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June Cover Story: The Go-Jek Effect

How Nadiem Makarim turned transport into Southeast Asia’s killer app and inspired a new generation of start-ups

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BY Sudhir Thomas Vadaketh - 29 May 2017

PHOTO CREDIT: Rony Zakaria

Don’t be fooled. Go-Jek, Indonesia’s first unicorn, valued at a rumoured $3 billion after its latest capital infusion, is much more than a ride-hailing service. Sure, over the past two-and-a-half years of Go-Jek’s short life, thousands of green-jacketed motorcyclists have been connecting Jakarta’s ten million often marooned residents, weaving delicately through traffic, delivering food, beauty products, newspapers and, of course, commuters in a flood-prone megacity where pedestrians sometimes move faster than cars.

But that’s just the beginning of Go-Jek’s ambitions. “You have to believe that every single transaction that a customer will do in the next three to four years will go through their smartphone,” Nadiem Makarim, Go-Jek’s CEO says. “If you believe that, you reverse calculate what are the things that will move from offline to online. It doesn’t just include ridesharing, food, logistics, it also includes payment and other services.” Ride-hailing firms tend to focus on a core competency while expanding geographically, ala Uber. Makarim turned this notion on its head by seeking to fulfill every conceivable consumer need, including home cleaning and medical services, in a limited geography. “Our objective is not to conquer the world,” Makarim says. “Our objective is to conquer the user.” To be sure, Indonesia’s 250 million people are young (28 is the average age) and tech savvy, and with smartphone penetration there just below 50%, there are still plenty of users to conquer. 

A “platform for the on-demand economy,” as Makarim describes his company, Go-Jek today is less Uber than WeChat, the Chinese behemoth that began as a messaging app. “We peddle trust,” says Makarim. “That’s the core of our business. We’re not selling services, transportation or food. We’re selling trust.”

Go-Jek has influenced a new generation of ride-hailing start-ups in Southeast Asia, including U-Hop in the Philippines, Banana Bike in Thailand and CatchThatBus in Malaysia. Yet to repeat Go-Jek’s success, they will have to exponentially grow their ride-hailing business while spreading to other niches in the informal economy – all the while, maintaining the trust of their customers. It is not an easy balancing act.

The Chameleon

Makarim, 32, pairs an intense gaze with an easy laugh. Boyishly handsome, more intellectual than jock, his upright posture honed by jujitsu, Makarim is dressed in a dark t-shirt and blazer when Inc. Southeast Asia visits his new open plan office in South Jakarta. The office, with its exposed brick walls, video arcade and coffee bar, blends archetypal start-up sensibilities with Indonesian characteristics such as local graffiti, lunch buffets and generous smoking areas, where the sweetly cloying smell of kretek is usually in the air.

Turning the page: As soon as Go-Jek perfected its app in 2015, growth exploded

Like his surroundings, Makarim too is a chameleon: schooled in the West yet drawn, emotionally and commercially, to Southeast Asia. One grandfather was an Indonesian independence hero; his father is a renowned lawyer; and his mother is an anti-corruption activist. “Since I was a little kid they reminded me that even though I was schooled abroad, I should come home and do something for the country because that’s what makes us who we are as a family.”

Makarim and his two sisters grew up playing with the kids of drivers and maids, which he believes helps him empathize with riders and other employees. Even so, he’s also a product of the elite, attending elementary school in Jakarta (Al Izhar), middle school in New York (the exclusive Dalton School), high school in Singapore (United World College) and then Ivy League Brown University in the U.S. state of Rhode Island, where he studied international affairs. Though such an education makes Makarim a fully paid-up member of the cosmopolitan global elite, drawn together by their fervor for free trade and technological disruption, Makarim also sees himself as an outsider. “I have never once in my life belonged to the majority,” Makarim, of Arabic descent, says. “I had to adapt myself in every single situation so I could relate to people from different ethnicities, socio-economic statuses.”

Makarim returned to Jakarta in 2006 to work for McKinsey. In 2009, he went back to the U.S. to enroll at Harvard Business School (HBS). The summer between his first and second years, in 2010, Makarim had returned from the U.S. to his hometown Jakarta. True to his outsider self-image, he found inspiration not in techie cafes but on smoggy, chaotic street corners, where he would share cigarettes and chat with the riders of scooter taxis, known locally as ojeks. Not the usual hangout of an HBS student and McKinsey alumnus.

Makarim, who switches easily from American-accented English to Indonesian, discovered that these riders spend up to three-quarters of the day waiting for passengers. Each functioned as an informal, independent contractor, untied to a larger organization. Although Makarim used ojeks regularly, many Jakartans saw them as a last-ditch, last-mile option to navigate clogged roads.

With no price transparency, some riders charged up to 50,000 rupiah ($4) for a short ride. There was little love lost between opportunistic riders, starved of work, and desperate customers.

