Financial services, overseas expansion and IPO: How Go-Jek is just getting warmed up

Go-Jek Indonesia office. Photo: Go-Jek

What do you call raising over $2 billion in funding and offering a variety of on-demand services, including ride-hailing and food delivery, and payments to cater to Southeast Asia’s largest economy? Warming up, if you’re Go-Jek.

Indonesia’s ride-hailing and online payments unicorn, which is said to be currently raising at least $2 billion in fresh funding, has its eyes set on a bigger stage and a wider play. That was the key takeaway from Go-Jek co-founder Kevin Aluwi’s on-stage conversation with Warburg Pincus’ Southeast Asia chief Jeffrey Perlman at the EPF Global Private Equity Summit 2018 on Wednesday.

Take financial services, to begin with.

“When all transactions are done in cash, there is a lack of data. When there is a lack of data, financial products can’t be created. By getting our millions and millions of drivers and consumers on the platform, now we have started collecting a lot of this data. This will become the foundation by which we [can] create all types of financial products from investment products to insurance and lending products,” Aluwi said.

Or what Go-Jek could look like in five years from now.

“We aspire to have all middle-class urban transactions on the [Go-Jek] platform.” Is that what they call a super app in Singapore?

From the timing of Go-Jek’s international expansion to that promised IPO on the horizon, Aluwi touched upon an array of milestones, past, present and future, in the Indonesian firm’s journey and evolution.

He rubbished the narrative that Uber lost out in selling its Southeast Asia business to rival Grab. “I believe that in this case [the deal with Grab], Uber has won out in the end because they have managed to stem their losses, have stakes in the global ride-hailing game and let others be their proxy.”

And then went on to point out that Go-Jek could stand to benefit from the Grab-Uber deal. “History has proven that monopolies tend to get sloppy. They don’t serve the customers best, they take their stakeholders for granted, and that’s obviously an opportunity for a new player to come in,” he contended.

Edited excerpts:

On what led co-founder Nadiem Makarim and Aluwi to start Go-Jek: 

I think the founding stories of companies really set the stage for their DNA, culture and approach. Our company was founded on the fact that Nadiem, when he was working as a management consultant at McKinsey, used to take these grey market motorcycle taxis called ojeks in Jakarta and realised after sharing coffee and cigarettes [with them] that the ojek drivers were actually very hardworking, trustworthy and under-utilised assets in Jakarta and outside of Jakarta as well.

What drove us to start this business was the realisation that hiding in plain sight in Indonesia was a group of people and a segment that could really help solve a lot of the daily friction in the consumers’ lives. Also in doing so, we had the opportunity to uplift the lives of millions of ojek drivers all across Indonesia. To us, it was such a great opportunity where both the demand and supply side of the marketplace were crying out for a solution and we just had to create a platform in the middle. In fact, Go-Jek started as a social enterprise. For the first years of our existence, we purely ran a call centre that was operating at breakeven. I think that’s one of the coolest parts about what we do which is that we started as a social enterprise trying to solve what seemed to us a very basic and obvious problem and today we have managed to scale that to far more than that while still maintaining the social impact.

On how he realised he wanted to become an entrepreneur: 

I started working in 2010 and I worked at a boutique investment bank in Los Angeles. I’ve always had the itch – it’s never been a question for me about whether I wanted to be an entrepreneur. In fact, one of my concentrations in college was entrepreneurship, which I would say is not a good way to become an entrepreneur.

Personally, it was something that I have always wanted to do and I was always searching for that opportunity. I knew that if I were to get anywhere in life, it would have to be my own business and the choice of college courses reflected it, although in hindsight, I realised that it is not something that can be taught in class.

On what led to Go-Jek’s explosive growth in Indonesia: 

To be honest, it also caught us by surprise. When Nadiem and I started doing this, where we’ve gotten to today is still far beyond even our wildest dreams. So I think what it really speaks to is the latent demand for a lot of our services.

