ALL Hail the app

Investors get in line for the fast-growing ride-sharing sector in Asia, even as legal questions surface surrounding the use of apps

Makers of ride-hailing apps are stepping on the accelerator in Asia as smartphone use soars, regulations are gradually put in place and global funds pour in to fuel the industry's growth.

These ride-hailing companies operate through apps that customers download to their phones. A car can be hailed at the push of a button and the fares are generally lower than those of traditional taxi operators.

The ride-sharing companies are increasingly going into partnership with taxi firms and independent cabbies.

However, these startup taxi operators are trying to find a solution for a "sufficiently painful and large problem" of getting a taxi on time, says Rui Ma, partner for China at seed fund 500 Startups.

"This common problem becomes a very interesting business opportunity for investors."

In September, Didi Kuaidi, China's largest ride-sharing service, raised $3 billion funding from investors, making the company $4 billion cash rich.

In the same month, India's Ola raised $222 million, just five months after generating $400 million, in another round of fundraising. In Singapore, GrabTaxi received $350 million from investors in August, raising its total cash reserve to $700 million.

In July, Brazil-based EasyTaxi, backed by German incubator Rocket Internet, raised $10 million to expand in Asia.

The United States-based Uber raised about $2.8 billion in February, primarily for expansion in India and China, which included a $600 million investment from Chinese search engine Baidu.

According to Raman Chitkara, global technology industry leader at PricewaterhouseCoopers, investors always look to businesses that address large markets, offer rapid growth and huge expansion.

"App-based taxi services clearly offer the market opportunity for growth and profitability that the investors are looking for," Chitkara says.

Didi Kuaidi accounts for 78 percent of ride bookings in China and handles 3 million trips in the country every day, according to research firm Analysys International.

Uber, which operates in 11 Chinese cities, is taking off in the country much faster than it did in the US. In June, nine months after launching in Chengdu in the southwestern Sichuan province, Uber had 479 times the number of trips it had in New York after the same time.

At present, Uber handles 1 million trips a day in China.

GrabTaxi, with a presence in 26 cities throughout six Southeast Asian countries - Malaysia, Singapore, Indonesia, the Philippines, Thailand and Vietnam - takes seven bookings every second and has more than 620,000 monthly active users.

Uber averages about 200,000 trips a day in India, while its rival Ola clocks more than 750,000 daily trips and expects to hit 1 million. Ola has links with more than 60,000 cabs and is adding 1,000 drivers to its network daily.

In the latest round of financing, Didi Kuaidi's new investors are sovereign wealth fund China Investment Corp, Capital International Private Equity Funds and Ping An Ventures.

Alibaba and Tencent, the country's top two Internet giants already backing the Chinese operator, have also participated in the fundraising.

GrabTaxi, launched in 2012, received its new funds from China Investment Corp and Coatue Management.

Ola received fresh money from New York-based Falcon Edge Capital. Earlier, the company raised $400 million from Moscow-based investment firm DST Global and Singapore sovereign-wealth fund GIC.

The Bangalore-headquartered taxi operator also has investors including Tiger Global Management, Softbank, Hong Kong's Steadview Capital and US-based Accel Partners.

Didi Kuaidi will be putting about $30 million into the Indian taxi service, along with the US hedge fund Meru Capital and Scottish investment firm Baillie Gifford, according to media reports.

"Investors are seeing the success and realizing that there are local alternatives that can own local markets as first movers," says Jessica Cheung, associate at Hong Kong venture capital company Nest.

"Clearly there is a need that these apps are fulfilling, a reliable transportation on demand."

Cheung, however, says as these app-based taxi services are fighting for attention and engagement, constant growth is hard to manage.

The multibillion-dollar market is now witnessing business consolidation.

Didi Kuaidi was formed in February by the merger of two leading ride-hailing services, Didi Dache and Kuaidi Dache. Indian taxi app Ola acquired smaller player TaxiForSure for $200 million in March.

Mergers are inevitable, says Shiv Putcha, associate research director for consumer mobility at market research company IDC Asia-Pacific. "We expect more consolidation going forward, as there are lots of app-based taxi operators in Asia," he says.

The explosive growth of such services in Asia is fueled by the rising smartphone user penetration in the region.

Technology has revolutionized "from hail a taxi to summoning it by smartphone", says Putcha. "However, constant improvement of interface experience has to be done by these technology-based taxi operators if they want to stay ahead of the curve."

Smartphone apps allow users to hail a driver to take them to a destination by simply creating an account providing an e-mail address.

The app calculates an estimated cost of the ride based on an algorithm that determines a fare based on the day of the week, the time of day, distance of the route, and demand for service versus the number of drivers available.

"It's convenient, as the easy-to-use interface on the phone, transparent fare structure and easy billings make these services more attractive to customers," says Peng T. Ong, managing director of Monk's Hill Ventures, a Singaporean technology venture fund.

Yet despite their popularity, app-based operators have met the same opposition in Asia as they have in other markets worldwide. Local taxi associations have lobbied authorities to clamp down on them.

For instance, in Hong Kong, local taxi drivers filed a complaint alleging that Kuaidi One cars did not have third-party risk insurance.

Uber also drove into a rough patch in Hong Kong after it was encouraged earlier in the year to start its operations by InvestHK, a government department that aims to "attract and retain foreign direct investment". In August, the Hong Kong police arrested Uber drivers amid complaints they were operating without proper licences and third-party risk insurance, even though the service was seen by many as a welcome challenge to "the taxi monopoly".

Across the Asian region the common complaint against app-based ride-hailing operators is that they lack permission to operate as a transport service. Unlike taxi owners, who must apply and pay for government permits, app-based ride-hailing taxis, at least initially, operated without being subjected to the scrutiny.

In May, South Korea passed legislation banning private car drivers from operating like a taxi, citing concerns over lack of checks on drivers, their failure to get proper insurance, and the possibility of mobile phone numbers and credit card numbers being leaked by apps.

The Jakarta Transportation Agency, on the other hand, said app-based taxi operators in the Indonesian capital are not paying the right taxes because they did not apply for a permit.

Malaysia's Road Transport Department has warned that customers would not be covered by insurance if they become involved in an accident while riding in an app-based taxi.

But regulators find themselves on a tricky road, as app-based ride-hailing service operators enjoy a lot of support from passengers who appreciate their flexible and affordable business model.

Recognizing this need, on Oct 30, the Australian Capital Territory became the first city in the country to legalize ride-sharing services. The ACT government has passed legislation allowing services like Uber to operate in the nation's capital, Canberra.

Singapore's Land Transport Authority, which has not restricted the operations, recently announced that it will soon implement new rules for the app-based taxi operators.

India's Ministry of Road Transport and Highways is also drafting a set of rules to allow app-based taxi services to operate across the country.

In the Philippines, fresh regulations to legalize app-based ride-hailing services were introduced in May despite opposition from taxi groups.

Analysts said that it could pave the way for similar moves across Asia, heralding yet more disruption in the taxi landscape.

"We have to have a framework to make service providers and customers happy, and then the investors are indeed delighted," says Ong at Monk's Hill Ventures.

krishna@chinadailyapac.com

(China Daily Africa Weekly 11/13/2015 page14)