A closer look at Go-Jek’s impact on Indonesia’s tech scene
Tue, 22 Jan 2019 || By Admin CfDS

In 2017, Go-Jek made it to Fortune’s Change the World List, the only company in Southeast Asia to do so. But is it really changing the world or is this another case of expectations being set too high?

Grand entrance

Indonesia has arrived on the tech scene in a big way, with a raft of homegrown unicorns exploding in market share and valuation. In addition to Go-Jek, there’s travel-booking company Traveloka and online retailer Tokopedia.

Not surprisingly, the rapid growth of consumer-facing tech companies in Indonesia has coincided with a steady economic growth of about 5 percent annually, an expanding middle class with more disposable income, higher mobile phone penetration, and a big acceleration in the volume of e-money transactions.

According to World Bank’s Global Findex, only 19.6 percent of Indonesians over the age of 15 had a bank account in 2011. By 2017, that number had reached nearly 50 percent. Expanding access to basic financial services often piggybacks on greater mobile phone penetration, so it’s no surprise that the percentage of Indonesians who have used a mobile phone to access the internet rose from 53 percent in 2010 to 92 percent in 2016.

And one of the activities that drives Indonesians to use the internet is shopping. In 2011, Bank Indonesia recorded 41 million e-money transactions valued at 981 billion rupiah (US$69.5 million). In 2017, it cleared 943 million e-money transactions worth over 12.37 trillion rupiah (US$877 million). The 2018 figures are expected to be higher still.

The data tell an interesting story: Indonesians are becoming increasingly digitally literate and connected as they gain more disposable income. This in turn drives massive growth in the country’s digital ecosystem and creates abundant market opportunities.

A unique position

According to a study by Google and Temasek, the value of the ecommerce market in Southeast Asia – including ride-hailing, food delivery, and online shopping – will reach US$240 billion a year by 2025. US$100 billion of that is expected to be generated by Indonesia.

Are companies like Go-Jek causing such a trend? Probably not. Indonesia’s digital economy would still likely be headed in this direction whether Go-Jek, Traveloka, or other local unicorns existed or not.

But with a deep knowledge of domestic market conditions and regulatory environments, these companies are perfectly positioned to take advantage of the US$100 billion opportunity. This explains why venture capitalists like Sequoia Capital and Alibaba have been racing each other to invest hundreds of millions of dollars into Indonesia’s burgeoning ecommerce sector and its tech unicorns.

By reducing transaction costs and making it easier for consumers to buy goods and services, the country’s tech startups are playing an important role in juicing domestic consumption, which has been the main component of the country’s recent economic growth.

Looking at Jakarta’s regional GDP since 2014 (when Go-Jek launched its mobile app), consumption for hotel, restaurant, and food services – Go-Jek and Traveloka’s core offerings – has increased at a significantly faster pace compared to other services.

Greener pasture

The other part of the puzzle – at least in Go-Jek’s case – is whether it is using its immense market power to throttle down wages for the hundreds of thousands of green-jacketed drivers who work for the company. After Uber exited Southeast Asia last year, ride-hailing and app-based delivery services have essentially been cornered by Go-Jek and rival Grab.

A duopoly like this often results in lower prices for consumers, as the two rivals compete for customers. But this situation can be less favorable to workers: their bargaining power erodes since they have nowhere else to go if they are unhappy with working conditions.

A 2017 piece in The Conversation argued that Go-Jek and Grab drivers at times felt exploited by their employers, being forced to work long hours at the mercy of an indifferent algorithm and fickle customer reviews.

In November and December 2018, I interviewed 10 Go-Food drivers in Jakarta and Yogyakarta to get an accurate picture. While Go-Jek drivers receive a small per-kilometer payment (around 1,400 rupiah or US$0.099), the bulk of their income comes from hitting performance targets and earning bonuses.

The bonuses operate on a points system – completing an order and getting customers to top up their Go-Pay accounts earn them points. Points are worth more during high-traffic periods. The bonuses differ from city to city but can exceed 100,000 rupiah (US$7.09) per day if a driver accrues a sufficient number of points.

The system is thus structured in a way that incentivizes drivers to complete the maximum number of orders, get people to top up their Go-Pay accounts, and take more orders during peak times – everything that Go-Jek prioritizes in its business model.

The drivers I spoke with in Jakarta claimed to earn between 5 million to 7 million rupiah (US$354 to US$496) per month if they work 12 hours or more per day. That is well above Jakarta’s minimum wage of 3.6 million rupiah (US$255) in 2018.

In Yogyakarta, drivers earn between 3 million to 4 million (US$212 to US$283) per month, with one driver claiming to earn around 6.5 million rupiah (US$460) by accepting every single order he receives. These earnings are also significantly higher than Yogyakarta’s 2018 minimum wage of 1.8 million rupiah (US$127).

