Analysis: Be it Grab or Tokopedia, industry players outline Gojek's possible merger impact on ad industry

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Gojek has been thrust into the spotlight recently for alleged merger talks with Grab and Tokopedia respectively. The Indonesian ride-hailing app was reportedly in advanced merger talks with Tokopedia to seal a US$18 billion deal while it allegedly also "made substantial progress" to merge with Grab.

Both Grab and Tokopedia have solidified their reputation in their respective industries. Grab's net revenue increased by 70% in 2020 and returned to "well over 100% of pre-COVID levels". According to enterprise intelligence company Craft, Grab was last valued in 2019 at more than US$14 billion. Meanwhile, Craft said Tokopedia was last valued in 2018 at US$7 billion and was said to have obtained US$350 million funding from Google and Temasek Holdings last October. Meanwhile, Gojek is valued at US$10 billion, according to Bloomberg. While this might seem like a business merger unrelated to the advertising and marketing industry, industry players MARKETING-INTERACTIVE spoke to said each potential merger will have an impact on the marketing and advertising ecosystem.

Lau Kong Cheen, senior lecturer, marketing programme at Singapore University of Social Sciences (SUSS), said as in most business mergers, there will be consolidation of processes and activities. In the case of potential merger between Gojek and Grab, the removal of competition against each other will reduce the marketing spend in the fight for attention.

As such, the marketing budget of the merged companies in existing markets may be diverted to other initiatives that may not be marketing related, thus reducing the revenue for marketing and advertising agencies serving them.

"However, looking at the brighter side, the merger could also mean more aggressive marketing of their joint services for regional market expansions. Thus, potentially regional marketing and advertising may benefit from this," Lau added.

In the case of a Gojek-Tokopedia merger, Lau believes there could be more marketing and advertising activities with both their marketing budgets combined. Depending on how they brand their merged entity, there could be rebranding initiatives where marketing agencies will be involved. According to Lau, advertising budgets may be increased to generate stronger awareness of their merged entity brand, for instance. "It is anticipated that this merger scenario will elevate more activities in the marketing and advertising industry particularly in their existing markets," he said.

Meanwhile on the branding front, the merger based on either scenarios will trigger consideration for the brand name of the merged entity and also their current branded products. Should they wish to retain their current brand names, which are well recognised and command strong equity, Lau said a new holding company would potentially need to be created as the corporate brand.

This is also a challenge that management teams from both entities will have to contend with and it is unlikely any of them would want to give up their brand name to be totally subsumed under the other. Too much pride and emotions have been investment by the founders.

For the Gojek-Grab collaboration in particular, Lau said they may agree to represent the business using different brands depending on their current dominance in each geographical markets. That is, Gojek may be solely used in Indonesia while in Singapore, the merged entities will be represented by only Grab, close to the model adopted during the Grab-Uber merger in this region. As for the Gojek and Tokopedia merger scenario, they may either leave both brands alone to milk on their individual equity and create a holding company name to hold them together, or create a totally new brand to represent a consolidated business offering.

Meanwhile, Jeffrey Seah, partner at Quest Ventures, said the advertising and marketing industries are traditionally organised by geography for decision-making and budget allocation. Ecosystem partnerships across geography markets have been entered into by multinational companies and regional brands, but traction of joint business plans (JBP) are often not uniform outside of host market. A Gojek-Tokopedia merger will allow marketers to enter into JBPs for the Indonesian market at the levels of Google or Facebook, which Seah said is "a scale unseen before in the marketing and data world".

"The economic and ecosystem value realisation for a Gojek-Tokopedia merger will be more than the sum-of-the-parts approach, and concurrently provide a stronger pedestal ramp for future Indonesian ecosystem-originate maturing tech companies to exit," he explained. Additionally, a potential merger will allow the companies to have a closer reach to the consumer mindset, Mark Greeven, professor of innovation and strategy at IMD Business School in Switzerland and Singapore said, obtaining data and doing better marketing and advertising before.

They will be better and more data-driven than most other players currently in the advertising and marketing industry.

Giving an alternate view, former CEO of Omnicom Media Group Malaysia and Singapore, Ranga Somanathan, said neither of the mergers will make any difference to how marketers engage with their audiences. According to him, the delta will occur if they are able to curate qualified audience clusters based on platform engagements and allow the advertisers access to those behavioural data to create meaningful experiences. "The way the current unicorn behaves is to create its own walled garden and severely limit the potential of greater possibilities," he said.

Which company is a better fit for Gojek?

On the surface, both companies seem like a good fit for Gojek given their prominence in the industry. However, our experts say a Gojek-Tokopedia would make more sense. According to Quest Ventures' Seah, a Gojek-Tokopedia merger will "reinforce Indonesia's Pancasila state ideology" formulated by former President Sukarno. Pancasila comprises principles which include the unity of Indonesia and the idea of being governed by wise policies. According to Seah, a merger between the two Indonesian companies will been seen as the pride of an Indonesian government-led company driving an independent Indonesia economy.

