Is Grab a Monopoly?
Grab. The Makings of a SuperApp! Equity Research! Part 2/3.
In the first part of this Deep Dive, we discussed how Grab came to dominate the 700M people-strong region of Southeast Asia!
In the last twelve months, Grab’s 42M users spent $17B on the platform.
If you are interested in Grab and want to have a full picture, I recommend starting with Part 1!
Today, I am going to tell you how network effects are driving Grab’s growth.
The more customers Grab onboards on the platform, the more merchants join to service them, driving more customers to use the platform, which again drives new merchants to join, and the cycle continues.
Additionally, we will look at who their main competitors are. (hint GoTo)
Lastly, Southeast Asia’s development trends will be analysed!
1. Network Effects
2. Competition
3. Regional Development
4. Part 3
1. Network Effects
Network effects dictate that the value proposition of a platform increases with each additional participant in the platform.
Let’s look at this through the lens of Grab’s 3 main business segments.
The platform had 35.5M unique monthly customers in 2023.
The high cross-usage indicates strong synergies and is the result of Grab’s diligent effort to accelerate the network effects!
In any given market, people’s needs vary.
A single Bangkok man without a car might use GrabBike to get to the office and GrabPay to pay for his coffee. A family of four in Manila with a car is less likely to use a taxi but might order groceries to save time. The needs of these two customers are fundamentally different, yet both of them use Grab because of the diversity of the service.
No customer will use all services, but the more can be done on the app, the more people will use it.
Customers tend to increase the usage of products that satisfy their needs in accordance with their preferences. Netflix is not only affordable, convenient, and easy to use, it has a large selection of shows.
Let’s look at the concept of The Consumer’s Hierarchy of Preferences and how it applies to Grab’s network effects.
“The Consumer’s Hierarchy of Preferences is the idea that consumers have an internal “weighting” of desires, and once a desire is filled to a certain degree, addressing their next order desire becomes more important. When a company addresses a sufficient number of a consumer’s desires, they make a sale. Similar to Maslow’s Hierarchy of Needs,” Speedwell Research. Speedwell Memo ”The Consumer's Hierarchy of Preferences: The Other Side of the Consumer Value Prop”
Basic Needs – People want food, transportation, and a simple way to pay. Grab provides these services reliably and on time.
Price and Value – Customers want to feel as if they are getting a good deal. For this reason, Grab provides regular incentives and promotions with the goal of having the lowest prices possible.
Convenience – Low prices and a large selection don’t mean anything if customers have to wait too long to get serviced. On the other hand, quick delivery, but high prices and low selection is also not desired. For this reason, the platform must have lots of supply-side partners.
Emotional connection – Positive past experiences reinforce emotional connections, driving repeat business and creating long-lasting habits.
Social status – Certain customers always strive to have high social status or feel as if they are valued members of society. Grab offers luxury vehicles for those looking to enhance their social status. Meanwhile, to increase their social responsibility, Grab does business with lots of small local vendors.
The better Grab meets these customer preferences, the more customers use Grab’s platform!
We have discussed what customers want. But what about Grab’s supply partners?
It is much simpler there, drivers, restaurants, and Grab’s partner banks want the same, they want to make money. That is why a strong focus on servicing the customers is the key to Grab’s success. Happy customers spend more money on the platform, driving GMV growth. Businesses follow the money, so they will work with the largest platform.
Supply-side partners of Amazon, Uber, Shopee, and Bolt might complain about how these platforms operate. Yet they don’t leave because that is where the customer is.
Similarly, Grab’s drivers, restaurants, and certain other partners complain about high fees and stringent rules, yet the number of partners keeps growing.
The more customers use Grab’s platform, the more merchants join it to service them!
Grab is fully aware of how network effects are crucial in delivering growth, thus all the incentives. Customer incentives and promotions support demand. While driver and merchant incentives increase the supply. The plan is that once enough customers and supply-side partners have joined the platform, Grab can significantly lower incentives, and both customers and merchants will remain on the platform, enabling Grab to significantly improve profitability.