The data I collected is broadly in line with a nine-city survey conducted by Universitas Indonesia’s Institute of Demographics in 2017, which surveyed several hundred drivers in major cities like Jakarta, Medan, Bali, and Surabaya.

With a valuation well in excess of US$1 billion, could Go-Jek afford to share the wealth more broadly with its drivers? Almost certainly.

But there is little evidence to suggest – at least in terms of financial remuneration – that the company is abusing its market dominance to throttle down compensation for its drivers. In fact, drivers are earning substantially more than they would in other entry-level or minimum-wage service jobs.

Impact on Southeast Asia

This draws up a picture of a dynamic digital ecosystem in Indonesia that’s rapidly expanding in lockstep with gains in per capita GDP. With people loyally using the services of homegrown tech startups and drivers benefiting from increased earning power, the country’s ecommerce market is on the path to being a US$100 billion behemoth in a few years.

This brings me back to the original question: is Go-Jek really changing the world?

Go-Jek spent much of 2017 and early 2018 securing US$1.5 billion in capitalfrom deep-pocketed investors like Google and Tencent. It used the cash to launch its ride-hailing and food-delivery services in Singapore, Thailand, and Vietnam – the first time it has ventured outside its home market.

If Go-Jek is really going to change the world, now is the time, as it expands to major Southeast Asian cities.

But there are already signs that the swift rise the company enjoyed in Indonesia may be a bit harder to come by overseas. For one, their fourth expansion market – the Philippines – just denied them a license to operate due to ownership issues.

One of Go-Jek’s advantages as a homegrown company in Indonesia is having the inside track in navigating the country’s Byzantine regulatory architecture. For instance, it was able to secure an e-money license before rival Grab could do so. Such a license was rare and difficult to obtain because Bank Indonesia issued only 33 of it.

While Go-Jek had the upper hand in expanding beyond ride-hailing and food delivery into financial services, there’s no guarantee that it will be as successful in navigating regulatory hurdles in other countries.

Moreover, Go-Jek evolved to serve an unmet market need that’s fairly specific to developing countries like Indonesia that suffer from lagging public infrastructure and poorly planned urban sprawl. The company was essentially an invention of necessity.

Public policy was failing to address the issue, so an innovative tech startup stepped in and developed a workaround – one that caught on and turned out to have serious market potential. But will it make it in Singapore, for example, where fares are higher and public transportation is more efficient? That will likely be a tougher market to crack.

The places where Go-Jek is most likely to replicate its success in its home market and deliver real gains in consumers’ quality of life are locations where conditions are most similar to Jakarta, Medan, and Bali. The ideal markets are those that are experiencing strong economic growth buoyed by domestic consumption, and where poor planning has resulted in dense urban sprawl, frequent traffic congestion, and a lack of public transportation options.

This description perfectly fits places like Ho Chi Minh City, Bangkok, and Manila, and it’s likely that Go-Jek – if it can sort out the regulatory issues – will end up being a reliable or even an indispensable service in those places.

But in other Southeast Asian cities with better zoning laws, public transit systems, and access to financial products, the climb to market dominance will no doubt be steeper.

An opportune moment

As an engine for boosting domestic demand, Go-Jek and other consumer-facing apps are arriving at a very opportune moment in the region. Economist and professor Dani Rodrik has recently noted a phenomenon he calls “premature deindustrialization.”

Essentially, countries that rely on export-led manufacturing to drive growth are seeing diminishing returns, especially compared to the big success stories seen decades ago in places like Singapore, Taiwan, and South Korea.

Manufacturing is no longer considered the magic wand it once was for economic development, and lower- and middle-income countries will increasingly need to seek growth elsewhere. Domestic consumption is one such potential engine – that’s why the booming ecommerce market in Asia and India is such an interesting story and one to watch closely in the coming years.

If exports and manufacturing cannot be relied on anymore to grow GDP, a booming domestic market for ride-hailing, delivery services, and digital finance might be able to pick up the slack. Companies like Go-Jek will be essential in driving that kind of growth.

Given all that, Go-Jek just might end up changing the world – or at least the developing parts of the world, where the app can serve as a mechanism to boost consumption and extend financial services to more people.

Go-Jek may have been created to make it easier to get a ride or order nasi goreng, but it may very well end up being a lynchpin in the region’s vibrant and rapidly growing digital ecosystem, one that will be essential for the future growth of Southeast Asia’s boomtowns.

Currency converted from Indonesian rupiah: US$1 = IDR 14,105

Written by James Guild, Adjunct Researcher. 

First published in TechinAsia.