Super apps will starve the rest in Southeast Asia

This article first appeared in The Edge Financial Daily, on January 3, 2019.
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SINGAPORE: Southeast Asia’s apps-for-everything will dominate in 2019. Cash is being lavished on Grab and Go-Jek, as they dabble in everything from ride-hailing to groceries. It is a Chinese approach to luring and keeping consumers who are moving online fast.

The region from Myanmar to Indonesia is one of the world’s fastest-growing Internet markets, with cheap smartphones, low connection costs and improving data speeds. On average, according to a 2018 study by Google and Singapore’s Temasek, Thai users spent almost five hours online daily — more than three times their Japanese counterparts.

That has created more than 10 technology companies worth over US$1 billion (RM4.14 billion). Yet the bounty is unevenly spread: Out of US$24 billion pumped in over less than four years, according to Google’s report, two-thirds will have gone into just nine companies. This year alone, Grab, which bought Uber’s local business, says it will have received US$3 billion, almost one quarter of its valuation. Go-Jek, valued at US$9 billion to US$10 billion, is not far behind.

The result will be a widening funding gap between the two ride-hailing groups in particular, and some 400 or so start-ups seeking cash. Investors flock to those bearing the SoftBank or Tencent seal of approval, but are less interested in the middle — companies that are neither wholly proven, nor cheap in a region where consultancy Bain cites the average deal valuation in 2017 at a punchy 13.5 times earnings before interest, taxes, depreciation and amortisation.

Part of the reason is the transformation of Grab and Go-Jek into apps-for-everything, along the model of China’s Meituan Dianping, is to keep consumers coming back for payments, rides, massages and takeouts, among other things.

It is not easy to do it all: Facebook and Google parent Alphabet have struggled. But funds have been less forthcoming in Southeast Asia than in China, which has a deeper pool of domestic capital. And for foreign investors in untested markets, big players, with manifold partners, are hard to resist. It is a tough region too, with a patchwork of different needs: Even Alibaba has found its Midas touch lacking, forcing it to shake up management at its e-commerce unit Lazada in 2018.

Ongoing uncertainty in emerging markets will keep investors wary into 2019, and initial public offerings distant. That will feed the super apps. — Reuters