Uber's exit a reminder to startups: you can't burn cash indefinitely

SoftBank seen as winner as sale of Uber's SEA business to Grab will cut losses for both businesses in which it has major stakes


THERE were five - and then there were two, and now it's down to just one.

Grab's confirmation on Monday of the long-speculated acquisition of Uber's South-east Asian business comes amid a cutthroat ridehailing battle in the region, where in Singapore alone, three other players (Hailo, Easy Taxi and Karhoo) have been forced off the roads in the last five years. Uber - which will sell its transport and food delivery operations to Grab - will be the fourth player to exit the race here.

Observers told The Business Times the Grab-Uber deal is instructive for tech startups burning cash in aggressive strategies to gain market share. Something has to give at some point. A focus on local understanding and innovation also comes into play, they added.

Lee Der-Horng, director of the NUS-LTA Transport Research Centre, said: "The Grab-Uber merger tells us that the continued extension of heavy subsidies to users is definitely not a sustainable way of doing business. Once profitability is in the picture, a merger is inevitable, as with the case in China with Didi Chuxing, which is a merger of Didi Dache, Kuaidi Dache and Uber China."

This deal marks the third time that Uber has sold or merged one of its businesses outside the US. It sold its China business to Didi Chuxing and merged its Russia operations with tech firm Yandex. The San Francisco-based firm lost US$4.5 billion in 2017 and has burned through US$10.7 billion since its 2009 founding.

Analysts said that by exiting the South-east Asian business, Uber could narrow its losses and better position itself for the 2019 initial public offering it has promised.

John Colley, a professor at Warwick Business School, said: "There is little doubt that SoftBank is behind this rationalisation of the ridehailing market. It has taken substantial shareholding positions in Uber, Grab and Didi Chuxing, which are all haemorrhaging cash in a battle for market share. SoftBank is the real winner as another source of major losses in two of its investments will be eliminated in this merger."

The Japanese financial giant - already a key investor in regional player Grab - in December became Uber's largest shareholder with a 15 per cent stake. SoftBank, which has also taken a major stake in India's Ola, is reported to have been pushing for consolidation in the global ridehailing industry.

Eugene Wong, managing director of Sirius Venture Capital, told BT that similar consolidation is expected to occur in other emerging sectors such as bike-sharing, e-commerce and food delivery, where many startups have "rushed into" over the last few years. "As it gets harder to expand, after an aggressive phase of high growth, startups will look to consolidation to sustain their operations and gain more market share so that their high marketing and infrastructure costs can be shared across more users. In the end, only the strongest and biggest will survive."

The bike-sharing sector in Singapore, however, may be spared from consolidation for now, said Prof Lee. Given the small market in Singapore and the nature of the product - unlike private-hire vehicles, bikes are much cheaper to maintain and do not require hired drivers - "Singapore's bike-sharing sector is not yet primed for merger. But smaller operators will still be phased out sooner or later."

Currently, the bike-sharing market is dominated by three major players, all of which launched here only last year. Singapore-based oBike - the largest operator here - has raised US$45 million in funding, while China-based ofo and Mobike have snagged US$2.2 billion and US$928 million respectively to compete for market share. Making up the rest of the market here are smaller local players including GBikes and Anywheel.

In Singapore, the e-commerce and food delivery sectors are similarly dominated by major players, each flushed with venture capital money and aggressively gunning for market share. Just last week, Alibaba said that it will pump another US$2 billion into Lazada (which it already controls) to expand in South-east Asia, while foodpanda announced the launch of its first dine-in restaurant in Singapore - prompting fears of costly turf wars and speculation of market consolidation in the next one year.

David Gowdey, managing partner at Jungle Ventures, said that merger and acquisition (M&A) activity will only intensify in South-east Asia. "One of the main drivers of M&A is local market operating complexity. We have seen many Chinese buyers enter South-east Asia through acquisitions (such as Alibaba), but this is the first big example of a local competitor taking over the regional operations of a global player."

Lawrence Loh, an associate professor at NUS Business School, said as much: "In online businesses, we would have expected big global players to dominate due to their scale. Uber's sellout suggests that the pendulum has swung towards the importance of business localisation."

On Monday, Grab announced that it will take over Uber's operations and assets in eight countries in the region: Singapore, Cambodia, Indonesia, Malaysia, Myanmar, the Philippines, Thailand and Vietnam. Grab will also integrate Uber's food delivery business, Uber Eats, into its GrabFood platform and roll out GrabFood across all major Asean countries in the first half of 2018.

Uber will take a 27.5 per cent stake in Grab, a figure which Grab described as "reflective of the companies' respective market shares". Uber chief Dara Khosrowshahi will join Grab's board.

BT has learnt that all Uber South-east Asian employees will receive offers to join Grab, and the Uber and UberEats apps will cease to be functional after April 8 and end-May respectively.

Nitin Pangarkar, an associate professor at NUS Business School, said: "In one sense, Grab has outlasted Uber. Both are probably losing money but Grab found believers in its business model and execution whose backing allowed it to go toe to toe with the larger Uber. After a fierce fight, Grab has to manage a larger organisation. Equally important, it has to find a way to make money."

Jungle Ventures' Mr Gowdey added that Grab will now have to innovate to compete head-on with Indonesia's Go-Jek. The latter, like Grab, has evolved from an on-demand transport provider into a consumer platform, offering delivery and e-payment services with a focus on South-east Asia.

Heang Chhor, managing partner at Qualgro VC, said: "The Grab-Uber deal underlines the importance of local and regional understanding, and how critical it is to effectively expand tech services across South-east Asia. It is important for international entrants to take into account local nuances and consider partnerships or mergers with regional players as a possible option for market entry."