To professionalise ojeks, in 2010 Makarim and three friends, Brian Cu, Michaelangelo Moran and Jurist Tan, started a “Go-Jek” call centre in Jakarta. “I hired the first twenty riders myself,” he says. Yet without sufficient seed funding, Go-Jek was a sideline, part-time business for them. Makarim completed his MBA and then worked at other start-ups that could pay him a salary. According to Makarim, he spent ten months as managing director of Zalora Indonesia, an e-commerce merchant, and one year as chief innovation officer at Kartuku, a payments firm. Close friends bugged him to refocus full-time on Go-Jek.

“It was a constant internal and external debate,” he says. “But if I hadn’t been in Zalora, I wouldn’t have learned how to scale up a marketplace; if I hadn’t been in Kartuku then I wouldn’t have understood merchants and payments.”

Turning Point

By 2014, amid growing global recognition of ride-hailing’s viability, Makarim raised significant seed funding from Singapore-based NSI Ventures, which funded its app development. Armed with four years of ojek data, in January 2015, Go-Jek rebooted as an app-driven technology company, led by Makarim and Moran, the only other co-founder keen to work full-time at the fledgling start-up. (The two others sold their stakes at roughly this time, according to Makarim.)

That was the turning point. Within a year, Go-Jek’s app had been downloaded 7.5 million times and its rider network had grown from 500 to 200,000 (250,000 today in twenty-five Indonesian cities). “An ojek driver would not be able to deliver packages, they would just steal packages!” Makarim recalls a naysayer. “We proved them completely wrong.”

Indeed, nobody had expected such frenetic growth. With its systems overburdened, Go-Jek’s app became prone to glitches. “I was the first CTO of Go-Jek,” Makarim says. “I was a terrible CTO.”

Little more than a year after launching its app, Go-Jek acquired two Indian software firms for undisclosed amounts, C42 Engineering and CodeIgnition, to help it scale. “We were at Mission Critical at that time,” admits Makarim. “Thank God for Sequoia [one of its venture investors] for introducing us to these guys.”

The firms integrated easily, Makarim says, thanks partly to a good cultural fit with Indonesians. Go-Jek shifted much of its technology leadership to India. (It has since made two more Indian acquisitions: Leftshift, an app developer, and Pianta, a marketplace for home healthcare services.)

Sticky and Sweet

By the end of its second year, Go-Jek had launched car, logistics, food and supermarket delivery, massage, home cleaning, and payment services, among many others.

Makarim believes this cornucopia of offerings increases the “stickiness” of the app and the ease of “defending” his customers from being poached by other niche apps. “You’re not defending a ride-hailing customer or a food customer or a logistics customer or a payments customer,” he says, “you’re defending the holistic customer who is using your platform.”

Go-Jek’s relative performance thus far vindicates this philosophy. According to its own figures, its app has been downloaded more than 40 million times, and is installed on 80% of iOS users and 60% of Android users in Indonesia. Between Go-Jek and Go-Pay it processes over 50 million transactions per month. Its transportation business has a 60% share of the ride-hailing market in Indonesia. Go-Food has a 95% share of the online food delivery market and is the largest player outside China and the U.S. Go-Pay, launched eight months ago, is already the largest digital wallet in Indonesia.

“Soon you will be able to use it as a replacement for cash,” Makarim says about Go-Pay’s planned expansion across different merchant classes, including brick-and-mortar businesses. With some 60% of Indonesians unbanked, mobile payments could yet prove the most lucrative product line.

This ubiquity across products and services has made Go-Jek an indispensable service for many Indonesians. One young Jakartan couple claims that Go-Food has finally given them some diversity in their vegetarian diet. One lawyer has both daily uses—Go-Send for office documents and Go-Box, a small trucking service, to haul a refrigerator when shifting houses. Many young women, once wary of their personal safety with traditional ojeks, now have access to the same transportation mode their male colleagues have long taken for granted.

For some children as young as ten, says Makarim, Go-Food has become their first entry point to digital, cashless commerce. Parents top up their kids’ accounts via Go-Pay, and can monitor food choices via transaction histories. “Some schools have banned us,” says Makarim, caught between embarrassment and pride, because canteen businesses were suffering.

Go-Jek has also been a boon for the assets and workers on the other end of the platform, raising the utilisation of everything from ojek riders and masseuses to box trucks and cars. The average income of full-time riders, who carry passengers as well as deliver food and documents, has doubled to 4 million rupiah ($300) per month, well above minimum wage, says Makarim, even as their tariffs have fallen by two-thirds.

Those who work overtime can make up to 9 million rupiah ($670) in a month, says one rider, turning his head back towards me, when there is a break in traffic. “Alhamdulillah, praise God,” he whispers under the din of screeching horns and roaring engines. Go-Jek has shifted this segment’s work mindset from subsistence to investment—for a new home, business, local school or completing the Haj.

