According to their Facebook, Grab is Southeast Asia's leading ride-hailing platform that offers the fastest booking service for taxis, private cars & motorbikes through one mobile app. In this article, we will be talking about the Grab business model.
They are heavily funded by venture capitals such as Softbank. So who, exactly, is Grab? What is the Grab business model?
Grab's growth has accelerated exponentially towards the end of 2018. With the sudden merge with them and Uber in March 2018, they now stand on top of the ride-hailing services within South East Asia (SEA).
Some variation in type of rides are offered across the SEA countries (motorcycles in Indonesia, scooters in Singapore) allow local services to compete with Grab within their country, but none can compete with them within the entire SEA region at the moment.
Though Grab has other services provided, this article will mainly be focusing on it's ride-hailing services and the 'Grab business model".
2012 - Launched in Malaysia as GrabTaxi
2013 - Entered Singapore, Thailand, and the Philippines.
2014 - Expanded to Vietnam and Indonesia, launched GrabCar in SEA and launched GrabBike in Vietnam.
2015 - Launches GrabBike to compete with Go-Jek in Indonesia, and enters logistic delivery services with GrabExpress.
2016 - GrabPay launched as a mobile payment service, and GrabFood introduced to compete with UberEats.
2017 - Entered Myanmar and Cambodia, and acquired Kudo to push GrabPay harder in Indonesia.
2018 - Merged with Uber's SEA operations.
Grab Users : 100 million passengers
Total Number of Rides : 3 billion
Average Daily Rides : 4 million rides
Drivers on Grab : 2 million
Monthly bookings via Grab : 5.1 million bookings
Grab availability : 336 cities, 8 countries
Average Bookings a second : 7 bookings
Grab downloads : 125 million downloads
Funding raised : $6 billion
Annual revenue run rate : $1 billion
Grab employees : 5, 000 employees
Grab reported value : $11 billion
Number of RnD centres : 6 centres
*Note that the statistics used may be slightly dated*
Grab business model functions very similarly to it's Western counter parts, Uber and Lyft. Below are the business models both Western companies run, which should us an idea of how ride-hailing functions.
Comparing the two, there are very few differences in their overall business models. It should be safe to assume that Grab business model functions in a similar way as well. Typically, their transactions should follow the same procedures, which are:
Based on the info-graphics provided, the common revenue stream ride-hailing services share is on a car rides per KM basis.
But the drivers are the ones getting paid for it right? This is true for all ride-hailing services, but drivers are also being charged a commission for using the respective ride-sharing platform resources of pairing them and their customers together. This is one of the major strengths of the Grab business model.
Ride-hailing companies like Lyft and Uber are stated to take 20% and 25% commission respectively for use of their services. Grab themselves charge between 16% (Philippines) - 25% (Malaysia).
Focusing on Malaysia, Grab has around 3 million drivers just here. With a ride costing a minimum of RM5 (RM1.25/25% cut), the company stands to earn RM3.75 million of revenue right now off of commission if every driver were to get a confirmed ride. This commission is charged at the end of every ride, rather than after a certain amount of time, to the driver.
Another example we could use can be based on the monthly earnings of full time Grab drivers (working about 12 hours a day). Many full time drivers quote that their average gross earnings a month would be about RM6, 000 - RM7, 000. Using the 25% commission cut, drivers would earn RM7, 500 - RM8, 750. Based on this, Grab business model would have gotten about RM1, 500 - RM 1, 750 of commission from just one driver.
Let's explore this a little further. There are about Grab 60, 000 drivers in Malaysia. Assuming that about 15% of the drivers are full time, that would mean there would be 9 000 full time drivers. Using the lower estimate of RM1, 500, Grab would earned RM13.5 million of commission through full time drivers monthly.
Grab has some competitors in Malaysia, though they are still far from being able to truly rival this giant with 100M downloads. Below are such competitors as well as their number of downloads from the Google Playstore:
MyCar (500k downloads)
Mula (50k downloads)
JomRides (10k downloads)
It can be argued that Grab is an international company which would boost them to those high download numbers; but even taken conservatively by dividing the downloads equally, it would have an average download of 12.5 million per region.
In the case of Malaysia, even the runner-up MyCar still has a lot to do to catch up to the SEA unicorn. For Malaysia, Grab business model allows it to easily the dominant provider of ride-hailing services. However...
