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Indonesia: Pandemic pushes Gojek, Grab to hit pause on ‘super-app’ dream
The recent layoffs in Indonesia’s two decacorn ride-hailing apps Gojek and Grab have forced the start-ups to reassess their pursuit of becoming “super-apps” as the pandemic has pushed them to retire some of their non-core businesses, experts have said.
Starting their businesses as ride-hailing applications, both Grab and Gojek have been racing to become apps that meet all users’ needs. They now offer various services from passenger transportation and food and goods delivery to financial services and hotel and ticket booking.
“The COVID-19 pandemic will force both Grab and Gojek to reorganize and focus on three core services: ride-hailing, food/grocery delivery and financial services,” Fitch Solutions wrote in a research note on Thursday.
On June 16, Grab, which is valued at US$14 billion, announced that it would lay off 360, just under 5 percent, of its region-wide employees due to the pandemic. The Singapore-based company, which is present in eight Southeast Asian countries, said it would “be eliminating non-core projects” without elaborating further.
A week later, its rival Gojek did a headcount cut of 430 workers, around 9 percent of its total workforce, as the company aims to focus on its ride-hailing, food delivery, e-payment and logistics businesses.
Fitch Solutions projected the decacorns would gradually exit low-margin services, such as hotel and ticket booking, and put more focus on their respective financial service solutions since they have competitive advantages as early adapters of e-wallets.
“We expect Grab and Gojek to also scale back on discounts in order to become profitable, especially so as investor funding could potentially slow amidst weaker global economic activity,” researchers at Fitch Solution wrote in the note, adding that despite rapid growth, both companies were unprofitable in 2019.
Gojek announced earlier this month that American tech companies Facebook and PayPal had invested an undisclosed amount in its new round of funding while Grab at the time was vying for one of two Singapore digital banking licenses set to be allocated by the Monetary Authority of Singapore in this year’s second half.
Indonesia ICT Institute executive director Heru Sutadi said the decision was part of the companies’ survival strategy while they were evaluating their services as the COVID-19 pandemic severely affected the core ride-hailing business.
“In normal times, start-ups do aim to become an all-in-one service provider, but along the way they will evaluate which services are not relevant to their consumers,” he told The Jakarta Post in a phone call on Wednesday.
“There is a possibility that Gojek and Grab will re-hire some of their teams once the economy is stable,” he stressed.
Gojek, which currently operates in five countries in Southeast Asia, plans to close down its lifestyle division GoLife, which includes massage and cleaning services, as well as its food court division GoFood Festival, as both saw a “significant decrease in demand” during the pandemic, according to the company’s press statement following the layoffs announcement.
Both companies reported a downward trend in their passenger transportation services while seeing an uptick in food and grocery deliveries during the social-distancing period.
Venture Capital and Start-up Indonesia Association (Amvesindo) chairman Jefri Sirait, however, was of the view that the two companies would still receive ample funding from their regional and international backers, adding that the decacorns were agile and big enough to plan for strategic growth in the future.
“It has been four months since the COVID-19 outbreak and they are trying to be sustainable businesses by deciding to cut services that are no longer a source of growth,” he told the Post on Thursday.
He went on to say that both companies would likely focus on e-payment solutions as it has been a growing sector during the pandemic along with other “meat and potato” sectors such as consumer goods, health care and communications.
Meanwhile, researcher from the Institute for Development of Economics and Finance (INDEF), Hanif Muhammad warned that other start-ups might soon also lay off their employees to scale back businesses amid the pandemic.
“Lay-offs would be harder to do in normal times because they would indicate problems within the company, and would negatively affect their image. However, using the pandemic as the reason, companies do not have to worry about their public perception so much,” he said.
He added that investors might grow skeptical about business growth and profitability trajectories during the pandemic and, as such, seek to have their portfolio companies rationalize their plans. He also urged companies that had to lay their employees off to be transparent in their finances.
Source: https://www.thejakartapost.com/news/2020/06/29/pandemic-pushes-gojek-grab-to-hit-pause-on-super-app-dream.html