Integrating financial services into the platform is akin to pouring gasoline on the fire, as they stimulate both supply and demand. Loans to merchants enable them to offer additional services, whilst loans to customers lead to higher sales.
Additionally, higher economies of scale enable Grab to service each additional customer cheaper than the previous.
Network effects create a positive feedback loop that delivers exponential growth!
2. Competition
While Grab has no single dominant competitor, it faces tough competition across all verticals in all the regions. Let’s look at some of the biggest names.
Gojek Tokopedia
Gojek Tokopedia is a $6B technology company formed in 2021 through the merger of the two largest Indonesia’s start-ups. Tokopedia runs an e-commerce platform with a GMV of $14.8B in 2023. Meanwhile, Gojek is a direct competitor of Grab, offering ride-hailing, food delivery, and financial services. In Q3 2024, the group had sales of $240M and losses of $105M.
Gojek is the market leader in its home country of Indonesia, with an estimated 52% ride-hailing and a 38% food delivery market share in 2023. Additionally, the company has a growing financial services business offering digital payments and loans.
However, with an estimated 48% Indonesian ride-hailing market share, Grab is competing very well with Gojek. Furthermore, Grab is actually leading in food delivery, with a 50% market share. Additionally, Gojek’s presence outside Indonesia is limited and getting weaker, with the company recently exiting Vietnam.
In short, Gojek has a somewhat dominant position in Indonesia, and its integration with Tokopedia could potentially give a boost to its booming financial services business. However, Grab’s much larger presence in Southeast Asia positions them well to outcompete Gojek.
Just this week, on 5. February 2025, there was rumor that both companies are considering a merger. GoTo denied the rumor, but it would make perfect sense. The company is struggling to compete effectively with Grab, with Grab forcing them to exit multiple markets. I suspect this is not the last time we hear about this.
Sea Limited
Sea Limited is a Singapore based, e-commerce, financial services and logistics company. There are few areas in which Sea competes directly with Grab.
Shopee is Sea’s e-commerce and logistics arm with a well-known brand and $95B GMV. Shopee food is their food delivery venture with operations in Indonesia, Vietnam, Malaysia and Thailand.
Shopee Food has a 10% market share in Thailand, 5% in Indonesia, and 45% in Vietnam! In none of these markets, their presence is larger than Grab’s. Grab has a 40% share in Thailand, 50% in Indonesia and 47% in Vietnam.
Sea Money is Sea’s financial services platform that directly competes with Grab.
For Sea, food delivery is not a core competency, it is just another service in its conglomerate. However, this doesn’t mean that Grab can relax, Shope has a strong ecosystem that could make competition difficult.
Firstly, Shopee has millions of customers who use the platform every day, and the company could aggressively market Shopee Food to them at a relatively cheap price. Secondly, their much larger size could enable Shopee to take market share by subsidizing food delivery. The company has a history of displacing competitors through aggressive pricing
Lastly, Sea Money fintech offering is larger and more sophisticated than Grab’s, as it is largely used within Grab’s platform. Not only Sea Money has a larger presence outside its ecosystem, the GMV of their ecosystem is almost 6 times larger than Grab.
This enables Shopee to generate more payment volumes and originate more loans.
Mobility and Delivery Competitors
There are lots of smaller competitors that Grab dominates in aggregate but might provide some competitive pressure in certain markets.
Line Man is a popular food delivery service in Thailand with a 40% market share, owned by a joint venture of Soth Korea’s Naver and Japan’s Softbank. Its strength lies by being part of the Line social media messaging app.
Foodpanda is a food delivery application owned by the German food delivery conglomerate Delivery Hero. They operate in many countries in which Grab doesn’t, but there is an overlap. They have approximately, 10% market share in Thailand, 35% in Singapore, 38% in Malaysia and 39% in Philippines. In recent years, Foodpanda has been losing market share to Grab in all these regions.
Bolt is an Estonian, ride hailing and food delivery company. It competes with Grab in ride-hailing in Thailand and Malaysia, with plans to expand to Vietnam. In March of 2022, Bolt had a 33% market share in Thailand.
