Grab is building a taxi company in Singapore. Last week, it was announced that GrabCab, a subsidiary of Grab, had been granted a taxi operator licence in the city state (or, if you want to go technical, the licence is called SSOL – “street-hail service operator licence”).
Instantly, LinkedIn gurus started mocking Grab – saying that after more than a decade of going ‘asset light’, the ride hailing giant has “come full circle” (or “gone back to square one”) by owning an ‘asset heavy’ taxi operator.
These simplistic narratives are often easy to circulate, if they were remotely making any sense. People should not be surprised about Grab’s move into owning taxi operations in Singapore – they attempted to acquire local taxi operator Trans-cab in 2023, a deal that was recently blocked by the country’s antitrust watchdog.
The real question is, why would Grab do it, and so persistently so? A couple of thoughts here:
1. The mobility market in Singapore (and as a matter of fact, most major cities in this world) has shifted drastically since the adoption of ride hailing apps.
In Singapore specifically, government statistics suggest that almost 90% of the “point to point” rides in the country are booked through apps. For many of us who live in Singapore, you probably feel that the experience of getting a ride is very different from ten years ago;
2. However, Singapore is a unique market where demand for rides outpaces supply, where a shortage of drivers and a limit on the vehicle population has been persistent. People around us often complain about the high price of getting around, but there are some fundamental economic reasons behind it. Supply is an issue that Grab has been trying to address, including optimising drive routes, introducing tiered services, and incentivising more drivers to be on the road. The attempt to acquire or start its own taxi company is along these lines as well.
Grab’s entry into the taxi market is an attempt to secure a reliable supply base of drivers and vehicles. So it is about solving a problem, not being dogmatic about the religion of “asset light” or “asset heavy”.
3. However, it is worth noting that the supply-demand situation in Singapore is pretty unique, at least across Southeast Asia. In most other major cities in Southeast Asia, traffic for example is a much bigger challenge – that’s why the two-wheelers are very popular in Jakarta, Bangkok and Ho Chi Minh City. Building taxi operations in Singapore does not lead to the same in other places in Southeast Asia.
4. A similar example of Grab was their acquisition of Jaya Grocer, a supermarket chain in Malaysia, in 2022. Back then many were also saying that Grab was going asset heavy into retail – however, as we pointed out back then. The more important consideration for Grab was to learn how to integrate online and offline, with something they could control, rather than going into retail themselves.
5. Grab could also use their technological resources to improve the efficiency of taxi operations. For example, street hail drivers nowadays still rely on intuition, experience and their network to figure out where to get customers – a high bar to expand the efficient driver base. Can technology make this and many other aspects of taxi operations better, for both drivers and consumers? The answer is yes if the right resources and focus are put on it – and such effect will create competitive pressure for other operators to follow;
6. Having its own fleet of cars would theoretically also allow Grab to try out new technologies. We all speculate that technologies such as AI and particularly autonomous driving would potentially disrupt the mobility industry. Grab has put a lot of focus on AI – but trying that on a fleet you own is drastically easier than convincing third parties to take some risk. Also, Singapore is a good market to try such new technologies, for reasons we all understand.
Overall, Grab’s move makes sense. Its initial fleet of 800 might sound small to many, but it is important to remember they are not there to dominate the market of asset operators, and technology might evolve faster than we could predict.
The post Why did Grab acquire a taxi license in Singapore? first appeared on The Low Down - Momentum Works.
