Money burning race of super apps set to last

January 20, 2020 | 17:00
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Vietnam is considered an attractive market with massive potential for the development of super apps. However, looking back on the past year, super apps still face difficulties in acquiring market share, despite burning through tremendous amounts of capital.
money burning race of super apps set to last
Race on burning money of super apps to be continue

In mid-2018, there was a bloom of ride-hailing applications (the most popular basis of existing supper apps) with the joining of more than 10 apps. However, by the end of 2019, there were only three apps that were popular among users and are still working to complete their supper app ecosystem, including Grab, Be, and GoViet. These players also reported hardships and great expenses throughout the year, while no one has managed to break Grab's dominion.

Be was considered a young player, however, it overcame GoViet in the ride-hailing sector to stand in the second position after Grab with 16 per cent market share, according to statistics of ABI Research.

According to experts opinion, after burning a large volume of money, Be reported great initial success, including an increase in market share as well as its brand recognition, however, as of now, with the exception of VPBank, the company has not drawn in other investors yet.

Meanwhile, GoViet reported slow increase compared to other players in the market. This platform has not launched its four-wheel ride-hailing service despite entering the Vietnam market for more than a year. Besides, non-cash payment by GoPay has also not been implemented while the food delivery arm GoFood is still lagging behind GrabFood and Now. Furthermore, its core service – two-wheel ride-hailing – ranks third in the market with 21 million completed trips and 10 per cent market share in the first six months of 2019.

In the meantime, Grab's business results are encouraging. According to a report published by ABI Research, Grab’s ride-hailing service currently makes up 73 per cent of the market (calculated by completed trips), with an increase of 29 per cent in 2019. Its food delivery orders via GrabFood service reported an increase of 1,800 per cent in 2019 compared to the same period last year and was considered the No.1 choice of customers, according to the survey of Kantar. Besides, its GrabExpress service acquired an increase of 97 per cent on-year. Especially, in the mobile payment segment, Grab, through the strategic partnership with Moca, reported an increase of 131 per cent in Moca’s total payments volume on the Grab app, with monthly active users growing more than 121 per cent in 2019.

It is easy to see that the withdrawal of potential ride-hailing apps, GoViet’s difficulties in gaining market share, Be’s strategy to suffer losses with massive risks, as well as Grab's impressive business results have one thing in common, which is “burning money”. According to economic expert Do Hoa, general director of consultancy Tinh Hoa Quan Tri, before even becoming a strategic arena, supper apps or the ride-hailing market was a race for players with financial potential, not players who lack money or are afraid of risks.

However, simply burning through funds is not enough to explain the reason why a giant in Southeast Asia like GoJek (used to be considered as "king of app" in Indonesia) ranked behind its opponent Grab in a common yard in Vietnam, and even behind the latecomer Vietnamese application Be. It is a vital factor that the players need to know how much to burn, and how to burn.

First, for the investment capital, the players with the greatest financial potential are clear. As of March 2019, Grab succeeded in calling $4.5 billion investment from SoftBank and is planning to expand its investment in Vietnam by $500 million within the next five years. Meanwhile, GoJek – the parent company of GoViet – lured in $1 billion in early 2019, but the specific figure for the Vietnamese market has not been published. The investment in Be is also unknown.

Second, for the “burning money" strategy, it is obvious that "super promotion" programmes were a great contributor to the expenses of the players. Accordingly, many players since the early stages have been offering tremendous discounts to lure in customers. However, as of now, while GoViet focuses on the “low cost” strategy and Be's promotion programmes are growing less frequent, Grab has kept a firm foot on the pedal to draw in customers, counter other players, and affirm its financial potential. For example, in late-2019, Grab implemented a huge chain of promotion programmes, offering many services on its platform for VND9,000 (39 US Cents).

Another factor of using money strategy that can be considered vital is to integrate the entire service ecosystem into one handy application. For example, all of Grab's services from ride-hailing, food delivery, parcel delivery to mobile payments that are used almost every day, are now housed in its application. Besides, Grab is also making forays into new areas and that are not "classic" ride-hailing-type services such as QR payments at stores, paying utilities, mobile phone top-up via Moca, and hotel reservations. This format keeps users longer in Grab's ecosystem, without the need to switch apps.

In general, super apps are not a necessity, but they most certainly offer convenience and simplicity to turn heads. However, because it is an expensive and long-term business strategy, super apps are expected to continue "burning money" wisely to create the most convenient ecosystems for users in the future.

By Ha Vy

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