Grab's success lies in its user-centric platform in S-E Asia
THE world's largest carmaker, Toyota, will invest US$1 billion in South-east Asian ride-sharing app Grab. This will be the second major move for Toyota, after forming a strategic alliance in 2016 with Uber, where they decided to co-develop autonomous driving technology.
The rise of Grab, culminating in this latest investment by Toyota, has been exceptional. It's exceptional because Grab, which first launched its service with 40 drivers in Kuala Lumpur in 2012, was late to the ride-sharing game, coming only after Uber had already established a formidable position in the United States. Grab has since toppled Uber in South-east Asia in March this year, when Uber sold out its operations in Cambodia, Indonesia, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.
How do we explain the rise of tiny Grab against giant Uber, and the attraction for carmaker stalwart Toyota?
No business model is more attractive than a platform, which is essentially a marketplace that enables the exchange of goods or services on the supply side and purchases on the demand side. Malls link consumers and merchants; newspapers connect subscribers and advertisers.
MARKET FIT
A platform is also the business model that Uber, Airbnb and Alibaba have adopted. Among economists and academics, the "network effect" has been a common refrain used to explain the spectacular growth of these businesses. They argue that the value of a platform depends, in large part, on the number of users on either side of the exchange. That is, the more that people use a platform, the more inherently attractive it becomes, leading even more people to use it.
That is why Facebook is obsessed with growth in the US and internationally, even in the developing world. That is also why, when Snapchat went public in March 2017, the number of daily active users became the single most important metric for potential investors. The more that people hang out on Facebook or Snapchat - reading news and playing games - the more willing big brands, such as Coca-Cola, Procter & Gamble and Nike, will be to buy ads on them.
Only when a platform reaches a certain size does it become too dominant to unseat, or so the theory goes.
However, Grab's unlikely rise against Uber illustrates that size is more a consequence than the direct source of greatness. What works well in one country may fare badly in another. Any platform needs to achieve a product/market fit to succeed in the long run.
Anthony Tan, co-founder and chief executive of Grab, saw that it was imperative to understand, appreciate and build regional distinctions into a product: In the Philippines, where eight major dialects are spoken, a representative will speak in the local dialect when someone calls Grab's customer service. Passengers can also text drivers via a chat feature with automated translation. Instead of forcing drivers to accept credit card payments in the name of "frictionless" transactions, Grab embraces cash.
"We understood the taxi driver's need for daily income. We understood that a lot of people really use cash. We respect the hyper-local culture in places we operate," Mr Tan said.
INTERNET ECONOMY
In Singapore, Grab lets users input convenient numeric codes for nearby taxi stands in lieu of addresses. In other parts of Asia, where lack of trust and scanty safety records plague the taxi industry, Grab lets riders retrieve drivers' police records through the app and share routes and licence plate numbers with friends and family. The app also masks passengers' phone numbers from drivers as an additional safety precaution.
In Indonesia, road congestion is endemic. Grab offers rides on motorcycles via "GrabBike". Thanks to this feature, Grab has surpassed Google in the effectiveness of its route-planning suggestions in and around Jakarta as tens of thousands of motorcyclists navigate back roads and side streets to avoid traffic, all the while sweeping up copious GPS data.
The latest investment in Grab by Toyota is therefore a validation of a new playbook of our Internet economy. Transportation has never been, and never will be, composed of purely digital "bits". When a platform strategy requires a mixing of digital and physical, the key area of differentiation remains how the service is delivered in the physical world.
