Popularity of ride-hailing apps surges in Indonesia

 

Mobile ride-hailing applications are revolutionising urban transport in Indonesia. Recording triple-digit growth in recent years, apps like Grab, Go-Jek and Uber have made significant inroads, offering targeted GPS services that enable rapid pick-up, easier navigation, speedier journeys and lower price points. Recent investment announcements highlight the enormous growth potential in the country, with leading apps now in the midst of multibillion-dollar expansion programmes.

Although the state has recently introduced regulations on fares, vehicle inspection, service standards and corporate structures – a move criticised by industry stakeholders as anti-competitive and overly burdensome – partnerships between ride-hailing apps and traditional taxis could offer an equitable solution.

LOCAL LEADERS: Indonesia has been at the forefront of regional ride-hailing development since 2013, according to a December 2015 report by Brussels-based think-tank Bruegel. This has been led by home-grown companies like Go-Jek, a motorbike ride-hailing platform, and Ojek Syar’i, an online booking service for female Muslim motorbike taxi drivers. Go-Jek began in 2011, covering markets in Jakarta, Depok, Tangerang and Bekasi, with the company launching a dedicated mobile platform in January 2015. Since then, Go-Jek has significantly expanded its operations into restaurant and grocery delivery, and courier services.

Singapore-based taxi booking app Grab launched a trial service in Jakarta in June 2014, and today offers GrabCar automobile and GrabBike motorcycle taxi services, as well as courier and food delivery service. In August 2014 global ride-hailing giant Uber also began operations in Jakarta, later moving to introduce motorbike services in April 2016. Ojek Syar’i came on scene with its own dedicated mobile app in November 2015.

EASY RIDER: Although each of these platforms offers a slightly different user experience, the basic function is the same: a traveller creates an account with the company and enters their pick-up location and destination. The app uses the rider’s smartphone GPS to locate a nearby driver, sends the driver’s contact information to the passenger once the driver has accepted the pickup, and provides a fare estimate to both the rider and driver. Drivers are tracked in real time via their own smartphone GPS as they make their way to the passenger, and the journey itself is also tracked via GPS.

Unlike card-accepting apps in more developed countries, cash payment for services is the norm in Indonesia – although some companies offer users the option of buying dedicated credits via bank transfer or corporate accounts. Grab and Go-Jek are increasingly channelling investment into developing online payment platforms.

TIME & COST: Another difference from traditional ride-hailing apps is the usage of motorbike taxis. These provide a significant reduction in travel time and cost, as motorbikes can more easily navigate Jakarta’s congested traffic and narrow side streets. A journey that might take three hours by automobile in heavy traffic can be reduced to 15-20 minutes on a motorbike, while costing one-tenth of a regular taxi fare.

Motorbikes are also coming to fill the gap left by inadequate taxi numbers and public services. According to Bruegel, there were just 1.4 taxis per 1000 people in Jakarta at the end of 2015, while the proportion of consumers using public transport fell from 35.5% in 2002 to 12.9% in 2010, due to underdeveloped, inefficient and difficult-to-access transport networks. Automobile ownership has also recorded a sharp increase (see overview) leading cities like Jakarta to feel the strain.

Ride-hailing apps also offer employment opportunities for Indonesia’s fast-rising population. Grab reported that traditional taxi drivers can boost their salaries by 30-300% from partnering with the apps, since they will be able to find passengers more easily and frequently.

RAPID GROWTH: Ride-hailing growth is expected to skyrocket. The value of the Indonesian market is forecast to rise from $800,000 in 2015 to $5.6bn by 2025 alongside smartphone and mobile broadband uptake.

In July 2016 Grab reported that Indonesia had become its largest market, with its GrabCar and GrabBike services growing 250% year-on-year (y-o-y) during the first half of 2016. GrabBike in particular has flourished, recording 300% y-o-y growth during the first six months of the year, despite the company’s move to reduce fare subsidies by 50% over the same period.