We didn’t have to invent a new form of mobility. The ojek driver has always been there. We didn’t have to introduce a new type of need. People always needed to get around, needed to eat and pay and so on. We didn’t really invent anything new per se. I think the opportunity is just unseen a lot of times. And we were part of that group of people who didn’t see just how big this could be. We as a management team and a company just did what seemed to be the sensible next step at every stage of the company. There wasn’t a genius ‘aha’ moment or ‘oh wow, this is brilliant, no one is going to see it coming’ [moment]. We just always made the logical next step. And making those logical next steps seemed to continue to propel us on that very exponential growth curve. It speaks to the size of that opportunity and the scale of the problems that are all across Southeast Asia which, from an entrepreneur’s perspective, equal growth.

On how Go-Jek pioneered the on-demand model in the region: 

We never started to set out as a ride-hailing business. The business started with the ojek driver as the central unit. When you look back, in hindsight it easy to build that narrative and say – this is an on-demand platform and for every x hours of a drivers’ investment on the platform, their utilisation curve is more stable and they can earn a better income.

When we first set out, we saw the driver as the primary unit and when you see a human being with a motorcycle, who has time and a desire to be productive, that person can be many, many things. So, when we first launched, we launched with three services. We could get a driver to take you around, we could get the driver to send a package and we could have the driver go out, buy something for you and bring it to you. From day one, those were our services because we started from the unit of the driver. We just opened it up and said: “Hey, provide these services and you can earn a better living”.

On why Go-Food was able to displace competition in Indonesia quickly: 

Go-Food was started because of those three services. The third service was getting a driver to buy something for you. We realised when we saw the data that close to 90 per cent of what people were asking to buy was actually food. We then launched a dedicated food service and we onboarded restaurants. I think we displaced all of our competition by an insight that we realised later on. We looked at our competitors and what they did – they would sign up restaurants one by one and close those commercial deals. Once they figured out a dense enough area of town where they had enough partner restaurants, they put drivers there and paid them a full-time salary. Because of that model, they could only concentrate on very specific, dense areas and in Jakarta especially, because of the poor infrastructure development, what you get is a very concentrated, viable commercial real estate section. The only parties that can afford that real estate where significant foot traffic happens are big companies or wealthy individuals. What that means for the food business is that you only have a limited selection of categories – fast food chains and well-established businesses.

Because we had drivers all across Jakarta, we did not have limitations of what merchants we could sign up. So there was a whole universe of restaurants all across Jakarta that we could potentially sign up because we could deliver from anywhere. That’s one.

The second insight was rather than approach each restaurant one by one and negotiate these deals, especially for less savvy restaurant owners, that process can be very painful. It’s very hard to explain to a relatively unsophisticated restaurant owner the concept that “Your incremental gross margin for every meal that you push out of your kitchen is actually 70 per cent, so when you give us a 20 per cent commission, that’s still great and you’re increasing utilization”. These concepts don’t make sense to them. So what we did to get them on board was that we hired about 50 interns and got them to scrape the internet and find every single restaurant, find their menus and input them into our system. So suddenly, we had tens of thousands of restaurants on our platform. You could find any restaurant in Jakarta on Go-Food. People started ordering and they [restaurant owners] started seeing our drivers with our jackets and helmets walk into the restaurant and started wondering, “Who are these people coming into the restaurant and buying food all the time?” That’s when we closed those deals. So not focusing on the commercial deals initially but just proving value to the restaurant owners.

The third point is that what we discovered is that the majority of food delivery demand in Indonesia is for the extremely long table restaurants. So, you have the fat part of the curve – the KFCs, the McDonald’s, these local large noodle chains that represent a fairly fat portion – but it’s a very, very long tail.

People in Indonesia care a lot about the food. There’s a huge culture around local dishes and street food. A lot of our competitors at that time – because of that geographical limitation and focus on signing the right commercial deals – limited themselves and didn’t address the fact that the majority of the demand is in the long tail. About 85 per cent of the restaurants on our platform are single outlets, mom and pop’s.

These are very basic things that were always there and we just happened to have the right set of solutions to meet them. As a result, the growth has been tremendous.