Additionally, Deliveroo is a British food delivery business that has a 8% market share in Singapore. While, Tada is a ride-hailing company with a 11% market share in Singapore, and some operations in Vietnam and Bangkok.
Uber
Uber is the famous American mobility company that pioneered the mobile-first ride-hailing and food delivery businesses. The company had quite a big presence in Southeast Asia, but in 2018, Uber sold all of their regional operations to Grab in an all-stock deal, and as of May of 2024, it owned 14.1% of Grab.
Financial Services Competitors
Apart from GoTo and Sea Money, Grab faces serious financial services competition.
Its mobile wallet battles multiple other wallets, such as Boost in Malaysia, Gcash in the Philippines, and TrueMoney and Line Pay in Thailand.
As Grab expands its financial services business with new offerings in more Southeast Asian countries, the company will face tough competition from well-capitalized competitors.
The region has been dominated by large banks and legacy insurance businesses with deep corporate and political connections. Some of these legacy financial institutions will partner with Grab, while others will resist. Unfortunately, people and businesses in Southeast Asia still face serious government corruption that stifles innovation and increases costs.
These banks sometimes delay, cancel, or refund payments to online wallets for artificial reasons. Some have even been accused of shadow-banging fintech transactions altogether. Additionally, bank associations bribe and lobby regulators for stricter capital requirements to make it harder for fintechs to expand.
Luckily, the situation has been improving, as pressure from the public has pushed governments to loosen regulation, making it easier for fintechs to operate. However, a lot of work still needs to be done, and this will be a big issue Grab will face in the next decade as it actively tries to expand their offering.
3. Regional Development
Southeast Asia is a large and dynamic region that has faced many obstacles to development. Starting in the 16th century, the region was colonized by European powers, stifling the development.
After colonialism ended in the post-WW2 era, many countries struggled to build functioning governments. Civil wars, natural disasters, political instability, and corrupt and incompetent leadership hindered the region’s development for decades.
However, in the last 20 years, we have seen the region stabilize and significantly improve economic development!
As mentioned earlier, the GDP per capita of the ASEAN countries quadrupled to $4,021 from 1999 to 2016, and by 2022, it had grown to $5,395. Unfortunately, though, there is still a lot of development work that is needed to catch up to the world average of around $13,000.
Luckily, the region is expected to see huge economic growth and is well-positioned to bridge the gap!
According to the World Bank, Southeast Asia is the fastest-growing region of the world, with the GDP expected to be 32% higher in 2025 than it was in 2019. Furthermore, according to the latest 2029 IMF forecast, with a 5.6% yearly growth rate, Vietnam is expected to be the fastest-growing economy in the region. Southeast Asia’s largest country by population and GDP, Indonesia, is expected to be the second fastest growing, with 5.1% per year. Meanwhile, the region as a whole is forecast to grow by 4.6% per year.
Tourism, natural resource extraction, and the exploding manufacturing sector are expected to create millions of jobs, not only bringing millions out of poverty but also turbocharging the middle class to 350M people by 2030. Much of this growth will happen in large urban cities, where Grab has a strong presence.
As the region develops, it is expected that 10s of millions of people will move to the cities seeking employment opportunities. The urbanization rate is forecast to increase from 49% in 2020 to 55% in 2030. However, megacities such as Bangkok, Kuala Lumpur, and Jakarta already have more than 10M people, so they have a limited capacity to expand. Thus, it is expected that 2nd tier cities with 1M or fewer residents will see huge growth as well. Grab’s expansion into these towns is a sound future-facing strategy.
In short, Grab is likely to benefit from a growing population moving into cities and entering the middle class. This new middle class is set to increase their use of conveniences such as reliable taxis, fast delivery, and innovative financial services!
4. Part 3
Thank you for reading Part 2 of this Grab Deep Dive.
Next week, I am releasing the final part of this report, which will explore Grab’s finances and valuation.
Additionally, we will explore Grab’s opportunities for growth and margin improvements!
Grab. The Makings of a SuperApp! Equity Research! Part 3/3.
Welcome to the 3rd and final part of my Grab Deep Dive!
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