Grab Acquires Uber – Here Are 3 Valuable Lessons Singaporeans Can Learn

Before the Competition Commission of Singapore can decide whether the Uber-Comfort tie-up of December 2017 is anti-competitive or not, another bombshell was dropped on 26 March 2018. Grab announced its acquisition of Uber’s Southeast Asia business, consisting of Uber’s rideshare operations and food delivery service. As part of this deal, Uber will take a 27.5% stake in Grab.

We all knew that both companies subsidising rides to gain market share isn’t sustainable, and the party has finally ended. It was great when it lasted though. We should take comfort in the fact that we are in the generation that enjoyed the subsidies provided by companies wanting to carve out a customer base.

As the dust settles from this deal, let’s take a considered look at the valuable lessons consumers and investors alike can take away from this episode.

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# 1 Importance Of Not Overlooking Sustainability

In the early years (from 2013) when competition was heating up, promo codes and incentives were plenty for consumers and drivers, respectively.

As a consumer, this was really great, since you could install apps from both Grab and Uber, and there was no cost to switch from one service to another. In fact, it became a standard practice for Singaporeans to check both apps to see which offered a better price or had better ride availability at the point of booking.

However, it isn’t exactly the same for drivers. While it is not uncommon for drivers to be registered on both services, the way incentives and bonuses worked, drivers were incentivised to pick one company and clock as much pick-ups there.

There had been aggressive offline and online campaigns to poach taxi drivers, which even saw some Singaporeans quit their day jobs because of how lucrative the payouts are as Grab and Uber drivers. As a freelancer who depends on a platform for business and payouts, drivers need to realise that they are “betting” on the continued success and sustainability of their chosen platform.

This is all the more risky when the platform you’re looking at is in a “grow at all costs” stage and the maths don’t work out in the long-run. Now, with the “war” over, drivers would undoubtedly be concerned over how much of their earnings will take a hit, now that crazy incentives are no longer necessary to woo them.

Riders who depend on Deliveroo, Food Panda, Honest Bee and other food delivery services need to be aware of this. Planning your “career” based on the company currently offering more attractive rates, is not seeing the full picture.

In the telecommunications space, while we revel at the entry of multiple new telco providers, it would be prudent to ponder whether how sustainable it is for telcos (especially the new ones) to be slashing prices so much while spending on marketing and customer acquisition.

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#2 Always Consider Counter Party Risks

As alluded to in the opening paragraph of this article, ComfortDelGro acquired a 51% stake in Lion City Rentals, a subsidiary of Uber, just three months ago. It was the largest deal that ComfortDelGro had made to date, involving $295 million in cash, and was hailed as a shrewd move to offset the loss of revenue from taxi rentals and benefit from the growth of the private-hire car sector.

Unfortunately, the deal that Grab made to acquire Uber’s Southeast Asia business left out Lion City Rentals, whose drivers had rental contracts that tied them to Uber’s service. While Grab has since reached out drivers to transition to Grab’s platform, one can’t help feeling that ComfortDelGro had the short end of the stick in this whole thing. After ComfortDelGro paid a premium, counting on aligned interests to grow together and synergies between itself and Uber, Grab is now in the driver’s seat, with no obligation or vested interest in the stranded Lion City Rentals.

The lesson here is that when making and evaluating business deals, it would be prudent to consider the counter party risks. In other words, considering the risk that other party you are making the deal with would not be in business, or would not be in a position to fulfil the terms of the agreement with you.

A great deal on paper isn’t worth much, unless the terms of the deal are fulfilled.

# 3 Evolving Concept Of What Winning Looks Like

From the surface, one could consider Grab’s buyout of Uber’s business as a defeat for the giant. But nothing could be further from the truth.

Uber now has a 27.5% stake, and its CEO Dara Khosrowshahi will be joining Grab’s board. Instead of fighting to the death until both ride sharing companies are out of money, Uber now a substantial stake in the combined pool of Grab-Uber customers in Southeast Asia. Remember: A one-third share of a profitable and growing business is more valuable than a 100% stake in a loss-making one whose market share fluctuates greatly.

Instead of fighting a war on multiple fronts, the move allows Uber to focus its full resources on markets where it wants to win in, while piggybacking on Grab’s continued growth in Southeast Asia. They have done so in the past, most notably when it exited the China market after a brusing battle with Didi Chuxing.

For years, giants Facebook, Twitter and other technology companies have been losing money, requiring one venture capital raise after another just to stay afloat. The marketplace is changing, and participants in this new economy will need new ways to view evaluate companies and business models.

Is The War Over Market Share Over Yet?

Shortly after the Grab-Uber deal was announced, Indonesia-based Go-Jek declared their intention to start offering a car ride-hailing service in Singapore.

Everyone concerned would do well to heed the lessons from the previous ride-hailing battle. What is certain is that we have not seen the last of market share wars in ride-hailing, and other sectors.

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