This article first appeared in The Edge Malaysia Weekly on January 15, 2018 - January 21, 2018

IN a world dominated by venture capital-fuelled giants like Uber and Grab, are there any more opportunities for start-ups in the ride-hailing space?

GoBike Co Ltd CEO Lian Wah Seng certainly believes so, even as he looks to raise US$10 million to US$15 million from investors for the company’s Series A funding. To date, the Bangkok-based company has raised US$5.8 million, a drop in the ocean compared with Uber and Grab’s multi-billion dollar fundraising.

Yet, GoBike boasts some 15,000 riders in the greater Bangkok area — the only city in Thailand where the group operates for now. In December last year, the three-year-old company surpassed 500,000 bookings for its passenger and delivery services.

But in an ecosystem where giants like Grab and Uber struggle to turn a profit from the ride-hailing business, does GoBike’s two wheeled strategy have a better chance? No, says Lian, at least not for the passenger business. But he is counting on synergies with the delivery business to take GoBike into the black.

“I don’t think it is possible for the ride-hailing business to be cash-flow positive. Not in the current environment where rides have to be subsidised. There is simply too much competition,” says Lian.

So, why is GoBike in the passenger business if its own CEO does not believe it can be profitable? Because the loss-making passenger business is able to provide the breadth and visibility for GoBike’s delivery business — Lian’s true ambition for the company.

“Currently, deliveries make up only 15% of our bookings, but bring in almost 50% of revenue. Unlike passenger services, which loses money, deliveries are cash-flow positive at the operational level, before taking into account overheads like capital expenditure and marketing costs,” says Lian.

GoBike has two main partnerships that are driving its delivery business. The company is the exclusive delivery partner for Family Mart in Bangkok and a prominent fast-food franchise. In the four months since partnering the fast-food franchise, which Lian declines to name for the time being, GoBike has made 100,000 deliveries for it.

Lian points out that GoBike was able to secure such partnerships because it has partnered the Thailand Motorcycle Taxi Association since mid-2016, launching the only legal taxi ride-hailing mobile application in Bangkok. Not only has this allowed GoBike to tap the pool of legalised motorcycle taxi bikers (an estimated 40,000 out of 100,000 motorcycle taxi bikers operating in Bangkok are legal), it also attracted new partnerships.

“We have been approached by a major distributor, I can’t say who, but it is a big one. They want us to deliver a product to some 40,000 merchants spread throughout Bangkok,” says Lian.

In fact, this partnership is the key reason that GoBike is turning to investors for its next round of fundraising. The delivery for this distributor is expected to be highly lucrative. The product is a perfect fit for the bike model — it is lightweight, has high turnover and merchants cannot hold large amounts of stock.

Lian anticipates that each merchant will require a delivery at least twice a week. That works out to nearly four million deliveries a year. Furthermore, the value of the goods is relatively high. Lian expects to move about US$200 million to US$300 million worth of goods for the said distributor once the service is fully rolled out to all 40,000 merchants.

Keep in mind that this is only for a single product.

“Previously, the distributor relied on other secondary distributors to deliver this product to the merchants. We are able to do this at a lower cost while also providing more transparency to the distributor in the form of data — who is buying, how much, and are discounts being passed down to merchants,” explains Lian.

In fact, it is this exact data and reach that Lian hopes to capitalise on.

“We are going to make money on every delivery that we do. But the margins are small. We are charging the distributor less than 1% of the value of the goods for our service. However, this gives us access to a vast network of merchants, 70% to 80% of which are restaurants, at very low cost. Many are still predominantly reliant on cash,” says Lian.

Because the merchants have to rely on GoBike for delivery of the said product, they will have no choice but to get on board with GoBike’s app and mobile payment services. Lian stresses that GoBike does not have any immediate intention to develop its own payment gateway or wallet. Instead it will rely on banks for the moment.

“Once we have the merchants in our ecosystem, we can convert them to mobile payments. Since we are working with the major Thai banks, the trust is there. We are essentially converting the merchants away from cash. Bangkok is currently very reliant on cash transactions,” he says.

Once the merchants are in GoBike’s ecosystem, the possibilities are endless.

“We have considered extending credit services to the merchants. We are also looking to provide point of sale (POS) systems. For example, we can see who are the top merchants and provide them free POS systems to get more data. It will also open the possibility for them to order more products through us in the future,” says Lian.

However, he stresses that GoBike will continue to focus on its core business, which is providing two-wheeler solutions. For example, if the company were to look into providing credit services, it would partner a company with the right competency — a bank for example.

“There are already many players competing for a foothold in the digital payments space. We can always partner one of them instead of building it ourselves,” adds Lian.

Against this backdrop, one might wonder why GoBike bothers with the passenger business at all. After all, as Lian points out, Bangkok has a well-developed system of motorcycle taxis.

“App-hailed motorcycle rides only capture 1% of the motorcycle taxi market. In Bangkok, you have pickup stations every 500m where legal motorcycle taxis with permits can pick up passengers,” says Lian, noting that GoBike’s only direct competitor in the space is Grab, since Uber only uses cars for ride-sharing.

While it appears to be a challenging space that does not make money, Lian points out that the cost is relatively low. In exchange, it helps keep GoBike’s 15,000 bikers busy and engaged in the ecosystem while increasing the company’s visibility to consumers.

“One way to think of it,  it [passenger services] is a small cost to pay to add value to the rest of the business that will make most of the money,” he says.

He points out that big players like Grab and Uber have already done the heavy lifting in terms of marketing spend in order to drive consumer behaviour towards utilising apps for ride-hailing. GoBike is able to piggyback on this trend with minimal cost.

“We did not start out hoping to take on the Ubers and the Grabs. Instead, we simply asked ourselves, what is the most painful problem for our customers? If we can solve that problem, we will have a way in and everything else will fall into place,” says Lian, explaining how the company developed its strategy.

That said, GoBike is not alone in the motorcycle delivery space. A Hong Kong-based start-up, Lalamove, also has sizeable operations in Bangkok.

But once GoBike rolls out its delivery services to the 40,000 merchants (expected to take 18 months), it will certainly have an unrivalled advantage in one of Southeast Asia’s busiest cities.

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