Now that Grab is the second most valuable SEA startup, what’s next for them?
GRAB, Southeast Asia’s answer to Uber, officially announced it raised US$750 million in its latest funding round led by SoftBank, along with other new and existing investors. The oversubscribed funding round brings the company’s capital position to approximately US$1 billion. Pre-cash, Grab is valued at US$2.3 billion, and the new round increases valuation to over US$3 billion, sources told Reuters.
With this funding series, the company seeks to grow its presence in SEA – particularly in Indonesia, which is the largest market in the region, comprising around a third of the population’s potential customer base. Grab also looks to leverage its machine learning platform to further optimize pricing and trips. In addition, the company seeks to expand into new business models, particularly with its mobile payment service, GrabPay.
“Our vision is to drive SEA transportation forward and transform the region’s mobile internet ecosystem,” says Anthony Tan, founder and Group CEO. Grab is confident in “an almost US$15 billion market for ride-hailing services alone” in Indonesia, as well as the opportunities in growing GrabPay across the region.
A big THANK YOU to all our passengers and drivers for being with us on this incredible ride! https://t.co/nUtcs6QacZ
— Grab Malaysia (@GrabMY) September 20, 2016
Second most valuable startup
With the new over-subscribed funding round, Grab is now the second most valuable startup in SEA, after Garena which is reportedly worth US$3.75 billion. Notably, Garena has quadrupled its valuation in just about two years whilst diversifying its business at the same time. Initially launched as a game development outfit, Garena has subsequently expanded into digital content, e-commerce and online payments, counting Shopee and AirPay as veritable players in the e-commerce and payments industries, respectively.
With Grab’s new funding round and a renewed focus on expanding in the region, it also gets to explore new areas of business, particularly with GrabPay. The global e-commerce market is estimated to expand to a US$2 trillion business by 2017, and the digital payments industry in Southeast Asia alone will grow to a US$200 billion market by 2025.
The GrabPay service currently covers credit and debit card payments to Grab services. However, with digital payments being a lucrative market, it’s likely that Grab will explore more disruptive payment schemes that offer seamless mobile payments to users. “As a start, Grab has partnered with Mandiri, Indonesia’s second largest local bank, to offer a mobile wallet service. In Indonesia, we are also long-term partners with Lippo Group, with whom we are implementing an e-money payments platform that will enable users to use GrabPay at Lippo’s department stores, hypermarts, cinemas, coffee shops and e-commerce platform.”
Heightened competition in Southeast Asia
— Grab Malaysia (@GrabMY) September 19, 2016
The new investment comes right after Grab’s Indonesian competitor Go-Jek raised US$550million in August, and also after Uber’s strategic exit from China – which leaves the market leader free to focus on its business in other Asian countries. These illustrate how competitive the ride-hailing or transport network services industry can be in the region.
Grab is banking on its technologies, particularly its machine learning platform, as well as its familiarity with Southeast Asia, as its competitive edge. These include technologies that pool cars and taxis, improve back-end routing capabilities and a proprietary point-of-interest mapping platform. Grab has also been collaborating with multinational organizations in transport and traffic studies, as part of its big data efforts.
Uber’s exit in China has proven the so-called “Chinese El Dorado” myth, which touts that it will not necessarily be easy for established western firms attracted to newfound prosperity in China (and other countries in the region) to capitalize on the growing fortunes of the middle class. The globally-dominant startup decided to sell its business to the local Didi Chuxing, which tells that the local and regional market dynamics call for more focused and familiar approaches in order to succeed.
Big shakeups like the Uber exit underscore the competitive dynamic in the region. With its new funding round, Grab is strengthening its position and capability not only as a transport network provider, but also as a platform and enabler for other disruptive businesses that can potentially give it a much needed advantage.
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