Dara Khosrowshahi will join Grab’s board.

Launched in 2012, Singapore-based Grab originally offered the hailing of taxis only, for payment by cash. It later added private cars and motorbikes to the mix, and gave users other ways to pay, including through a mobile wallet that can facilitate transactions between users (not unlike Venmo or China’s WeChat payments). It’s even expanded into dockless bike-sharing. The company says its users complete about 4 million rides every day.

Since Uber entered Southeast Asia in early 2013, the two companies have been locked in an expensive, money-burning battle, costing Uber approximately $200 million per year, according to the Wall Street Journal (paywall). Strong data assessing the rivals’ popularity remains scarce, but it’s generally thought that Grab leads the wider region. Once SoftBank, an existing backer of Grab and several other Uber rivals, made clear in August 2017 its intentions to fund Uber, many speculated that a merger between the two companies was imminent.

In an email sent to staff and published on Uber’s blog, Khosrowshahi stated that consolidation is not “the strategy of the day.” But he hinted that Uber’s aggressive overseas expansion caused it to spread itself too thin:

One of the potential dangers of our global strategy is that we take on too many battles across too many fronts and with too many competitors. This transaction now puts us in a position to compete with real focus and weight in the core markets where we operate, while giving us valuable and growing equity stakes in a number of big and important markets where we don’t.

This marks Uber’s third major overseas retreat, following similar ones in China and Russia. And it comes as the company’s fate in other non-US markets remains unclear, due to competition, regulation, or both. With its status as the global leader in ride-hailing less certain than it once was, it’s worth asking: Was Uber’s brazen approach to international expansion wise in the first place?

The Uber playbook

When Uber began expanding aggressively in 2013, its strategy was simple: Identify a city and barge in. Since then, it has moved into hundreds of cities outside the United States.

Throughout this phase, Uber’s launch playbook has closely resembled the one it followed in the US: Start out offering rides in luxury vehicles driven by licensed chauffeurs, make those rides less expensive under the “UberX” banner, and then rope in “average Joe” drivers to ferry passengers for cash once the brand is well-established. If regulators came calling, Uber would encourage customers to stick up for it via public campaigns. The bet was that Uber would win over users thanks to the convenience and safety it offered versus taxis, and regulatory support would follow once enough of them got on board.

It hasn’t quite worked out that way. Southeast Asia is an excellent example of how the company underestimated the local conditions that would ultimately prevent it from replicating its dominance in the US.

For one thing, Southeast Asia’s urban transportation sector is not uniform, and not necessarily suited to Uber’s core service. In some cities, like Bangkok, municipal taxis are abundant compared to most US and European cities. In Singapore, meanwhile, the money required to own a car meant that Uber and Grab each had to purchase their own vehicles and rent them out to drivers. (For its US leasing program, which ended last August, Uber typically partnered with third-party dealerships.) In cities like Jakarta and Hanoi, meanwhile, motorbikes remain a popular mode of transportation as they let passengers dodge car congestion. Yet while Grab and Jakarta’s Go-Jek expanded their motorbike-hailing services throughout 2014 and 2015, Uber didn’t enter the sector until 2016.

Michael Smith Jr., a venture-capital investor at SeedPlus in Singapore, says that Grab added local tweaks to its app that helped it win over consumers. Whereas Uber’s app remained largely unchanged from the one it used in the US and other countries, Grab, for instance, let passengers text drivers via a chat feature with automated translation. It also masked passengers’ phone numbers from drivers as a safety precaution, and in Singapore, it let users input convenient numeric codes for nearby taxi stands in lieu of addresses.

Perhaps most important, margins on rides hailed across Southeast Asia are likely very low. With fares for a 10 km UberX ride in Bangkok as low as 218 baht (about $7) and in Manila at 189 pesos (about $3.50), there’s not much money Uber can collect from commissions. Factor in the marketing expenses required to keep up with Grab, and Uber faced a long road before it could see margins in the region comparable to what it can earn in US cities with higher starting fares—and even there, the company is not yet profitable, as Khosrowshahi noted in November.

Uber has hit similar roadblocks elsewhere. In Taiwan, Japan, and South Korea, a mixture of regulatory pushback and competition from strong taxi players has handicapped the company. In China, Uber’s rival Didi had a two-year head start.

Looking forward, Uber faces competition in India from local rival Ola, which just received $1.1 billion in funding and is challenging Uber in Australia. It’s also up against 99 in Latin America, Careem in the Middle East, and Taxify in Africa. As in Southeast Asia, most cities in these regions likely offer minuscule margins compared to developed markets.

In Europe, Uber’s challenge is less competition than regulation. In December, the EU’s top court ruled that Uber should be regulated like a taxi operator, rather than as a “technology company” as executives argue. That could empower local courts across the continent to crack down further on the firm. Already, Uber has shuttered its peer-to-peer UberPOP service (analogous to UberX in the US and parts of Asia) in Germany and other countries.

Winners and losers

Was it all for naught, then? Not quite. In addition to its 27.5% stake in Grab, Uber maintains stakes in both China’s Didi (about 20% at the time of the retreat) and Russia’s Yandex.Taxi (about 36.6% stake at the time)—concessions it got for agreeing to bow out of those markets. If Uber continues to walk away with hefty stakes in domestic rivals when it leaves countries, it stands to benefit from them having near-monopolies.

Meanwhile, even if Uber doesn’t end up as the global ride-hailing giant it once aspired to be, the competition it brought has helped spur innovation. China’s Didi and Southeast Asia’s Grab each originated as simple apps for hailing taxis. Had Uber not been a rival, they arguably would have taken much longer to become the giants they are today, harboring ambitions in autonomous driving and artificial intelligence.

In hindsight, though, a different approach might have served Uber equally well, if not better. Rather than launching its own standalone outposts, Didi is expanding internationally by partnering with or investing in local rivals, including in Latin America and the Middle East. It’s doing so years after it established a leading position in China. Uber potentially could have saved itself a lot of time and money by funding companies like Grab early on, rather than fighting them from the outset.

If anything, consolidation looks set to disappoint passengers and drivers used to abundant cars and cushy subsidies. Not long after Uber departed China, Didi quickly slashed its driver bonuses and the number of available cars on the road shrank considerably in major cities. In Southeast Asia, that looks to already be happening. Johnny Tng, a 62-year-old driver in Singapore, says he fears Grab’s acquisition of Uber will all but eliminate competition. Tng has driven for both companies but says he prefers Uber, which offers better incentives and deals on car rentals. Grab, he adds, has been making its bonuses harder and harder to earn. “Hopefully the taxis will keep them in check,” he says.

Alison Griswold contributed to reporting.