Grab and Uber merger: An inevitable reality

Perhaps one of the biggest stories for the year is the merger between Grab and Uber in the Philippines and the rest of Southeast Asia.

After a couple weeks of rumors, the deal was almost instantly sealed with Uber getting 25 percent share of Grab’s combined operation in the region.

In the Philippines, Grab and Uber had quite a healthy competition, albeit not without issues with the government. Operations were temporarily suspended with both TNVS getting slapped with heavy fines. Despite it all, both services thrived and grew exponentially in no time.

A lot of riders quickly complained that it was due to pressure from LTFRB that Uber called it quits. The fact that they pulled out of the entire Southeast Asia altogether  instead of just the Philippines indicates there’s more to the development that we don’t know:

• Uber’s financials haven’t really been good for years. In 2016 alone, it is estimated they lost north of $2.8 billion, and that number grew to a staggering $4.5 billion in 2017. New markets with a very competitive atmosphere like SEA can put additional strain into the income problems.

• Earlier this year, a group of investors led by Softbank bought into Uber, making Softbank the biggest shareholder at around 15 percent. Incidentally, Softbank also holds significant shares in China’s Didi, India’s Ola and Grab.

It’s easy to see that Softbank might have had a hand in the merger of Uber and Grab in Southeast Asia as no investor would want competing companies in its portfolio, moreso if one of them is already bleeding money.

The same scenario happened in China in 2016 where Uber agreed to merge with leading competitor Didi for an 18 percent stake in the combined operation. Uber was facing stiff local competition and was also bleeding in China.

• Grab has a massive foothold in Southeast Asia. It boasts of over 2.3 million drivers in 168 cities across eight countries in the region.

Uber’s approach of a one-size-fit-all wasn’t working well with the diverse cultural differences in the region. Grab had the cultural advantage and has been able to adapt to the various intricacies in each country it operates in.

Grab also has a more diverse offering, from a regular taxi cab to a car, van or a motorbike. It even offers express parcel delivery service via GrabExpress.  Uber was only good at one category – car hailing and ride-sharing.

In order for Uber to entice more riders into its fold, it had to match or exceed the promotions and incentives Grab was offering its drivers. This is one of the main reasons why Uber was losing money in its operations.

• Uber is targeting an initial public offering (IPO) in 2019. The merger in SEA is one of several housekeeping chores Uber is doing in order to clean up its P&L before the IPO. It stops the bleeding in the region while maintaining a 25-percent stake in the combined operations.

In the Philippines, riding customers obviously prefer Uber to Grab. Aside from cheaper rates, Uber drivers are not picky as they don’t see the destination of the passenger. Grab does not have that option that allows drivers to accept or reject customers based on the destination of the trip.

In a country where daily traffic is a nightmare, these two glaring differences in policy obviously benefited one over the other. Drivers prefer Grab while riders prefer Uber. Guess who won?