How is COVID-19 changing the world of mobile applications in Southeast Asia?
After enjoying years of exponential growth, Southeast Asian super applications have been forced to reassess their business models as a result of COVID-19, and many are redirecting their priorities while planning for the post-pandemic world.
In recent years, so-called super applications, online or mobile platforms that combine multiple services into a single application, have sought to continually expand their offerings. While many began with a core business, such as online messaging, carpooling or digital payments, they have expanded into increasingly diverse areas.
The development of super applications has been more prominent in Asia than anywhere else. Among the world's largest are China's WeChat and Alipay, Indonesia's Gojek and Singapore-based Grab. Gojek and Grab play an especially important role in the emerging markets of Southeast Asia.
Starting as a motorcycle transport service in Jakarta in 2010, Gojek launched its application in 2015 and has since expanded to a platform offering 18 different services, including food delivery, financial services, telehealth services and video broadcasting. The company is valued at $10 billion. In addition to its local market, it is active in Singapore, Thailand and Vietnam.
Similarly, Grab was formed in 2012 in Malaysia as a mobile taxi reservation application, but has since moved its headquarters to Singapore and expanded into food delivery, financial services and hotel reservation, among other segments. It is valued at $14 billion and operates in eight countries in the region.
Despite this recent growth, the economic consequences of COVID-19 have forced these applications to reconsider their ongoing expansion plans, and many are looking towards consolidation rather than expansion.
For Gojek and Grab, this has meant a reorganization of operations and the closure of some low-profit services, along with those that would have difficulty complying with social distancing measures.
For example, Gojek announced in June that it would lay off 9% of its workforce and close GoLife, which provides home cleaning and massage services on demand, and GoFood Festivals, the arm that operates physical food halls.
The decision came on the heels of Grab's decision to lay off 360 employees (about 5% of its workforce) and an announcement that it will close some "side projects.
In an analysis released in late June, Fitch anticipated that companies may also seek to reduce spending or dissolve operations in the hotel booking and ticketing segments if sustained economic pressure continues.
But while companies are cutting back on some segments, Fitch expects them to "redirect resources into three main businesses: transportation, food/food delivery and payments.
In particular, food and grocery delivery services have proven to be the big winners of the pandemic, and demand increased significantly as consumers sought to adhere to social distancing patterns and avoid crowded supermarkets.
Following an increase in food delivery orders and a drop in transportation demand, Grab's two-year food delivery platform surpassed the transportation service established in 2020 as its main line of business. While this meant some taxi drivers lost their jobs, the company says 150,000 switched to become delivery drivers.
Gojek also felt the trend towards food delivery. "Many industries were directly affected by the COVID-19 pandemic. In particular, private transportation applications witnessed a decline in use as Indonesians began to isolate themselves," Kevin Aluwi, Gojek's co-CEO, told OBG. "However, the period of isolation has simultaneously allowed expansion into other industries, such as food, grocery and package delivery, as people turned to mobile and online shopping options.
This shift has not been limited to Southeast Asia and emerging markets, as Uber acquired Postmates, the fourth largest food delivery service in the U.S., for $2.65 billion in early July. The move highlighted how critical food delivery services have become during the pandemic, and Uber's first quarter results show that while demand for its private transport service fell by 80% year-on-year, stocks on its UberEats platform increased by more than 50%.
However, despite this recent fall in demand, transport services are expected to remain a crucial aspect of super applications once the pandemic subsides, as they have traditionally been the companies' main source of income.
In addition to food delivery, financial services are also expected to play an increasingly important role in super application plans in the future. After introducing GoPay and GrabPay to process payments for transportation reservations, both Gojek and Grab have quickly expanded their financial services to point-of-sale and online payments, as well as travel insurance for their passengers and drivers, travel insurance and business loans. "Access to services that include affordable health care, insurance, smart mobility and financial services remains a key barrier [to growth] in the region," Ming Maa, president of Grab, told OBG in the first quarter of 2020. "These are issues that multiple service technology platforms must address as they expand their offerings to provide users with greater convenience and choice.
Given the increase in e-commerce that has accompanied the pandemic, market leaders in Southeast Asia have taken steps to further expand their financial footprint. In April, Gojek completed the acquisition of local Indonesian payments company Moka, in a deal estimated at $130 million, while in June it was confirmed that Facebook and PayPal were participating in Gojek's Series F funding round, which had raised about $3. bn.
Analysts have suggested that the investment could be strategic and that the U.S. duo may be looking to further develop Gojek's payments business. For its part, Grab, in partnership with Singapore's telecommunications company Singtel, is competing for one of two digital banking licenses to be allocated by the Singapore Monetary Authority before the end of the year.