The potential combination of Grab Holdings and GoTo Group, two of Southeast Asia’s largest digital platforms, could create a dominant superapp across multiple markets, yet the discussions have been consistently hampered by regulatory scrutiny, political sensitivities and complex shareholder interests.
In order to understand the significance of the proposed merger, it is important to look back at the development of the superapp concept in Southeast Asia. In the 2010s, the digital economy in Southeast Asia was characterised by the “race to the everything app.” Digital ride-hailing firms such as Grab gradually evolved into everything apps, which offered a variety of services, including food delivery and digital payment systems.
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Grab Holdings, which is based in Singapore, has developed from a digital ride-hailing company to an everything app, now offering food delivery, mobility services and fintech products. On the other hand, GoTo Group, which is based in Indonesia, was formed from the merger of Gojek and Tokopedia. This allowed the company to build a powerful platform, offering mobility, e-commerce and digital payment services.
The financial logic behind consolidation
The financial logic behind potential consolidation in Southeast Asia’s superapp sector is relatively straightforward. The economics of the model have fundamentally changed. Grab and GoTo invested heavily in growth at the expense of profitability through subsidised rides, discounted deliveries and incentives for drivers and merchants, which helped the platforms acquire users rapidly. These strategies, however, also created large operating losses.
As global capital markets tightened after the COVID-19 pandemic, investors began demanding greater financial discipline from technology companies. One potential solution discussed by investors has been a merger between the two companies. This would potentially solve some of the structural challenges faced by both Grab and GoTo.
In addition, one of the potential benefits of a merger of the two companies is that it would reduce duplicated costs across logistics, driver networks and advertising. For instance, both companies have a huge number of drivers who provide ride-hailing services to consumers across Indonesia and other Southeast Asian countries. Consolidation would assist in reducing operational overlap and improving margins.
Regulatory scrutiny and national interests
However, despite the financial logic, there are also significant regulatory issues surrounding the proposed merger, especially in the context of Indonesia. Indonesia is the largest market for both companies and also the home base of GoTo Group. As a result, any proposed merger or acquisition deal that has significant implications for competition in Indonesia’s digital economy is being closely watched and regulated by the government and its regulators. For example, there has been significant concern regarding the proposed deal and its implications for the digital space, especially in the context of ride-hailing, food delivery and digital payment systems.
Political considerations have also played an important role in shaping the discussions. Indonesia considers its digital economy to be an integral part of its strategic interests. The country is becoming increasingly wary about deals which have significant implications for placing strategic digital infrastructure under foreign corporate control.
Shareholders and the Telkomsel complication
One of the areas of contention in the latest rounds of talks was Telkomsel’s shareholding in GoTo Group. The Indonesian telecommunications giant, majority-owned by state-controlled Telkom Indonesia, holds a significant stake in GoTo Group through earlier strategic investments in the company.
This means that in any potential merger or acquisition involving GoTo Group, the interests of multiple stakeholders would need to be taken into account. This is not an easy thing to do, especially when it involves government-linked investors. This is not an isolated incident in Southeast Asia. Many of the tech companies in Southeast Asia have complicated shareholding structures involving sovereign wealth funds, telecommunications companies and various conglomerates in the region.
What a merged platform could look like
If the deal is finally consummated, the merged entity would likely be the most dominant digital platform in Southeast Asia’s mobility and delivery space. The merged platform would hold significant influence across the region’s mobility, delivery and merchant ecosystems.
A larger platform would enable both companies to provide opportunities to cross-sell their services. For instance, drivers would be able to access financing services, merchants would be able to use payment services and consumers would be able to use mobility services and shopping services all on one platform. The result would be a highly influential digital platform.
The future of platform competition in Southeast Asia
The prolonged talks between ride-hailing giants Grab and GoTo Group mark a significant milestone in the history of Southeast Asia’s technology sector. In the early days of Southeast Asia’s technology boom, there was a strong emphasis on growth and rapid market expansion. Venture capital investments allowed companies to grow without worrying about making profits and governments were also favourable to digital innovation across the region.
However, things seem to have changed significantly in recent times. Investors are being cautious and governments are now playing a more active regulatory role in the sector. Firms are also looking to increase efficiency in their operations. The prolonged talks between Grab and GoTo mark a significant change in Southeast Asia’s ride-hailing space. Southeast Asia is moving away from a growth-at-all-costs environment to a more mature space. Consolidation and strategic partnerships could become the norm in Southeast Asia’s technology space.
What the saga tells us about the superapp era
The next step in the Southeast Asian ecosystem is likely to emphasise efficiency and profitability over growth. Regardless of whether this proposed merger is ultimately finalised, it is already clear that the talks between Grab and GoTo mark an important change in Southeast Asia’s technology landscape. Southeast Asia’s technology sector is moving beyond a hyper-growth phase and entering a period defined by strategic consolidation and tighter regulation.