This article first appeared in The Edge Malaysia Weekly on August 7, 2017 - August 13, 2017

AIR Asia and Grab are arguably Malaysia’s best known mass consumer brands across the region. But that is where the similarity ends.

Tan Sri Tony Fernandes and his co-founder Datuk Kamarudin Meranun took more than 15 years to grow AirAsia Bhd into a corporate heavyweight with a market valuation of RM11 billion today. Add another RM1.5 billion if you include AirAsia X Bhd.

However, it took Grab’s co-founders Anthony Tan and Tan Hooi Ling just five years to get a whopping valuation of reportedly US$6 billion (RM25 billion) for the ride-hailing company, and without having made a profit yet to boot.

But that is the tech startup world valuation, which is largely based on market size and market share.

Grab became the highest-value tech startup in Southeast Asia when it announced that it will be raising up to US$2.5 billion from its latest round of fundraising on July 24 that includes a confirmed US$2.0 billion from Japan’s Softbank and Chinese ride-hailing giant Didi Chuxing.

At US$6.0 billion, this means that in less than a year, its value has doubled. When it last raised US$750 million from Softbank last September, the company was reportedly valued at US$3.0 billion.

This latest exercise by Grab shows how unicorn companies like it are able to raise such jaw-dropping amounts of money without the need to go through a stock market listing unlike traditional businesses such as AirAsia. A unicorn is a startup valued at over US$1 billion.

Grab does not provide its financials but it is a known fact that it has not made profits yet just like its rival Uber, as they invest in growth and battle it out for dominance in Southeast Asia. Could this US$2.5 billion be the silver bullet for Grab to win?

In an interview with The Edge, Grab CEO and co-founder Anthony Tan says, “Didi and SoftBank’s decision to deepen their support for our cause is a massive boost to our crystal clear ambition of winning hearts and minds. With their support, Grab will achieve an unassailable market lead in ride hailing.

“But we are not done yet,” he is quick to add.

As they grow, Anthony says it is crucial for them to ramp up Grab’s global R&D centres and continue bringing the best global talent together to solve some of the biggest local challenges.

“The solutions we come up with have to be both local and scalable at the same time so a lot of our capital is focused on R&D. Expect more localised innovation from us,” he says.

Grab currently has six R&D centres, in Beijing, Bangalore, Jakarta, Ho Chi Minh City, Singapore and Seattle.

Indeed, the ride-hailing business is a high stakes game, one played at breakneck speed.

The fastest to the finishing line wins, but how many billions of dollars will it take before the winner is declared?

Everyone knows the stakes and investment cost are high. According to a Bloomberg report, Uber Technologies Inc — Grab’s rival for the Southeast Asian pie — saw adjusted net losses of US$2.8 billion in 2016, and this excludes its China business which it sold to Didi last August.

The report adds that the US-based ride-hailing company has burnt at least US$8 billion since it was founded in 2009. Uber shared with Bloomberg that it has US$7 billion of cash on hand, along with an untapped US$2.3 billion credit facility.

It made public its financials for the first time and told Bloomberg that for 2016, gross bookings more than doubled to US$20 billion and net revenue was US $6.5 billion.

Meanwhile, Grab is still holding its financial cards close to its chest, but it is known that the group has to invest heavily to build this new transport structure in the region. “Profitability is something we think about longer term, but right now, we are focused on investing in the best experience for our customers,” Anthony says.

“At the same time, we need to know that the work we do has to be more than just the bottom line. We have a massive opportunity to solve big problems in Southeast Asia through payments and transport, and along with this, the responsibility to develop a real technology and startup ecosystem in the region,” he adds.

Grab “will continue to invest and grow with Southeast Asia”, he stresses.“If we do right, the business will follow. Every decision we make is guided by how best we can solve a local problem, and how it will benefit people and the wider Southeast Asian society we call home.”

Eyeing the Asean championship prize

Grab wants to champion the Southeast Asian region. It made clear from day one that this region is its home and is not just any other market to it.

In a recent interview with Singapore’s The Straits Times, Grab co-founder Hooi Ling says: “It’s always been about local solutions, local champions, and understanding local needs.”

Co-founder Anthony, speaking to The Edge, says: “Our local teams in every country know the local problems and challenges inside-out. Our deep local understanding, know-how, and operations are critical differentiators, especially when it comes to scaling locally, navigating regulatory environments and adapting to local infrastructure challenges. This has allowed us to innovate faster, forge more meaningful partnerships and find solutions that are different from our competitors.”

“Take the example of JustGrab we launched in March 2017. It is the world’s first dynamic pricing platform for taxis so consumers can enjoy pricing of taxis by market forces, not meters. JustGrab also pools taxis and cars so that consumers can get a booking faster, whichever vehicle is closest to them.

“Another example is GrabNow. Our customers can benefit from the immediacy of street-hail and the ease of app booking with one touch of a button.”

Indeed, the group has used local knowledge to build up its product offerings.

In a region where cash remains a popular payment method, Grab accepted cash payments for its rides from the start while Uber only allowed cash payments later on.

Grab also incorporated an instant messaging chat system into its app as it found out that people in the region were communicating more through text than talking over the phone.

Uber is, of course, not giving up the fight with Grab.

In fact, it intensified its focus on the region after Didi acquired its business in China last year. Following the sale, Uber said it was moving resources from China to focus on Southeast Asia.

But Anthony, a grandson of one of the two brothers who founded the Tan Chong Motor Group in Malaysia and Singapore, is unperturbed and ready for the challenge.

“I always tell my team, ‘iron sharpens iron’. We respect our competition and are proud that global giants are fighting tooth and nail with us to win the hearts and minds of our customers. But we should not let them dictate our destination. If we do that, we will fail. Our focus has to be on our customers and how we can continue to have the right to serve them and provide them with a world-class seamless experience,” he says.

The fight is not an easy one and Anthony and his team know this.

Grab had 40 cab drivers and 11,000 bookings when it first launched in Kuala Lumpur in 2012. At that time, Uber was already three years old and had raised US$44.5 million in funding by the end of 2011, according to news reports. Uber started its first Asian operation in Singapore in 2013.

Since then, Uber and Grab have not wasted time venturing into markets across the region. Today, both operate in seven countries in the region: Malaysia, Singapore, Indonesia, Thailand, the Philippines, Vietnam and Myanmar. Uber is in over 50 cities while Grab is in 87 cities across these countries.

Asean is a fierce battleground for ride-hailing companies. The region, after all, is home to over 600 million people, is going through rapid economic growth and smartphone usage rising rapidly.

And the 600 million population face a common local problem — traffic congestion — an issue the ride-hailing companies are looking to solve.

At the start of 2016, the 10 economies of Asean were collectively the seventh-largest economy in the world, and expected to improve to fifth by 2020.

Datuk Seri Nazir Razak, chair of the World Economic Forum Asean Regional Strategy Group as well as Asean Regional Business Council, says Asean needs to “face up to the inevitability of the fourth industrial revolution and recognise the huge opportunities and equally huge downsides”.

“Our best chance of success is to avail our large market to our Asean businesses for economies of scale, otherwise global companies will win and entrench their position. Grab vs Uber is a classic example. Asean should facilitate Grab, without constraining Uber, with access to licences, and promote it as an Asean company, etc.” he tells The Edge.

While Grab is focused on Asean, Uber’s battle is also outside the region. The US-based company is in 77 countries globally and crossed the five-billion ride mark just last month. It recently announced a US$3.7 billion merger deal with its larger competitor in the Russian market, Yandex, which will see Uber owning just under 40% in the new merged business.

This is the second global market Uber is retreating from.

The fight in Asean is, however, not just between Uber and Grab.

There is also GO-JEK, a strong contender in Indonesia. With a population of over 250 million, Indonesia is jewel in Asean’s crown, with the largest economy in the region and the fourth biggest population in the world.

Launched in 2010, home-grown GO-JEK had a head start. According to its website, it is in 25 Indonesian cities while Grab is in 37 and Uber is in 30.

The Indonesian startup has caught the attention of global investors as well, including China internet giant Tencent and global private equity firm KKR & Co. It was reported recently that the Indonesian firm is looking to raise US$1.2 billion in funding that includes Tencent’s US$100 million to US$150 million investment.

GO-JEK, whose name is derived from the Indonesian term for motorcycle taxis, or ojek, has more than 250,000 riders today.

The Southeast Asian ride-hailing market is expected to be worth US$13.1 billion in 2025, or more than five times the US$2.5 bill it was worth in 2015, according to a study conducted by Singapore’s sovereign wealth fund Temasek and Google.

Several governments in the region seem to have accepted the ride-hailing business, with some even investing in them. Singapore’s sovereign state fund Temasek is a shareholder in Grab while one of Malaysia’s pension funds, KWAP, invested in Uber.

Just about a week ago, Malaysia’s Parliament gave the green light for e-hailing services, thus legalising the Grab and Uber business models. Operators must apply for an intermediation business licence and adhere to conditions imposed by the government.

From 11,000 bookings in 2012, Grab records nearly three million rides daily now and has over 55 million app downloads. That translates into an average of 360% growth per year.

Starting with 40 cab drivers in KL, it now has more than 1.2 million driver-partners across the 87 cities it operates in across seven countries.

With the latest fresh dry powder of over US$2 billion, it will be interesting to see how much further this Malaysian born group can go.

The Grabbers, as Anthony likes to call them, are always on the go.

He himself travels frequently to grow the business, often five times a week to attend meetings around the region. His fitness tracking statistics recently showed that he slept an average of 4 hours 30 minutes a day for two consecutive weeks and five hours two minutes a day the week before that.

Asked about this, he laughs and says: “Yes, sometimes I don’t have time to sleep at night because of work and the travelling so it is more of a nap...”

With so much at stake and billions of dollars invested in Grab, sleep for the moment is, perhaps, not a priority.

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