The damage of ride-hailing disruption to Indonesia’s taxi industry

Like Lyft vs Uber in US, the ride-hailing battle in Southeast Asia is Gojek vs Grab. It’s hard to pick sides. Grab and Gojek have equally created values from business and social angles; millions of lower-income people now have better-paying jobs as drivers, and urban road transport has never been more convenient. No matter who wins, my people win, and that’s more important.

Unfortunately, the losers here are the taxi industries. In this old-economy disruption narrative, they are the incumbents. I was recently curious about the magnitude of this disruption in Indonesia alone, so I ran some numbers to estimate. I’m sharing my findings in this post. To begin with, there are 3 chronological parts to that:

I. The calm before the storm (2013–2014)

Uber, Grab, and Gojek launched their apps in Indonesia for the first time. The two largest taxi companies in Indonesia with a combined marketshare of around 75%, Blue Bird and Express Group, have consistently grown somewhere at 21% — 30% since previous years. Everything seemed normal.

Express’ financials, however, revealed a significant jump in investing activities. This might be an early sign that the new entrants were coming. Express invested in more fleets and taxi pools as a competitive response.

Blue Bird and Express Group financials and key metrics 2013-2014. Source: Blue Bird and Express annual reports

Both companies maintained healthy upward trends on revenue/marketing-spending ratio; over 2013 - 2014, for each Rp1 Million (~$100) spent on sales & marketing by Blue Bird, they brought in Rp 40 Million - Rp 46 Million (~$4,000) additional revenue. The same thing for Express, where the ratio was 1:8 Million - 1:21 Million.

II. The early hit (2015)

Sometime in 2015, Gojek and Grab both set a flat fare in order to attract more users. The moves worked well. More than 2 Millions of Indonesians downloaded their apps and became active users. Gojek and Grab further secured funding from investors such as Sequoia India and Didi Kuaidi (China).

By the end of the year, they appeared to have drawn first blood; Blue Bird grew only 15% (slower than their historical growth rate of 21%), while Express at 9%, 3x slower than their historical growth rate of 30%. Both also failed to maintain the upward trends of their revenue/marketing-spending ratios; it suddenly became more expensive to acquire passengers due to the new competitions as the demand for taxis slightly tapered off.

Blue Bird and Express Group financials and key metrics 2015. Source: Blue Bird and Express annual reports

III. The displacement (2016–today)

Since 2016, the taxi market has shrunken by almost 8%. This was an industry that had been growing above 20% annually just a few years back. To quantify the damage done by the ride-hailing companies on the taxi market, I estimated the size of the displacement under some assumptions:

1). I assumed that 100% of Blue Bird and Express’ revenue come from their taxi segments. I then projected Blue Bird and Express’ revenue under two different scenarios; scenario A, where I assumed disruption didn’t happen in 2014 (Meaning Gojek, Grab, and Uber didn’t exist or enter the market), and scenario B, the real-life scenario where disruption happened (I used the actual financial statement items, and projected fiscal-year 2018 revenue by extrapolating their Q2 results using the same growth rate into Q3 and Q4). Taking the difference between the two scenarios, it appears that the ride-hailing market began to form as Blue Bird and Express Group increasingly lost marketshare.

Increasing share of the taxi companies’ losses to ride-hailing competitors (In Millions IDR). Source: Blue Bird and Express annual reports

2). I assumed Blue Bird and Express maintain a consistent, combined 75% share of the Indonesia’s taxi market. Knowing their revenues, we can estimate the size of Indonesia’s taxi market under two different scenarios.

Indonesia’s taxi market with vs without disruption from ride-hailing competitors (In Millions IDR)

3). I assumed the taxi market under scenario A (no disruption) to be a proxy to the true potential of ride-hailing market in Indonesia; it represents the upside potential of the demand for urban car transportation services. I also compare my estimation to Google/Temasek’s.

Indonesia’s ride-hailing market (In $ Millions USD)

I assumed an average exchange rate of Rp 13,500 per 1 $ USD. The base size represents the penetration into ride-hailing market annually; it’s the annual gross revenue that all ride-hailing players gained through direct revenue losses by all taxi companies. It should be underestimated since it only accounts for the displacement of taxi users. Gojek, Grab, and Uber certainly generated lots of revenues from first-time ride-hailing taxi users and the ride-hailing converts from the traditional urban motorcycle taxi “ojek” service. That explains why Google/Temasek’s upside estimation is higher than mine.

Conclusion

Ride-hailing disruption on the taxi industries is certainly one of the major innovation stories of our time. Market displacements of various order of magnitudes are still ongoing today across the globe — Uber in US, Ola in India, or Grab and Gojek in Asia. In Indonesia alone, we’ve learned that taxi companies have lost out a combined sum of $1 Billion to the ride-hailing competitors over the last 4 years. We’ve also discovered more humbling facts; that Southeast Asia’s ride-hailing is a massive market growing at a blistering pace, and that Grab and Gojek are even barely scratching the surface.

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