On The Go: Ojeks have seen their monthly incomes double with Go-Jek

Like in other emerging economies, a large proportion of Indonesia’s workforce is underemployed in the informal sector. Many want to work more but lack credentials and networks. Enter a firm like Go-Jek, which conducts background checks, tests and certifies riders and masseuses alike.

Crucial to retaining the trust of its customers is a zero tolerance policy for aggressive behavior or sexual harassment amongst its drivers. In 2015, the firm came under fire from the media and labour activists after it removed 7,000 riders it claimed were faking orders; wrongful dismissal, some cried. Strict HR policies do not always sit well in a country known for its labour activism.

Moreover, if the old ojeks charged extortionate fares, current prices can seem very low. One eight-kilometer, thirty-minute ride, which might have been 50,000 rupiah ($4) in the pre-Go-Jek days, cost me 8,000 rupiah ($0.60). Go-Massage charged 80,000 rupiah ($6) for a sixty-minute, in-room massage. Go-Jek’s take is 20%. Wealthy Jakartans, embarrassed, offer workers 100% tips. Overall incomes may have risen, but per-ride (or per-service) earnings have plummeted for drivers. Gone too are their long, clove-cigarette-scented, street corner palavers.

Go-Jek is in the midst of a fierce price war with Uber and Grab, a Malaysia-founded firm. Like in other competitive ride-hailing markets, it is unclear how long these low rates are sustainable.

“Are investors willing to subsidise these price competitions? I would say ‘Yes’,” says Justin Hall, principal at Golden Gate Ventures, a Southeast Asia focused venture capital firm. “Especially in a market like Indonesia, which is still the crown jewel of Southeast Asia.”

According to Crunchbase, Go-Jek has so far raised $1.75 billion in equity funding for business in the world’s fourth most populous country. Go-Jek declined to comment on the amount of funding it has so far raised. (Eight-year old Uber, by contrast, has thus far raised $8.81 billion for all its markets.)

Go-Jek doesn’t disclose whether it is profitable. “That would be a very short conversation,” jokes Makarim, dodging the question. Yet an internal Go-Jek document leaked last year suggests Go-Jek’s subsidies and driver bonuses peaked at 72% of gross booking fare value in October 2015, leaving current profit margins very tight or perhaps even non-existent. When asked about the contents of the leaked document, Go-Jek declined to comment. Once price competition subsides, Makarim believes tariffs will rise to a more sustainable level and so will per ride wages for the drivers.

“In the end there is no difference between the company and the driver,” he says. “The more money they make, the more money the company makes. We are joined at the hips.”

Profit margins aside, Go-Jek’s primary goal has become clear: It is trying to show how a transport app in Southeast Asia can sprout like a weed and grow into a lush garden of goods and services.

Night Crawl: Jakarta has the fourth worst traffic in the world

“Consumers in Asia, especially East Asia, they understand a mobile app as a platform,” says Hall, referencing WeChat as the benchmark. “They possess the behaviours and habits to make a platform like that viable. We have not yet seen that [WeChat] in Southeast Asia and Go-Jek is positioning itself to be that all-in-one app for anything and everything online.”

(Tencent, the Chinese firm behind WeChat, is rumoured to have led Go-Jek’s latest fundraising round in May this year.)

Though Go-Jek’s entry into the platform business through ride-hailing was surprising and innovative, says Hall, the real value is in payments. “Then it has a platform that controls all these different services together and it controls the wallet.”

Uber in the Rear View Mirror

Two other potential platform competitors, of course, are Uber and Grab, both bigger companies with longer app histories.

Both claim to be growing rapidly and are diversifying across product lines, including scooters and payments, in apparent pursuit of Go-Jek. Though media reports have cited the professional rivalry between Grab and Go-Jek, today Makarim seems circumspect about it.

“Competition is fierce, but also one of the reasons we got so big,” he says. “Learning to love your enemy is a very important trait in any business…having said that, they are a legitimate threat and we respect both [Uber and Grab] of them greatly.”

One reason for his confidence is that he sees a big domestic market with many unfulfilled niches. “I don’t like the term ‘winner-takes-all’. It implies small players have no role; that’s erroneous. Otherwise there would be no innovation.” (Golden Gate Ventures’s Hall thinks Indonesia’s ride-hailing market will evolve to a duopoly, with the winners likely emerging within the next five years.)

Another is that Indonesians are unashamedly patriotic consumers. Many profess loyalty to Go-Jek regardless of competing discounts. “We’re the first locally-bred unicorn, become a bit of a national symbol, ‘Yes we can’, too,” says Makarim. Go-Jek underscores this sentiment with Indonesian flags stitched onto rider jackets and with a tag line, Karya Anak Bangsa: “The creation of Indonesians.”

“We’re not selling stickers on a social platform,” Makarim says. “We’re not providing feeds of cool viral articles. We’re literally providing your most basic necessities. To people. It’s very real. Just look out on the street to see the impact.”

After a few traffic-choked hours in Jakarta, it is hard to disagree.

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