Merger has helped improve unit economics: GoTo’s Patrick Cao

Akito Tanaka, Chief business news correspondent at Nikkei Asia, with Patrick Cao, GoTo President at Asia PE-VC Summit 2021

The combination of ride-hailing and e-commerce has made the group stronger in terms of diversification of business, revenue, and bottom line, which wouldn’t be possible as a single-use case player, said Patrick Cao, President, GoTo Group.

GoTo Group, formed by the merger of Indonesian ride-hailing major Gojek and e-commerce unicorn Tokopedia, has been operational as a merged entity for over five months. 

Speaking at a fireside chat titled “GoTo: Value creation where the whole is greater than the sum of parts,” at the Asia PE-VC Summit 2021, Cao said, “It [the merger] has helped to compete with other competitors in Indonesia, the largest economy in the region, also in the other markets, including Singapore and Vietnam.” 

Edited excerpts:-

What is the tangible synergy especially for growth that the newly formed GoTo has achieved so far in these five months? 

We’ve been able to build a very unique first kind of ecosystem that combines food, e-commerce, grocery, logistics, fulfillment, and general financial services. The combination, particularly during the pandemic, has allowed us to serve our customers, buyers, merchants, and partners in a very meaningful way. 

From the customer perspective, the ability to get access to essentials and groceries, and pay your bills online has been very important. 

In terms of grocery, we’ve been able to launch instant commerce products, together with Gojek bikes. 

With our C2C e-commerce business, we’ve got this really broad array of foodstuff and essentials. We have helped offline merchants by adding them to our platforms and leveraging our logistics and fulfillment to do hybrid delivery. 

On financial services, digital payments and fintech have been quite important. From the customer side, getting access to pay later installment products, adopting digital payments across the ecosystem is really the glue that ties everything together. All of these have benefited as a result of our ecosystem.

After the merger was announced, Gojek announced that it will sell its Thailand operation to Air Asia and Tokopedia historically has been primarily focused on the e-commerce business within Indonesia, which is a large market. Does Gojek exit from Thailand on the ride-hailing mean that the GoTo group will primarily focus on the Indonesian market for a while? 

We’re very fortunate to have started our business in Indonesia, both for Gojek and Tokopedia. Given that it’s the fourth largest population in the world with the fastest growth in digital adoption and a rising middle class, all of which are very important to build businesses. We have that very strong foundation and core, to be able to start from there and grow, both in terms of breadth and depth.  If you think about any of the use cases for on-demand, commerce, or financial services, it’s still in single-digit penetration. We have a lot of homework to do there to continue to build the best technology infrastructure in Indonesia. 

With Gojek and all the use cases that we have, we’re very focused on finding strong complementary markets to Indonesia, which is why you saw us launch in Singapore and Vietnam, and we plan to continue to double down on those teams and those investments. I think with the Thailand business, in particular, we found a great partner by way of Tony [Fernandes] at AirAsia, so I think that was a very synergistic transaction for us. With that transaction, we can take the resources and redeploy them into Indonesia, Vietnam and Singapore. I would really focus on continuing to win these markets. 

Are Indonesia, Singapore, and Vietnam becoming the core markets you’re wishing to expand in the near future? 

For now, if you double click on Vietnam, in terms of similarities of the market, the prevalence of bikes,  and the powerful nature of C2C commerce, I think there’s a very good fit there. So that will be a core market for us alongside Singapore. We’ll start with the Gojek business first in each of these markets to tap the local customer and merchant base. 

What are the business opportunities during this COVID-19  recovery? 

Going back to the ecosystem approach, GoTo’s services are really critical for customer merchants and drivers during this time. From the customer side, we basically provide access to any good or service, or as we said “The Everything Store of Indonesia”. 

I’ve been taking that a step further with our data, insights and algorithms to create a hyperlocal experience. So, if you’re a customer in Jakarta, you can get a Jakarta-like experience, because we can get all those goods to our fulfillment centre and deliver it to you very quickly with Gojek’s fleet. 

If you’re a merchant, you don’t have to rely on physical footfall, you can access the whole nation. If you’re a driver, you’re not relying only on delivering a good or a person, it could be groceries, packages, documents. The diversification of use cases has really helped. For the merchant, as part of the ecosystem, we can basically provide a one-stop-shop, to make it easier for them to do business, there’s a lot of value-added services. On the side of the financial services, we can cover the broad array, across all of those stakeholders. 

In terms of revenue and other metrics, can you share with us how the numbers are looking after COVID? 

I think the combination allows us to improve on unit economics because we’re not a single-use case player. Every dollar of marketing and promotion can be used to grow multiple businesses. So as an example, the customer buys Kobe beef from Tokopedia, it gets delivered using both GoSend, pays with GoPay later, and is covered by insurance. There are multiple areas of engagement. It really builds loyalty and stickiness with the customer. 

All of those value-added services are very powerful from a monetisation perspective. It increases our long-term value, lowers our customer acquisition cost. We can do it in a way that none of our other peers in the market can do. So I think that’s been a powerful catalyst, not just for the top line, but also the bottom line. 

Both Gojek and Tokopedia have been very well funded by venture capital and institutional investors or even larger companies from abroad. How shall investors think of GoTo to see the path towards profitability? 

It (the merger) really accelerates our ability to become profitable because if you’re a single-use case player, let’s say if you’re only an e-commerce player, you can only approach a customer from the e-commerce angle. If you can’t attract them the first time, then you need to spend again, in the same way, to be able to do that. 

There are many levers we can use to tap customers. We can try the food, rides, payments, logistics, financial services. Those multiple touchpoints are very important. Once you get them on the platform or on the ecosystem, being able to engage in so many ways increases conversion, retention, wallet share, and loyalty. All those things add to better long-term value, which means higher revenues, and stronger stickiness generally. 

If you think about it from a cost side, we have a lot of shared infrastructure, which helps with cost optimization, the way we do marketing and promotion, every dollar grows more than one business. So I think those combinations of things actually accelerate our profitability.

When you mentioned IPO, Andre (Soelistyo), William (Tanuwijaya), and I separately as Gojek and Tokopedia respectively had said that we were preparing to go and list, prior to our merger. We were already planning to do that as market champions. Together that accelerates the plan, even more, creates a stronger foundation, both in terms of operations and financials, and so what we’ll see is that we’re very much on track to do that IPO, and we’re looking forward to sharing some more about that at the right time.

Would GoTo look at expanding into other areas besides e-commerce, ride-hailing, e-wallet, and financial services?  How do you envision the five-year plan? 

Today,  we’ve got commerce, on-demand, payments, financial services, logistics, and fulfillment. We will evolve with it and build that technology layer to continue to go broader and deeper. If you are a partner, an entrepreneur, or a new business owner, we will be able to connect you very quickly to whatever kind of customer or merchant base that you need. You’ll also have the assurance that we will not compete against you. We will not do imports from markets like China, that may hurt the local market or hurt you as a merchant, so those key values and principles will continue to be the same. 

In terms of market expansion, I think we’re very focused on Singapore and Vietnam, but there are a lot of very complementary markets, including in the other emerging markets that we can consider. So I really do believe that there’s a huge opportunity. 

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.