"From an ecosystem development and start-up talent pride angle, Gojek-Tokopedia will be more welcomed and preferred for the vast and expansive Indonesian ecosystem. From a nationalistic angle, these two companies have rejuvenated the Indonesian formal employment market, raised access consumption, and brought about green shoots in the diversification of the Indonesian economy away from natural resources," Seah explained. Compared to a merger with Grab, or as what Grab CEO Anthony Tan terms an "acquisition" in his internal note to employees, Seah said the cultural fit and speed of integration "will definitely be more frictionless" between Gojek and Tokopedia.

Likewise from a business perspective, SUSS's Lau said both Gojek and Tokopedia will be able to widen their ecosystem with complementary processes and capabilities particularly in Indonesia. It will bring together the logistics and digital payment capabilities of Gojek to complement the eCommerce capability of Tokopedia. "Given that both command a huge portion of the Indonesia market, their merger will create a major force to be contend with. The consolidation of their digital payment capabilities will be another plus point to garner market share and dominance in Indonesia," Lau explained.

He added that with the merger, Gojek may even capture part of the logistics services away from Grab via Grab Express that has already established with Tokopedia. At the same time, the Indonesian ride hailing company will also benefit largerly by riding on the growth of Indonesia's eCommerce market, which is known to be one of the fastest growing in Southeast Asia, in particular by merger with the Indonesian eCommerce leader. "Gojek will not be able to achieve such expansion into the eCommerce sector at this pace if it were to do this on its own," Lau said.

In a similar vein, from the perspective of business risk management, the merger with Tokopedia will benefit Gojek in terms of business diversification. With this merger, Lau explained that Gojek can mitigate much of the drop in revenue attributed to the reduction of passengers in the ride hailing business inflicted by COVID-19 and leverage on the rapid growth of Indonesia's eCommerce economy.

"Nevertheless, this is a short to medium term issue that can very well be compensated with the revenue generated from Tokopedia’s business. With the backing of Alibaba, this will definitely spur Tokopedia with the business tenacity to be one of the region’s eCommerce leaders, thus making it the ideal eCommerce partner for Gojek to join forces with," he added. Overall, Lau believes that a Gojek-Tokopedia merger will strengthen and reconsolidate the position of Gojek in Indonesia and recapture some lost ground from Grab due to the latter's aggressive entry into the Indonesian market.

The case for a Gojek-Grab merger

In 2018, Gojek announced its invested US$500 million into its international expansion strategy and subsequently entered Vietnam, Thailand, Singapore, and the Philippines. As such from a regional expansion perspective, Lau said the merger with Grab will be a more viable decision. Given their common goals to expand and dominate the regional markets, this merger will reduce massive cost of competition between them since both are greatly invested by a common investor which is Softbank.

"It is unhealthy for both Gojek and Grab to waste their financial resources to go head on with each other – using investment funds as their war chests to provide subsidies to drivers and passengers to fight for common market share. With the merger, this will direct common resources efficiently towards market growth with consolidation of their ride hailing, delivery and also payment services. This mirrors the benefits that Grab enjoyed with its merger with Uber in 2018," Lau explained.

Additionally, recruiting an ally will enable Grab to put its consolidated resources to better and efficient use, which Lau said is something its major investor SoftBank would want. "With this, Grab can achieve its objective of dominating the Indonesia market which is highly lucrative in the long run despite being dampened currently by COVID-19 pandemic," he said.

However, the setback for Gojek is that the company will be overly focused on a single business sector involving transport and delivery plus payment. According to him, putting all its eggs in one basket here may risk Gojek's profitability if this particular sector falls under. "With the unprecedented threat of COVID-19, there could be many unanticipated threats that could just wipe out their business if they are too narrowly focused," he added.

On the other hand, IMD Business School's Greeven said a Gojek-Grab merger would mean more users for Grab, as well as a larger value for an IPO and a wider diversification beyond taxi hailing to become "a real superapp". While a Gojek-Tokopedia consolidation will certainly strengthen its hold on the Indonesian market and enable both companies to "mimic Alibaba" with their payment and eCommerce solutions, Greeven said it "does not help Gojek in deepening its internationalisation".

Both Grab and Gojek have locked horns over the past few years as they wrestled for dominance in the ride hailing, food delivery and payments space. As such, merging with Gojek would eliminate competition, mitigate cost escalation, scale Grab's core service, and offer a bigger ecosystem for its fintech ambitions, Somanathan, said.

However, Somanathan said a monopolistic environment could lead to regulatory risk as well as unionisation of drivers and delivery folks. The Competition and Consumer Commission of Singapore is currently looking into the potential merger of Grab and Gojek and have written to both parties for more information. Section 54 of Singapore's Competition Act (Cap. 50B) prohibits mergers that have resulted, or may be expected to result, in a substantial lessening of competition.

On the other hand, Somanathan said Tokopedia will have the potential of leveraging Gojek's fintech prowess and "the synergies in the services between Gojek and Tokopedia could have a multiplier effect on its collective valuation, making the combination tough to take on for any competitor".

Photo courtesy: 123RF