Going back to the info-graphics, one of the key partners (and arguably the most important one) for ride-hailing services is the driver. Without drivers, it would be impossible for these services and the Grab business model to function because... there are no drivers. As such, getting drivers is essential to get your ride-hailing service running. However, that will prove to be very difficult for newer companies trying to get a slice of the ride-hailing pie in Malaysia.
Over the years and during it's fight for dominance over SEA with Uber, Grab had already set an infrastructure, system, and incentives for drivers to stay with, and exclusively, with them. Let's look into it a little.
Achieving Silver tier would allow drivers to benefit from the GrabAuto reward. This reward entails Grab drivers to discounts and offers with car maintenance services that are partnered with them. A typical example would be discounts at Petron for changing your car's engine oil. Another reward would be special prices fixing the wear and tear on car, be it the breaks, accelerator, car batteries, etc.
This by itself would incentivize drivers (especially ones who would want to do full-time) to partner with Grab, as constantly sending your car for maintenance would eat up a sizable amount of their income. With the GrabAuto rewards, drivers potentially save 15-30% of their income on car upkeep, something other ride-hailing services could not offer at the moment.
That however was just the silver tiered rewards. Gold tier and above drivers also gain retail vouchers (again reducing spending for drivers), and Platinum tier drivers even get lifestyle rewards such as gym memberships and even medical offers at specific centres.
Want more? Well Grab has other ways to keep you driving for them. Agreeing to put an advertisement on your car allows for drivers to earn up to RM350 a month (depending on the campaign at the time).
Referring a friend to be a driver and earn RM100 for every referral. Enabling the auto-accept function will reduce Grab's commission from 25% to 20%. Drivers are now compensated for being stuck in traffic when on the way to pick-up a user with the time-booster feature.
Grab is taking many measures to ensure they get and maintain their drivers. With offers like these, most drivers would probably avoid being a driver for any other company (at least in Malaysia)
With an example road map of becoming a good driver, including the benefits drivers will get, Grab has made it simple for new drivers to understand what they are getting into, and what rewards they can expect when driving with Grab.
Uber was Grab's main competitor in SEA until the the merger in 2018. However, Uber is still competing in the West with Lyft, where neither side has too much of an edge over the other.
Uber however, has branded themselves as always being aggressive and a bully of the transportation industry. This had become a PR nightmare in 2017, where misinformation and assumptions of Uber reducing their prices for a certain period of time was done to gain profit over the hardships of immigrants.
Though the assumptions were proven false, the damage done was significant, as many users tried to delete their accounts. "Try" being a keyword, as Uber did not have an automated account deletion system, which caused even more controversy, and was forced to make such a system over the weekend. Their aggressive image had backfired, which had an effect in the coming times.
From 2017 to 2018, many Uber drivers were either driving for both Uber and Lyft, or switching to Lyft all together. This was due to a price cut for Uber drivers, which was done in order to compete with Lyft. Rides that went above 10 miles (16km) would actually be getting less money after the change (seen in the chart below).
This can be a lesson to learn for Grab. Self branding is important, and branding yourself in a negative light can bite back in the future. Grab have given themselves a popular image over the years, being the friendly service provider of SEA vs the aggressive Uber (pre-merge). This will help them a lot down the line, but they must maintain the image they created to avoid any PR problems.
Another thing Grab can take away from this is to take care of their drivers. With income of Uber drivers getting cut, drivers look elsewhere to get income. That said, Grab has done a good job in maintaining their drivers via the GrabAllStars programme. With their bases in check, Grab is looking good in continuing their business in SEA.
Grab is growing, and growing fast. With a majority of the market share in ride-hailing services in Malaysia, they have not stopped trying to gather more people to join their fleet of drivers. By doing so, and due to the environment of this business, the limited amount of drivers have very little reason to join any other services. This shows the significant advantage that Grab business model proposes.
Though they are using money to achieve this, it is rather similar as to when they were competing with Uber for dominance; although money was spent more into giving customers discounts and special offers more than anything else.
At this point, as Grab maintains it lead in Malaysia, other ride-hailing services will have to try and match with them to get more drivers into their work force, or settle for a very small part of the market share. After all, with more drivers, there are more transactions, and with more transactions, there is more revenue to be made through commissions.
With a good image and great incentives to keep their drivers, Grab is unlikely to be dethroned as the biggest ride-hailing service in Malaysia anytime soon.
Then read up here to dive into Uber's revenue model: