Dissecting The Grab Business Model

Executive Summary:

Grab is a super app based in Southeast Asia which offers a variety of different products and services, ranging from food delivery all the way to investment products.

Grab makes money via driver and restaurant commissions, payment processing fees, advertising on its platform, referral fees, and many more.

Its business model is predicated on becoming a super app that can fulfill almost any everyday need a customer has.

Launched in 2012, Grab has grown to become one of the world’s biggest platforms. It has raised over $12 billion over the course of its existence.

What Is Grab?

Grab is a Southeast Asian super app that offers a variety of different services, ranging from food delivery all the way to insurance policies.

Grab is currently active in eight countries, including Malaysia, Myanmar, Cambodia, Philippines, Vietnam, Thailand, Indonesia, and Singapore.

Depending on the country of residence, a different set of products is available. Nevertheless, all the available products can be used within one single app. The super-app concept was first popularized in China with Tencent’s WeChat and Meituan leading the charge.

Some of the products that Grab currently offers include:

• GrabRides, a ride-hailing platform allowing users to book taxis and other vehicles on demand
• GrabFood, a food delivery product providing restaurant food
• GrabMart, allowing users to order groceries
• GrabPay, a digital wallet enabling users to make purchases in the real world
• GrabInsure, offering insurance products for your travels and rides
• GrabFinance, which provides loans to drivers and ‘buy now, pay later’ solutions to customers

… and a few more. It has to be noted that Grab often tests different products within the app to see what eventually sticks.

For its delivery and mobility products, Grab works together with independent contractors that work on a per-order basis (i.e., whenever a customer books a cab or orders food).

Grab can be downloaded and used on any mobile or tablet device that runs on Google’s Android or Apple’s iOS software.

How Grab Started: Company History

Grab, headquartered in Singapore, was founded in 2012 by Anthony Tan and Hooi Ling Tan (no family relation).

The two founders, who grew up under vastly different circumstances in Kuala Lumpur, Malaysia, first met each other during their MBA studies at Harvard’s Business School. 

Prior to the MBA, Hooi Ling Tan, after graduating with a Mechanical Engineering degree from the University of Bath, worked as a business analyst at McKinsey.

Anthony Tan, on the other hand, was born into one of Malaysia’s richest families. His grandfather, the late Tan Yuet Foh, had co-founded Tan Chong Motor, one of Malaysia’s biggest automobile distributors, in the 1950s.

Anthony joined the family business in the mid-2000s after graduating from the University of Chicago. Hooi Ling and Anthony would eventually meet each other during one of their Harvard classes called Business at the Base of the Pyramid.

As part of the class assignment, the duo was tasked with developing a business idea and plan. The concept they developed became the eventual basis for Grab.

At the time, Uber was making headwinds as a revolutionary way of booking cabs online. Its matching technology removed many of the pain points that the taxi industry traditionally caused, including a lack of price transparency as well as long waiting times.

Anthony and Hooi Ling adapted that very same concept to their home country of Malaysia, largely informed by Hooi Ling’s experiences as a consultant at McKinsey. During her tenure, she would often leave the office late at night and get herself a cab for the way home.

Unfortunately, at the time, Malaysia was particularly known for its lack of safety, with countless rape cases being reported every year. As a result, Hooi Ling developed a manual GPS tracking system in which she would text her mom the name of the driver and the license plate number of the taxi (while updating her throughout the ride).

The pair eventually used that business plan to participate in a Harvard Business School competition. As runner-ups, they ended up receiving a $10,000 check. The reason why they placed second was that the judges thought that Malaysia was too small of a market to go after.

Armed with an initial check, Anthony ended up convincing his mother to provide the team with their first-ever angel round of funding. After months of development, they launched what was then called MyTeksi in June 2012.

To recruit drivers, Anthony would set up a table next to various gas stations and offer cab drivers nasi lemak, a local Malaysian dish, in exchange for them joining the platform. Within a year, they managed to recruit around 2,500 drivers in Kuala Lumpur where MyTeksi was first incorporated and launched (Grab moved its headquarters to Singapore, where Anthony was spending most of his time, in 2014).

Others were soon beginning to take notice. Competitors like TaxiMonger, Hopcab, and EasyTaxi began to soon emerge. EasyTaxi, in particular, became a notable threat. Funded by Rocket Internet, the German copycat investor which had previously launched Lazada, the incubator soon began pouring millions of dollars into EasyTaxi.

In July 2013, MyTeksi expanded into the Philippines, its first foreign market, under the brand name GrabTaxi. Subsequent launches in Thailand and Singapore would follow within the next three months.

Competition across the Southeast Asian region would really begin to heat up in January 2014 when Uber launched its ride-hailing service in Kuala Lumpur. A month later, the now fully-rebranded GrabTaxi also launched in Vietnam.

By that time, Uber had already raised over $500 million in venture funding and was valued at over $3 billion. As a result, Grab needed to follow suit. It raised its first-ever institutional round, a Series A of over $10 million, in April 2014. 

Grab, furthermore, began to mimic Uber’s offering. In May, it launched GrabCar, a ride-hailing service that allowed not only taxi drivers but anyone owning a car to drive for the platform. Simultaneously, Grab also raised its Series B one month after the Series A, adding another $15 million to its war chest.

Interestingly enough, Grab implemented a few strategies that allowed it to differentiate itself from Uber. First, Grab allowed users to pay in cash (instead of credit cards), a payment method that was much more popular in Southeast Asia at the time.

Furthermore, Grab actually handed out Android smartphones to many of its cab drivers. During the first few years, smartphone penetration among cab drivers was extremely low. The smartphone gifting approach allowed it to build up its supply-side while gaining loyal drivers.

The battle for ride-hailing supremacy was taken to a next level in October when Grab raised another $65 million. At the time, Grab had already been downloaded over 2.1 million times while having amassed a network of 50,000 drivers.

Amazingly, Grab’s fundraising spree did not stop there. In December, it became a unicorn (a private company valued at over $1 billion) just 2.5 years after launching, raising another $250 million (primarily from SoftBank) in the process. A few days after, Uber followed up with a massive $1.2 billion fundraise of its own.

By the end of 2014, it became a battle between Grab and Uber after EasyTaxi pulled out of Southeast Asia while others simply had to shut down.

Equipped with over $330 million in funding, Grab began not only expanding into new cities but putting its money into the launch of additional products and services. For example, it launched cashless payments (via credit cards) as well as GrabDelivery, a next-day delivery service, at the beginning of 2015.

A lot of the firm’s innovations were made possible by the launch of its R&D center in Singapore. Subsequent office launches would follow in Beijing, Ho Chi Minh City, Jakarta, Seattle (where it was able to lure American talent), and Bangalore.

Another ‘gimmick’ that grab employed was that, as opposed to Uber, it was actually working in conjunction with local jurisdictions whenever it launched a new city. For instance, in July 2015, Grab, therefore, became the first ride-hailing service that was a fully accredited Transportation Network Company (TNC) by the Philippine’s Land Transportation Franchising & Regulatory Board (LTFRB).

In August 2015, Grab announced its next funding round of $350 million. What was particularly interesting was the round’s lead Didi, one of China’s largest taxi apps. Interestingly enough, Didi continued to invest in Uber’s major competitors, for instance by leading Bolt’s Series B round.

The Grab and Didi tie-up became much clearer in December of the same year. The two companies alongside Lyft in the U.S. and India’s Ola inked a strategic partnership to work together on technology and service. As such, customers of either app would be able to use the partner app (without having to download it) whenever they traveled to one of their countries.

Unfortunately, not everything was always going according to plan until that point. In August 2015, Grab’s then-CTO Wei Zhu left the company just one year into his job. He would then go on to file a lawsuit against Grab over outstanding share compensation ($2.3 million worth of shares, in fact).

A month after Uber sold its China business to Didi (August), the latter also invested more cash into Grab, taking part in the firm’s $750 million fundraise. The deal valued Grab at over $3 billion. However, Grab wasn’t the only one making strides.

A new competitor had emerged over the past few years. Jakarta-based Go-Jek began life as a taxi dispatch software and subsequently moved into ride-hailing. The startup had amassed a significant market share in Indonesia, Southeast Asia’s by far largest market in terms of population. Just a few weeks before Grab’s round, Go-Jek had just raised a whopping $550 million themselves.

Meanwhile, Grab’s executive exodus continued as well. The company lost its CFO Linda Hoglund, which it just hired in May, months later in November 2016. Despite losing its most senior financial executive, Grab remained undeterred towards its grander vision.

The first step towards becoming the super app it is today came towards the end of 2016. In December, Grab began allowing users to store money within its app (to pay for rides) while introducing a new payment service called GrabPay.

To that extent, Grab also made its first-ever major acquisition in February 2017. It bought Indonesian payment platform Kudo for around $100 million to integrate it into Grab’s own payment system. That wasn’t the only major investment of that year, though.

In March, Grab as well as Uber expanded into Myanmar, which opened itself up after free elections in 2015. Grab went so far as to commit over $100 million in investments into the country to build out the necessary infrastructure for its services. Both also launched in Cambodia in September.

