In Singapore, Gojek’s third market for expansion following Vietnam and Thailand, the strategy showed early promise. Gojek entered the city-state in November 2018 with no surge pricing and a reported 20,000 drivers on waitlist.
Though limited to taxis, the service initially seemed well-received as Gojek offered lower prices at select times during the day, according to Valerie Law, a transport analyst associated with investment research platform Smartkarma.
Gojek also gained attention “due to Grab’s missteps on the public relations side after it lowered incentives in its rewards system, and a lack of ride-hailing options after the exit of Uber,” added Law.
However, Gojek’s costly push didn’t last. The company slashed driver incentives just three months after launching in Singapore. Changes were also made on the passenger side, with a report from consultancy firm Momentum Works estimating that prices rose by around 30% around the same time.
Therein lies the problem if you want to compete with Grab. The company is backed by more cash than any other tech startup in the history of Southeast Asia. Its most recent Series H round closed out at $6.5 billion last year. That cash pile means Grab is more than able to play the subsidies game, and the company has been very keen to make that clear.
What was the investment?
That Series H round started with a $1 billion investment from Toyota in June 2018, months after the Uber deal. Grab sent out further warning shots to Gojek as the deal developed. A series of splashy announcements added new investors, including big names like tech giant Microsoft. With significant tranches of cash, most notably a $1.5 billion injection from SoftBank’s Vision Fund in March 2019, Grab built a phenomenal war chest of capital. The intent was clear: scare Gojek and put off potential investors who would fuel its business with cash.
“We want to be underfunded,” Makarim, the former Gojek CEO, told the Financial Times in an interview in April 2019. “It forces discipline. We will survive through innovation and monetisation and talent. We want to under-promise and over-deliver.”
Makarim may have been prepared for Grab stockpiling cash, but its efforts still seem to have had an effect. Gojek’s response to Grab’s huge financing push was a $2-billion mega round of its own.
Gojek’s management team first hatched the plan following Uber’s exit from Southeast Asia, an investor with knowledge of the effort told The Ken. However, nearly two years later, it remains incomplete. Gojek announced a $1.2 billion raise in May 2019, but the remainder has not yet been gathered. The company has struggled to convince investors of its $10-billion valuation target.
“Our fundraising remains on track and in line with expectations,” the Gojek spokesperson said. The company also rebuffed suggestions that it is open to a merger deal with Grab, as reported by The Information last month. “There are no plans for any sort of merger and recent media reports regarding discussions of this nature, are not accurate,” the spokesperson said.
New era of sustainability
Question marks around Gojek’s expansion could not come at a worse time for the company, given the global shift in focus from aggressive growth to profitability among startups and investors.
Gojek has to learn the ropes and gain market share in each new market. It also has to figure out how to stitch regional operations together, while keeping its spending in check. It may not have retreated from expansion posts, but Gojek has become acutely aware of its financial mortality and made cutbacks. In December, it confirmed it would shut down the majority of its GoLife services in Indonesia, including laundry, beauty and home services on-demand, due to an apparent lack of adoption.
It appears that Gojek is still saving much of its capital for Indonesia to quell Grab’s offensive. It shelled out
$30 million to buy a 4.3% strategic stake in taxi operator Blue Bird, in a deal that offers a whopping 62% premium on its stock price. Gojek is also reportedly in talks to acquire Moka, a local point-of-sale startup. In food delivery, the battle for market share between Gojek and Grab has become so intense that the steep discounts they offer users have made food prices more affordable and kept Indonesia’s inflation low, according to a Bloomberg.