One anecdote is that our number one Go-Food merchant is a lady who sells fried bananas. She’s been frying bananas for about two decades now and her stall is in a part of West Jakarta that is not very accessible and that was all she could afford. Today, she has more than a million dollars of sales a year and a majority of that comes from our platform. This is both tragic and amazing at the same time. It’s tragic because she’s been doing this for two decades and her product is the same. She should have been making millions of dollars since two decades ago. Because of the lack of access, people couldn’t discover her. That’s why it is amazing to be a part of this business.

On what prompted Go-Jek to foray into payments:  

A lot of large established companies like banks and telcos have tried to crack payments in Indonesia. Payments is a bit of a catch-22 situation where when you go to a potential bunch of wallet users and say use my wallet, the question is usually: “Where can I use this? How can I use it? Why should I switch from cash? Cash works everywhere”.

And then when you have a problem you go to all the use cases – the merchants, the restaurants, the cafes and the gas stations – and you ask them to accept your wallet, they ask how many users do you have. So, a lot of companies have tried to crack this and for the most part of it have failed because of this catch-22 situation. For us, we were in a very fortunate position where we both had a ton of users who were very actively engaged and transacting a lot, and we also had all the use cases. We had food, transport, groceries and logistics. All we had to do was just stick a wallet in the middle and now we have a payments ecosystem that we can then take offline. That’s more from a strategic view.

From a product view, think about some of the magical experiences a lot of these on-demand providers have delivered in markets like the US. Part of the magical experience of Uber is you push a button, a car shows up, you get in and you get out. You don’t have to look at the fare or haggle with change. That’s a key part of the frictionless experience. So, from a product perspective, we wanted to provide that as well. Interestingly enough for most Indonesians, the Uber experience was first experienced on Go-Jek because most people don’t have credit cards. In fact, most people are unbanked, and even fewer have credit cards. So, from a product and offering perspective, we wanted to offer that frictionless cash experience that everyone in this room can agree with is superior.

On opportunities in financial services and what’s next for Go-Pay:

We just launched our first official financial product. It’s called Go Pay Later. What it means is we will offer a credit line to a select group of users and they can use it to transact on our platform. Today, we are only opening up for food but very soon, in the coming months, we will open it to transportation, mobile top-ups and the whole ecosystem. We are already starting with some very basic consumer lending, which in effect, is similar to credit cards.

This is just the beginning of how we think of the universe of financial products that we want to offer. Staying true to our social mission, financial inclusion, or the lack of it, is a real problem in this part of the world. It’s almost become a buzzword now but when you look at the human cost of that lack of financial inclusion, it’s very significant.

When all transactions are done in cash, there is a lack of data. When there is a lack of data, financial products can’t be created. By getting our millions and millions of drivers and consumers on the platform, now we have started collecting a lot of this data. This will become the foundation by which we [can] create all types of financial products from investment products to insurance and lending products.

Why the time is ripe now for expansion outside Indonesia: 

There are a few reasons. One is that we’ve gotten to a point where we understand that building that multi-vertical platform is a step-by-step process and we now have a sense of what that looks like. So we have a greater sense of confidence in terms of how to build a full on-demand ecosystem.

Also, international expansion is not easy, both from being ready as an organisation and as a management team and also from a product and technology standpoint. These are things that historically we simply didn’t have the capacity to do back then but now we’re very confident that we have all the right ingredients. Third is we’ve been very fortunate over the last year to meet very good local teams in Vietnam, Thailand and Singapore where our vision is shared and we have very high confidence that they will be great operators and executors of the playbook. These few things came together roughly in the last year and we decided that now is the right time to bring the platform beyond Indonesia. Different countries have different nuances. We have many different products, not all of them may translate but that’s okay.

On how Uber was the real winner in the Grab deal:

The narrative that Uber was the loser in this situation is incorrect. You can look at it from a capital investment perspective. They put in x millions of dollars and got y millions of dollars from it. From that perspective, Uber definitely won.

They also won because now they have significant stakes in companies that will fight wars on behalf of them. It also means they no longer have to invest the capital to maintain some share, a significant share, in those markets.