The expansions were made possible by one of the largest ever funding rounds in Southeast Asia. In July 2017, Grab raised a whopping $2 billion from SoftBank and Didi. By the end of 2017, Grab managed to cross the inaugural mark of one billion total rides.

The move towards becoming a financial powerhouse was officially kicked off in March of the next year. That month, Grab incorporated Grab Financial, an entity that would offer debit and credit cards, loans, insurances, and many other financial products to consumers across the region.

Regardless, the much bigger announcement came just a few days later. Grab and Uber announced that the former would acquire the latter’s Southeast Asia business. On the other hand, Uber would be granted a 27.5 percent stake in Grab.

Within two weeks, Uber’s regional app was shut down. Unfortunately, not everyone was pleased with the merger. Both Singapore and the Philippines began investigating the deal over concerns of anticompetitive practices.

While the Philippines eventually approved the merger, the Singaporean government ended up fining both Grab and Uber, forcing them to pay a total of $9.5 million. Lucky for Grab, that fine represented a mere pocket change.

In mid-2018, the company embarked on one of the longest and biggest ever funding rounds in startup history. Over the course of more than a year, Grab managed to raise a whopping $6.5 billion during its mega Series H round.

The investments were largely of strategic nature and came from companies like Toyota, Thai bank Kasikorn, Hyundai, Microsoft, Booking Holdings, and dozens more. Grab would then go on and cooperate with these companies. For instance, in October 2018, Grab agreed to adopt Microsoft’s Azure as its preferred cloud platform.

These strategic partnerships also helped to fuel its super app ambitions by allowing Grab to expand into additional verticals.

Furthermore, the company also began to make strategic investments itself as part of the launch of Grab Ventures. For instance, in October 2018, Grab invested $100 million into the budget hotel network OYO. In turn, OYO committed to integrating GrabPay into its own platform.

Product and market expansions, fundraising, as well as venture investments continued in 2019 as well. One key move, although not evident at the time, became its integration of GrabFood into the main Grab application, thereby allowing users to conduct all of their actions within one single app.

2019 saw Grab introducing cloud kitchens, a Mastercard-branded debit card, on-demand cleaning and repair services (Clean & Fix), and more. Nevertheless, some troubles still remained.

The antitrust watchdog Philippine Competition Commission (PCC) fined Grab’s Philippines unit $318,000 for overpricing and higher drive cancellations. The Malaysian and Indonesian governments also began to investigate the company over anticompetitive behavior. 

While Grab started the new year off well by raising $856 million from Mitsubishi UFJ Financial Group in February 2020, bigger challenges would soon emerge. The coronavirus pandemic essentially decimated most of its ride-hailing business (especially with no travelers being allowed into Southeast Asia).

As a result, Grab had to lay off 5 percent of its workforce (equal to around 360 people). Furthermore, and certainly the bigger news, reports began to emerge that Grab and Go-Jek had initiated merger talks back in February 2020.

However, those negotiations ultimately fell through towards the end of 2020. Instead, Go-Jek decided to merge with Indonesian online marketplace Tokopedia.

One of the major reasons why the Grab-Go-Jek merger failed was that Grab was demanding majority ownership (reports stated over 60 percent) of the combined entity. Second, Anthony Tan wanted to be named CEO for life and sought absolute voting and decision-making power.

Instead, Grab remained independent and, in April 2021, it announced it would go public via a SPAC merger with Altimeter Growth Corp. 2. The deal would value Grab at $39.5 billion, making it the largest-ever SPAC (not bad for a company whose home market was considered too small 10 years ago).

How Does Grab Make Money?

Grab makes money via driver and restaurant commissions, payment processing fees, advertising on its platform, referral fees, and many more.

While Grab began as a marketplace, its business model has now evolved towards becoming Southeast Asia’s leading super app.

As such, it is building ancillary products and services (such as personal assistants or even investing) to fulfill the everyday needs of its users.

One major advantage of the super app model is that users are already accessing the main app every day. For instance, when launching a new product like express deliveries, Grab does not have to spend millions in marketing dollars to advertise the service, but can simply push it within the app.

Furthermore, Grab’s users are accustomed to the quality of their services. Therefore, whenever a new one launches, customers will be more inclined to (at the very least) test it out.

Depending on the type of product and service, Grab will either build up the capabilities itself or partner with other companies to provide that service (such as with its insurance products).

Let’s, therefore, take a closer look at all the ways that Grab makes money.

