What are the lessons from Southeast Asia as India builds its super apps? – Part 1

Image courtesy of Brett Jordan

More than 10 years after going into business, Southeast Asia’s top super apps Grab and GoTo are not yet profitable. Meanwhile, India’s leading corporate giants are launching their own super apps in a similar, demographically diverse market with a smartphone penetration nearing 70%. The growth trajectories of India’s super apps will be keenly watched in the light of the super app building experiences of companies in Southeast and Northeast Asia. Profitability is a longer-term challenge as leading Indian companies launch their super apps – with achieving smoother integrations, building and sustaining value-generating user relationships, and delivering personalised user experiences being their most pressing immediate challenges.

The Reliance Jio platform belonging to India’s largest industrial group Reliance, and the salt-to-software conglomerate Tata’s Tata Neu platform are the two major super app challengers in India. As opposed to the Southeast/Northeast Asian super apps that created high-demand, high-traffic platforms such as ride-hailing or chat, and added diverse features like financial services and healthcare, Indian legacy giants Tata and Reliance are instead trying to stitch together multiple apps – including acquired apps and software they have invested in on another platform – to inorganically create super apps. What are the conditions the Indian super apps need to achieve profitability? How do the super app strategies of India and Southeast Asia differ? Are there any lessons that India can learn from the Southeast Asian super app building experiences?

Reliance, as a matter of fact, has attracted US$27 billion in funding from the likes of Facebook’s Meta, Google, Singapore’s GIC, Abu Dhabi’s Mubadala, and United States’ KKR and SilverLake for its combined retail and digital platform plays, showing global investor confidence in the company’s moves. Tata, on the other hand, has been less successful in drawing the interest of global investors for its super app play. However, its parent company Tata Sons has infused significant investments into Tata’s super app Tata Neu. Both the companies have taken advantage of the fact that the Indian government seems to prefer the creation of two or three powerful national giants in critical industrial sectors, following the model in the US.

A third and earlier-launched app, the Alibaba-funded Paytm was supposed to be the top super app challenger in India, but its share prices plunged after its IPO. It too faces the challenges of the Southeast Asian super apps of continuous sequential losses, lack of a distinct value proposition, a commoditised “primary” utility, and questions about long-term profitability.

The profitable super apps are concentrated in Northeast Asia

The profitable super apps are all in Northeast Asia so far. These include WeChat and Alipay in China, and Kakao in South Korea. Singapore-based Sea is often considered a super app competitor of GoTo and Grab in Southeast Asia. However, in an interaction with Frontier Enterprise, a Sea company spokesperson denied that Sea deserves the super app classification, or that it is a competitor in the space. Sea prefers to see itself as a holding company of multiple technology companies offering different services in the same markets.

There exists a vast chasm between performance expectations for these apps and reality. The shares of Sea were the best performing in the world in 2020. Sea, like GoTo and Grab, isn’t in sight of profitability yet. Both Grab and Sea in 2021 and 2022 have seen massive sell-offs of  their shares as global investors revisited the hype around their growth on the basis of widening losses or market disruptions. Grab reported a net loss of over US$1 billion in the fourth quarter of 2021 on heavy investment outlay for growth, showing that profitability is an ongoing challenge for Grab – a company founded in 2012.

WeChat: The super app standard that aspirants try to emulate

Both Grab and GoTo tried to clone WeChat for their super app models. Gojek – the name that GoTo was known for before merging with Indonesian e-commerce company Tokopedia – was founded in 2010 and launched its super app business in 2015. After going public in December 2021 through a merger with a special-purpose blank cheque firm, Grab had lost nearly 75% of its value by April 2022. On the day the company posted its US$1 billion fourth quarter loss, its shares fell 37%. Even after the sell-off, Citi Research and Nasdaq published reports stating that they were bullish on Grab’s future prospects.

Wary of the experiences of Grab and Sea, GoTo went quiet on a Nasdaq listing announced last year and instead had a successful IPO in Jakarta, where it possesses immense goodwill for generating mass employment that connects the 17,000 odd islands of Indonesia through its services and logistics. GoTo’s losses were US$807 million in 2021 and nearly US$1 billion in the previous years. In its IPO prospectus, GoTo told investors that: “The company cannot guarantee that it will record a net profit in the future.” However, investors remain bullish on GoTo and Grab despite the fact that their paths to profitability are hazy at best.

No clear path to profitability, but are investor favourites

Why do investors still see value in companies that have been in existence for nearly a decade, have never posted profits, and are bleeding cash? The case for Southeast Asia’s super apps is in the macro view of the digital economy of the region. Ultimately, the super app play is a bet on Southeast Asia’s digitally savvy, yet digitally underserved and largely unbanked population. According to a report by Google, Temasek Holdings, and Bain, Southeast Asia’s digital economy is poised to reach US$363 billion by 2025, which is higher than the previous forecast of US$300 million. What’s more pertinent to the calculations of investors is that the region added 60 million new internet users during the COVID-19 pandemic, led mostly by Thailand and the Philippines.

In 2021, online spending rose nearly 50% to US$174 billion in Southeast Asia. Out of the region’s total digital gross merchandise value (GMV) of US$363 billion, online shopping is poised to make 64% or US$174 billion in 2025. According to Google and its partners, shifts in consumer behaviour and merchant choices have ushered in the Southeast Asian digital decade, with GMV set to reach US$1 trillion by 2030. In Indonesia, online spending is expected to increase to US$146 billion by 2025. Vietnam is expected to have the fastest growth rate of all six Southeast Asian countries tracked by the study with online GMV tripling by 2026.

What is the comparative digital economy case in India for super apps? India’s online consumer market was estimated at close to US$100 billion in 2020, and is expected to grow eightfold to US$800 billion in 2030. At that point, online GMV is expected to hit US$350 billion from US$55 billion this year.

Going back to Southeast Asia, smartphone adoption in Indonesia is expected to increase to 88% in 2025 (up from 77% in 2020) while in Malaysia, it is expected to reach 92% (from 86%), 93% in Singapore (from 88%), 89% in Thailand (from 81%), 86% in the Philippines (from 78%), and 85% in Vietnam (from 62%), according to data from GSMA. Ericsson Mobility estimates that India already has 810 million smartphone users, which represents a nearly 60% smartphone penetration rate. GSMA expects India’s smartphone penetration rate to increase to 85% in 2025.

In the second part of this report, we will look at the features that helped Asian super apps click with customers and how the Indian super apps match up.