Grab estimated that over 17m people in South-east Asia had downloaded its app as of July 2016, with up to 630,000 drivers using the platform across Indonesia, Singapore, the Philippines, Malaysia, Thailand and Vietnam. The company stated that it held more than 50% of the private automobile ride-hailing market in Indonesia, implying it has surpassed Uber in terms of rides booked. Grab also reported having more than 50% of the motorcycle taxi market in the country. In February 2017 Grab stated that ridership on both of its apps had grown by 600% over the previous 12 months.

At Bangalore’s Tech in Asia conference in July 2016, Go-Jek officials told audience members that company bookings grew 100-fold in the last 12 months, with an estimated 200,000 drivers using its platform as of April 2016. By August of that year, an estimated 20m people had downloaded the Go-Jek app.

PUSHBACK: The rise of ride-hailing apps has been met with stiff resistance from established taxi drivers, who staged widespread protests and strikes across Jakarta in March 2016, arguing that unfair competition had led to a 60% contraction in income for drivers at major taxi companies like Blue Bird and Express Transindo Utama.

The Ministry of Transportation (MoT) announced in the same month that app-based transport operators would be considered illegal until companies and drivers obtained the appropriate business licences, reporting that operators must possess a public transport operator licence, driver’s licence and insurance coverage, while vehicles would be required to pass inspections.

In April 2016 the MoT issued Ministerial Regulation requirements for app-based transport services, in addition to a requirement that companies be incorporated in the form of legal entities. Businesses must have at least five vehicles with company-owned licences, as well as vehicle pools and vehicle facilities proven by documents detailing cooperation with other parties, such as taxi companies. Employed drivers must also be in possession of licences based on their vehicle class.

To meet the new requirements, Uber partnered with Express Transindo Utama in December 2016 to launch a pilot car booking programme through which drivers can accept Uber rides instead of street hails or phone requests. Grab was reportedly working with a local taxi cooperative to recruit 8000 new drivers as partners. Blue Bird also partnered with Go-Jek in January 2017 to provide an app-based car rental service.

The new regulations also prohibit app-based transport drivers from acting as public transport providers in setting tariffs, recruiting drivers, collecting fees and setting driver income. The law was scheduled to come into effect in October 2016, but the MoT said in March 2017 that companies would be given until August 2017 to fully comply with the new regulations.

Furthermore, in July 2017 the MoT announced that it had set the tariff range for online car-hailing services on Java, Bali and Sumatra between Rp3500 ($0.26) and Rp6000 ($0.45) per km, and between Rp3700 ($0.28) and Rp6500 ($0.49) per km on Kalimantan, Sulawesi, Nusa Tenggara, Maluku and Papua.

Most recently, Ministerial Regulation No. 108/2017 was issued in October 2017 stipulating that ride-hailing apps could only operate in specific areas, with the government working to set limits on ride-hailing vehicles in each region. The regulation also prohibits such drivers from picking up passengers directly on the street, and ensures that a minimum standard of service is provided.

INVESTMENT: Despite the new regulations, investment in ride-hailing expansion has soared in recent times. In March 2016, for example, Grab confirmed that Indonesia’s Lippo Group had been an early investor in its operations, announcing it had signed a strategic partnership with the company to provide logistics services for Lippo’s e-commerce company, MatahariMall.com. In September 2016 Grab reported it had raised $750m in equity financing in a round led by Japan’s SoftBank Group, bringing the company’s total capitalisation to $1bn. Grab will use the funds to expand its local operations and further develop its payment app, GrabPay.

In February 2017 Grab announced plans to invest $700m in a research and development (R&D) centre, with plans to hire an additional 150 engineers in Jakarta over the next two years. The R&D centre will focus on mapping optimal routes across Jakarta, with an emphasis on narrow roads inaccessible to passenger cars.

Go-Jek announced in August 2016 that it, too, had raised $550m in new funding, which will be used to scale up its operations into payment systems, courier deliveries, food delivery and expanding abroad. In May 2017 the company closed another major round of financing, raising $1.2bn through activity led by China’s Tencent. Go-Jek’s total valuation is now estimated at $3bn.

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The Report: Indonesia 2018

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