GrabRides

Grab offers a variety of transportation opportunities under its Rides section. Examples include:

• JustGrab: booking the closest taxi or car
• GrabHitch: carpool with other users, allowing them to save up to 40 percent
• GrabBike: ride-sharing via motorbikes
• GrabFamily: cars that offer additional safety measures
• GrabPet: ride options allowing to transport pets

… and plenty more. In order to become a driver, one needs to be at least 18 years old, possess a valid driving license, as well as have their vehicle vetted by the company.

Driving partners are hired on a contractual basis, meaning they are free to work whenever they please. Grab has developed a separate app for its drivers through which they can log their work.

That also means that drivers have to pay for fuel, insurance, and possible repairs themselves. However, Grab has partnered with other companies to aid its drivers. For instance, its 2018 partnership with Toyota allows drivers from the Philippines to take out favorable loans to upgrade their cars.  

Grab then generates revenue by taking a percentage cut, which floats around 20 percent, from the overall fare. If, for instance, a ride costs $10, then Grab gets to keep $2.

GrabFood

With GrabFood, users can order meals from restaurants in proximity. Whether fast food or healthy, there’s something available for every taste.

Grab works together with drivers who pick up the food from the restaurant and deliver it to the customer’s address.

In exchange for that service, customers pay a delivery fee. The amount they end up paying is dependent on the distance between the restaurant and the customer’s home. Customers, similar to GrabRides, can also tip drivers (100 percent of the tip will go to the driver).

Grab makes money from its food business by taking a percentage cut from the restaurants (called service fee). The service fee ranges anywhere between 25 to 30 percent, which is in line with other services like Deliveroo or Foodpanda.

Apart from working with restaurants, Grab also launched a cloud kitchen business (called GrabKitchen) back in 2019. These cloud kitchens are operated in cooperation with established restaurant owners.

Since Grab provides the kitchen infrastructure, it can be assumed that the percentage cut it takes from the partner is slightly higher.

GrabMart

Similar to GrabFood, users can also order groceries and beverages from different supermarkets and kiosks.

Available products include packaged food (e.g., bread or cookies), drinks (juices, milk), healthcare products (medicine, sanitizer), personal care (such as shampoo), household products (detergents or dishwashing liquid), and gifts (such as books or flowers).

Again, Grab makes money from the service by taking a percentage cut from the stores it works together with. That cut, however, is likely much lower compared to GrabFood and GrabRides. That’s because margins in the FMCG space tend to be much lower.

Furthermore, prices on GrabMart are, in all likeliness, slightly higher compared to the ones within the store. As such, the margins on the products tend to be higher.

Going forward, it may be possible that Grab begins to source and store products in its own warehouses (much like Gopuff in the U.S. or Gorillas in Europe).

In markets like Indonesia, Grab also operates its own little stores (via GrabKios). These are Grab-branded kiosks allowing users to pay with their Grab app. The kiosks emerged as part of Grab’s $100 million acquisition of Kudo back in 2017, which allowed traditional retailers such as kiosks to sell digital and physical goods through its app.

GrabExpress

Apart from people and food, users on Grab can also have items transported via the riders on its platform.

With GrabExpress, users can, for example, send letters to another address in proximity. Depending on the package size, items are either transported by motorbikes or cars.

Furthermore, packages are insured (up to SGD 500 in Singapore) and can be tracked in real-time throughout the delivery.

Similar to GrabRides, Grab takes a percentage cut from the overall fare. Fees are largely similar to the ride-hailing service.

GrabPay

GrabPay is a mobile wallet that allows users to pay for goods and services within Grab’s app ecosystem as well as at selected in-store merchants.

Grab’s payment arm is likely its most important business unit when it comes to securing its status as Southeast Asia’s leading super app.

Many of its direct and indirect competitors, including Go-Jek, Lazada, or Shopee, have expanded into the high-margin payments business by introducing wallets of their own.

However, Grab has taken this a step further. In December 2020, for instance, was one of four companies to be awarded a digital banking license in Singapore (Sea, Shopee’s owner, was another one).

Being a fully licensed bank will allow Grab to move into other financial services, including the issuance of loans or providing customers with checking accounts.

Close to 300 million people in Southeast Asia remain unbanked. As such, Grab has the opportunity to become the first bank account that many of its users ever had.

In the future, Grab can then offer ancillary services such as loans, insurances, or investment products. The major advantage here is that Grab collects an abundance of data on a user’s spending habits (and more), thereby allowing them to tailor their offering to the user’s specific needs.