On whether Travis [Kalanick] or Uber’s vision of a winner-takes-all has been proven wrong with the Grab deal:

The narrative around winner-takes-all was a combination of his [Travis’] fundamental belief and also strategic in that it provided the argument for why Uber needed to raise so much capital and why it was worth that much. That narrative was kind of very self-serving. We are not the only people that believe this. There are a lot of very well-informed people all over the world who think that at least in ride haling, it is not a winner-takes-all, network effect like Facebook. Mathematically, network effect means that every additional node on the network provides exponential value to the whole network. That is not actually true in ride-hailing. Ride-hailing is more like a step change in function where until you get to a specific, critical mass, you don’t have much value and then you get to a critical mass of density and then suddenly your platform has value. But then every incremental node on that platform doesn’t actually add exponential value until the next step change. So, it’s not really a network effect.

I think we will see as Uber and Lyft gear up for their public listing over the next two years, the US will be a place where two ride-hailing giants will co-exist and compete in a public setting where they have to be accountable to be sustainable businesses. So I do think that thesis is largely untrue. I believe that in this case [the deal with Grab], Uber has won out in the end because they have managed to stem their losses, have stakes in the global ride-hailing game and let others be their proxy.

On how Go-Jek stands to benefit from the Grab-Uber deal: 

History has proven that monopolies tend to get sloppy. They don’t serve the customers best, they take their stakeholders for granted, and that’s obviously an opportunity for a new player to come in.

On working with a large set of investors, especially private equity firms: 

One of the great things about working with private equity groups has been the focus around some of the core parts of a maturing company such as governance and compensation.

Being able to draw down from the whole universe of things other companies have done and going forward, as we get closer and closer to say a public listing at some point, being able to tap into that knowledge, and really understand how to navigate the whole landscape, it is extremely valuable.

On the value added by strategic investors:

We tend to be very careful in terms of who we choose to be on the cap table, especially strategics. So, we do try our best to see how different investors will provide value at different times and/or [to] different parts of the business. So far, we have been very fortunate in terms of getting the right group of strategics.

On regional or global companies that inspire Go-Jek and Kevin personally: 

One of the companies that we really admire, and we are fortunate enough to have on our cap table, is Google. We admire them greatly because of their focus on product, engineering and culture. We aspire to definitely emulate a lot of those elements. They are very forward thinking; I’d say Google is one of the most forward-thinking companies in the world where they think, I believe, maybe three or four steps ahead than most.

Tencent. In terms of thinking about a platform, WeChat is really the world’s first all-in-one super app, so being able to emulate them and see the product the way they see it is very aspirational.

Meituan, obviously. Just how aggressively they scaled the business in a fiercely competitive market [China] is really impressive.

On a personal level, I am a big fan of Airbnb. I like nicely designed things and I think Airbnb has an extreme focus on design.

On what keeps him awake at night: 

It’s a long list. Culture and people are among the top things that keep me up at night. In technology, we talk a lot about scale. How you build the product and the technology to account for a hundred users versus thousands versus hundreds of thousands versus a million is very different. The similarity of that to organizations is equally important. How do you scale an organisation? You scale an organisation through process, structure and culture.

I think we are still trying to find the right ways to do it. I believe the biggest problem that we will face in terms of being a global enduring company is how do we manage people and culture. If that part is sorted, I’d say most other problems will kind of fix themselves, not because problems fix themselves but because people fix problems.

On what Go-Jek could look like five years from now: 

We aspire to have all middle-class urban transactions on the platform.

There is a lot of friction in the way that services are being provided in this part of the world and we believe that our ecosystem should be able to address many, if not most, of those. We do think there will come a time in coming years, hopefully in the very near future, where a majority of an individual’s transactions can be taken care of within just one platform. We are investing a lot in automation and recommendations. For instance, when you should pay your bill, order a ride or your favourite dish and taking away a lot of friction and cognitive load on people’s daily lives so they can focus on what’s important, while also building the supply side that provides all those services. A day will come very soon where everything from on-demand services to bill payments to financial services to content and entertainment can all be provided through one single platform.

On IPO plans:

There are a lot of ideas being thrown around about where, when and how much. At this stage, we can’t really say with any level of certainty. I do think that the plan is definitely on the horizon because we do realise that at the end of the day, the only way we are going to be truly an enduring company is if we built a sustainable business. A public market listing is probably one of the ultimate markers that a team has built a successful and sustainable enterprise.