If you want a vision of the future, imagine a ride-hailing app sending cars to drive humans across the globe – forever.
While Uber, Chinese rival Didi Chuxing and emerging Southeast Asian player Grab may not yet have sliced up the world between them in the manner of Oceania, Eurasia and Eastasia in Orwell's Nineteen Eighty-Four, the three have pulled off a series of intriguing geographical deals.
In the latest, Grab announced on Monday that it had bought Uber's Southeast Asian operations. In return, Uber will take a 27.5% stake in Singapore-based Grab.
Uber's deal for a stake in Grab puts it in good company; Didi Chuxing already holds a slice of the Singapore-based unicorn after a funding round in November. And of course Uber is also a shareholder in Didi, to which it sold its China operations in 2016.
Behind the curtain on all of this is SoftBank. The Japanese technology conglomerate-cum-private equity fund, which became Uber's biggest shareholder in January, has invested heavily in Didi and, for good measure, also backed Grab.
SMOOTHER RIDE
For investors, this is surely good news. Uber and Didi are among the world's most valuable startups, but they also have a history of burning through money.
Uber has consistently lost money – $1.46 billion in the third quarter of 2017, up from $1.06 billion in the second quarter. Didi is privately held and its finances therefore more obscure, though leaked documents reported by the Financial Times and Business Insider suggested that for 2015, the two companies that merged to form Didi Chuxing recorded operating losses of $305 million and $266 million and gross bookings were $141 million and $44 million, respectively, in the first five months of 2015. The report also suggests that the company incurs a gross loss of $2.75 on each trip.
With no need to continue fighting in bitterly contested territories – but with a continued stake in the likely growth of ride-sharing beyond their home territories – Uber and Didi in particular have a clear path to building sustainable businesses that no longer rely on constant rounds of funding.
And there is undoubtedly plenty of business out there to chase closer to home. A May 2017 report from Goldman Sachs put the size of the global ride-hailing market at $36 billion in revenue annually against $108 billion for taxis worldwide. Goldman expects the present 15 million ride-hailing trips a day worldwide to hit 97 million by 2030, and projects compound annual growth of 19.81%.
And that's before factoring in technological shocks like self-driving cars, which could reduce operating costs and perhaps even kill off the private car.
To be sure, there will still be local upstarts to see off – like Ola, a homegrown ride-hailing start-up in India backed by (you'll never guess!) Softbank. But the removal of big international competitors could, for example, allow Grab to go full throttle in Indonesian against rival Go-Jek, solidify Didi's grip on China and allow Uber to move beyond a series of scandals, push for profitability and deliver its long-awaited IPO.
And, like the mega-states of Nineteen Eighty-Four, the three will engage in occasional frontier skirmishes – South America, for example, where Didi fancies its chances of building its $900 million purchase 99 into an Uber rival.
Then there's the intriguing possibility of a Battle Royale in Japan, where Didi and Softbank have announced a joint venture to face down Uber. But the melees, too, are likely to be settled in time – after all, the opportunity is there for each player to get its own slice of a market that has grown exponentially and still has further to go.
TOO BIG TO HAIL?
So the world will forever be divided between Grab, Didi, and Uber, with investors – especially SoftBank's Masayoshi Son – riding off into the sunset? Not so fast.
Already, the ride-hailing giants have faced regulatory pressure. No sooner had Didi pulled off its epic deal with Uber than it found regulators turning up the heat across China. Uber has found itself stripped of its licence in London and driven out of Macau.
Grab may not yet have faced those kinds of problems, but take a stroll around Bali, for example, and you will see dozens of signs and notices imploring tourists not to ride with Grab, Go-Jek or its rivals for fear of taking money out of the hands of local drivers. That reflects the situation in Hong Kong, where the government initially rolled out the red carpet for Uber, before cracking down, presumably after remembering that the owners of taxi licences (which sell for almost $1 million apiece) were a politically powerful lobby. Or in New York, where taxi drivers who scrimped and borrowed to buy taxi medallions saw their incomes slashed.
And the concerns of regulators and politically influential competitors are hardly going to be sated by the ride-sharing giants growing larger. Indeed anti-trust laws may become a new weapon as regulators and governments seek to keep the disruptors in check.
A bigger threat may be that more jurisdictions follow the lead of big Chinese cities and London by rolling out rules that add bumps in the road for ride-hailing firms. That could mean limits on the number of cars, stricter requirements for drivers and the vehicles or controlled fares to prevent apps from undercutting existing licensees.
And there's another problem – or perhaps, for the savvy early-stage investor, an opportunity – on the horizon.
The ride-hailing giants are becoming exactly what they sought to replace: dominant players in their own markets with little incentive or opportunity to compete on price or service. As their founders and backers know only too well, this is where disruption happens.
All of which raises the question: is someone going to come along to disrupt the disruptors?
