Grab's Bonfire of the Vanities Is Just Blowing Smoke
(Bloomberg Opinion) -- One sentence from Grab Holdings Inc. co-founder Anthony Tan sums up the outlook for the dumpster fire that is Southeast Asia’s increasingly toxic taxi wars.
“I met Masayoshi-san last week where he gave his unlimited support to power our growth.”
In a giddy press release Grab announced that it’s super-sizing its current funding round to $6.5 billion. Series H has already raised $4.5 billion, including $1.46 billion from Masayoshi Son’s SoftBank Vision Fund, and it plans to collect another $2 billion before the year is out.
When funding rounds start getting past a Series F, you can be sure that, if nothing else, that startup has become very, very good at one thing: burning money (and, to be fair, raising money).
What Grab failed to do, however, is show how having large tanks of kerosene to burn begets a sustainable business. That makes this bluster look a lot like Asia’s bike-rental wars, and we all know that didn’t turn out well. We shouldn’t be surprised that it’s Masa once again feeding the frenzy given his reputation as a big-stack bully.
Perhaps that oversight is because the true audience for this press release wasn’t the news media, nor industry partners, investors, customers or drivers. This press release may have well been addressed, “Dear Go-Jek.”
Just days prior, the Indonesian ride-hailing-cum-delivery service was reported as being added to CB Insight’s decacorn list – meaning its valuation had hit $10 billion. Grab is valued at $11 billion on the same list.
That must really grate. In two separate quotes Grab executives make the claim that it's four times bigger than its nearest competitor, and has 62 percent of Indonesia’s ride-hailing market. And what better way to show off your might than raise more money to throw onto your bonfire of the vanities.
Grab seems so desperate to appear superior that it’s taken to labeling itself “Southeast Asia’s leading super app” – as if merely saying so will turn a ride-hailing company into the region’s WeChat.
In a bygone era, venture capital funding helped a group of entrepreneurs get off the ground and create a product. That cash would help manufacture a prototype, code up a viable software product, or build out some basic infrastructure upon which revenue would then be generated. Today, this funding is mostly spent on marketing in the form of ads or incentives.
In the new-economy taxi business, those funds are often spent to close the gap between what a consumer is willing to pay for a ride and what a driver is willing to be paid to ferry that customer.
The blind belief that collating a huge customer list will eventually result in a profitable company is undermined by last month’s IPO of Lyft Inc. The company’s losses are expected to widen this year, and it’s forecast to remain unprofitable through at least 2020, according to analyst estimates compiled by Bloomberg.
The reliance on subsidies to lure consumers and drivers further muddies supply and demand dynamics, making it extremely difficult to estimate when, or whether, this business model can ever turn a profit. (I have asked Grab for data to show its own economic analysis, but the company has declined to share it.)
Which is why Monday’s letter to Go-Jek is so stark. This is an old-fashioned arms race, and Grab wants you (and Go-Jek) to know it’s got a bigger pile of munitions and the backing of the world’s venture-capital superpower. As long as that’s the case, expect the cash-burning haze over Southeast Asia to grow thicker, and more toxic.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.
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