Nevertheless, Grab already generates a significant amount of revenue via GrabPay today. For starters, merchants offering GrabPay pay a small fee on every transaction (around 1 percent). Grab works together with the likes of Adyen and Stripe to be able to process these payments.

Furthermore, Grab has issued its own physical debit cards in cooperation with Mastercard. Whenever you pay with a debit or credit card, a so-called interchange fee is applied. Grab and Mastercard, as the issuer of the card, will then likely split that fee between the two of them.

Also, Grab has launched a ‘buy now, pay later’ service, allowing customers to pay for goods in four installments. While the service is technically free, customers will have to pay a penalty fee (around 4 percent) if they miss paying for an installment.

GrabAssistant

GrabAssistant, available in a few, selected countries like Thailand, is an on-demand concierge service fulfilling various tasks.

Users can book assistants to buy pet food, gardening supplies or plants, medicine, pick up laundry, and plenty of other tasks.

Again, Grab takes a percentage cut from the order volume. On top of that, users pay the driver a delivery fee and can optionally tip them.

GrabRewards

Whenever you book a ride, order food, or pay with your Grab Wallet, points are given according to the money spent.

These points can then be redeemed for other products (such as headphones) or to get discounts (30 percent off at certain restaurant partners).

Grab uses the reward system to incentivize users to repeatedly use its platform. The thinking is that users will eventually get used to the platform that switching simply is too inconvenient.

Apart from increased customer loyalty, Grab also generates revenue through its rewards program. Its program partners likely pay the firm a small referral fee for bringing in additional customers.   

GrabGifts

GrabGifts is a virtual gift card that users can send it others. The card can then be used for a variety of grab services, including rides, food delivery, supermarket, and express deliveries.  

GrabInsure

Grab has partnered with local insurance companies to offer various policies to both its customers as well as drivers.

Available insurance options include travel insurance (in case you don’t make a trip) as well as accident coverage during a Grab ride.

Customers pay for the insurance during the booking of a trip. Since Grab has partnered with insurance underwriters for coverage, it can be assumed that the fee paid is then shared between Grab and its insurance partner.

Both Grab and the insurance underwriter have millions of data points about past rides available at their disposal. As such, they can reliably calculate how likely an accident actually is, thereby making it more lucrative to offer these types of insurances.

GrabAds

GrabAds is an enterprise product that allows other business to advertise their goods and services on Grab’s platform.

Millions of people access Grab’s ecosystem every day. Furthermore, Grab has data on its user’s spending habits, preferred locations, as well as other preferences.

According to Grab, over 60 percent of users that open the app transact on it within the same session. As such, it can provide advertisers with a highly targeted audience that is willing to buy.  

In the past, Grab has worked together with advertisers such as Nike, Apple, McDonald’s, Disney, Unilever, Coca-Cola, and many more.

These advertisers, in all likeliness, pay Grab on a cost-per-click (CPC) basis. That means whenever a user clicks on an advert, a pre-negotiated CPC fee is subtracted from the advertiser’s budget.

Furthermore, Grab also does offline advertising, for instance by putting samples into cars or wrapping sticker ads around the car. In that case, both parties likely agree on a fixed compensation to run those ads over a certain period of time.

Grab Funding, Revenue & Valuation

According to Crunchbase, Grab has raised a total of $12.5 billion across 34 rounds of debt and equity funding.

Notable investors include SoftBank, Tiger Global Management, Yamaha, GGV Capital, Microsoft, HSBC, 500 Startups, Vertex Ventures, Toyota, and many more.

With its SPAC merger, expected to go through by the end of 2021, Grab is seeking a valuation of around $40 billion.

For the fiscal year 2020, Grab reported revenues of $1.6 billion. Meanwhile, the company still lost $800 million over the very same timeframe.

Who Owns Grab?

As a result of its SPAC merger with Altimeter Growth, Grab founder and CEO Anthony Tan will only own 2.2 percent of ordinary shares.

However, the SPAC deal grants him 60.4 percent of the newly formed company’s voting power (via Class B shares). The Class B shares carry 45 times the voting power of ordinary shares.

As such, Tan can outvote any of the other investors and board members, thereby giving him absolute decision-making power.

This constellation is not uncommon, in particular within founder-led companies. Facebook CEO Mark Zuckerberg, for instance, also controls most of his firm’s voting power.

The second co-founder, Hooi Ling Tang, as well as president Ming Maa will own 1.1 percent of ordinary shares after the transaction.

Grab’s largest shareholders (in terms of ordinary shares) are the SoftBank Vision Fund (18.6 percent), Uber (14.3 percent), Didi Chuxing (7.5 percent), and Toyota (5.9 percent).