Louvain School of Management
Sharing economy: a drive to success The case of GO-JEK in Jakarta, Indonesia
Research Master’s Thesis submitted by Alice Coupez
With a view of getting the degree Master 120 credits in Management, professional focus
Supervisors Christophe Brognaux Christophe Lejeune
Academic Year 2016-2017
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First and foremost, I would like to express my sincere gratitude to my two thesis supervisors, Professor Christophe Lejeune and Christophe Brognaux, for supporting my ideas while providing me valuable remarks and reflexions. Their trust and support helped me lead this project during an enriching year in South East Asia.
I would also like to deeply thank two professors who particularly developed my interest and understanding of sharing economy and platform management, Professor Paul Belleflamme (Université Catholique de Louvain) and Professor Mark Chong (Singapore Management University). i
ABSTRACT
Over the past decade, sharing economy has grown into a worldwide phenomenon. It has now arrived at a mature state of development, characterized by an intense competition on some markets. This master thesis analyses the development of this international phenomenon and focuses on the unexpected success of the Indonesian start-up GO-JEK in Jakarta. In fact, since its launch in 2015, GO-JEK has expanded its range of services, beating its international competitors Uber and Grab, and has become the first Indonesian unicorn (start-up valued at over US$1 billion). This research proposes an environment analysis and an analysis of GO- JEK’s strategies, put into perspective with its competitors’. The success of GO-JEK is found to heavily rely on its deep understanding and adaptation to the Indonesian market and to the needs and preferences of its key groups of actors: platform consumers, providers, and regulators.
Key words: sharing economy, platforms, mobility, Go-Jek, Jakarta.
Au cours des dix dernières années, l’économie de partage s’est développée pour devenir un phénomène mondial. Elle est aujourd’hui arrivée à un stade mature de développement, caractérisé par une concurrence intense sur certains marchés. Ce mémoire analyse le développement de ce phénomène international et s’intéresse au succès inattendu de la start-up indonésienne GO-JEK à Jakarta. En effet, depuis son lancement en 2015, GO-JEK a étendu sa gamme de services, battant ainsi ses concurrents internationaux Uber et Grab et devenant la première start-up indonésienne à être évaluée financièrement à plus d’un million de dollars. Cette recherche propose une analyse de l’environnement ainsi qu’une analyse des stratégies de GO-JEK, mises en perspective avec celles de ses concurrents. Le succès de GO-JEK s’avère profondément fondé sur sa compréhension et son adaptation au marché indonésien et aux besoins et préférences de ses groupes d’acteurs clés : les utilisateurs, les fournisseurs et les régulateurs de la platform.
Mots-clés : économie de partage, plateformes, mobilité, Go-Jek, Jakarta. ii
TABLE OF CONTENTS INTRODUCTION ...... 1 PART I: LITERATURE REVIEW ...... 2 1. INTRODUCTION ...... 2 2. DEFINITION ...... 2 2.1 Introduction ...... 2 2.2 What is the sharing economy? ...... 3 2.2.1 Definitions ...... 3 2.2.2 Sharing? ...... 3 2.2.3 Sharing what? ...... 4 2.2.4 Sharing how? ...... 5 2.2.5 Sharing among whom? ...... 5 2.3 Other terms used ...... 6 2.4 What the sharing economy is not? ...... 6 2.5 Conclusion ...... 8 3. ORIGINS AND DEVELOPMENT ...... 8 3.1 Introduction ...... 8 3.2 Economical drivers ...... 9 3.3 Societal drivers ...... 10 3.4 Technological drivers ...... 11 3.5 Conclusion ...... 12 4. BUSINESS ASPECTS BEHIND THE SHARING ECONOMY ...... 13 4.1 Introduction ...... 13 4.2 Sharers ...... 13 4.2.1 Who are they? ...... 14 4.2.2 Why do they take part in sharing economy? ...... 15 4.3 Business model ...... 16 4.3.1 Customer value proposition ...... 16 4.3.2 Key resources and processes ...... 17 4.3.3 Profit formula ...... 18 4.4 Competition ...... 19 4.4.1 How to compete in the sharing economy? ...... 19 iii
4.4.2 How to adapt to the sharing economy? ...... 20 4.5 Conclusion ...... 22 5. CONTROVERSIES SURRONDING THE SHARING ECONOMY ...... 23 5.1 Introduction ...... 23 5.2 Consumption ...... 23 5.3 Environment ...... 24 5.4 Labor ...... 25 5.5 Social connections ...... 26 5.6 Regulation ...... 27 5.7 Conclusion ...... 27 6. CONCLUSION ...... 28 PART II: PRACTICAL RESEARCH ...... 30 1. INTRODUCTION ...... 30 2. METHODOLOGY ...... 30 3. ENVIRONMENT ANALYSIS ...... 32 3.1 Introduction ...... 32 3.2 General development ...... 32 3.2.1 Population ...... 32 3.2.2 Economy ...... 33 3.3 Mobility development ...... 34 3.3.1 Public transportations ...... 34 3.3.2 Private vehicles ...... 35 3.3.3 Taxis ...... 36 3.4 Technological development ...... 37 3.4.1 Internet ...... 37 3.4.2 Tech pioneers ...... 37 3.4.3 Sharing economy ...... 38 3.5 Conclusion ...... 40 4. GO-JEK CASE ANALYSIS ...... 42 4.1 Introduction ...... 42 4.2 New option for ride-hailing ...... 43 4.2.1 Motorcycle ride-hailing ...... 43 4.2.2 Competition in motorcycle ride-hailing ...... 45 iv
4.2.3 Issues related to motorcycle ride-hailing ...... 46 4.3 New definition of mobility ...... 48 4.3.1 One-stop-shop solution ...... 48 4.3.2 Transportation and logistics ...... 48 4.3.3 Health and lifestyle ...... 50 4.3.4 Payment solutions ...... 52 4.3.5 Promotion and marketing ...... 54 4.4 New bases for entrepreneurship ...... 56 4.4.1 Work conditions and revenues ...... 56 4.4.2 Financial inclusion ...... 57 4.4.3 Entrepreneurial support ...... 58 4.5 Conclusion ...... 59 5. DISCUSSION & RECOMMENDATIONS ...... 60 5.1 Introduction ...... 60 5.2 Key Factors of Success ...... 60 5.2.1 Consumers ...... 60 5.2.2 Providers ...... 61 5.2.3 Regulators ...... 62 5.3 Recommendations ...... 62 5.4 Future developments ...... 63 5.5 Conclusion ...... 64 6. CONCLUSION ...... 65 CONCLUSION ...... 68 REFERENCES ...... 70 APPENDICES ...... Error! Bookmark not defined. APPENDIX 1: ENVIRONMENT ANALYSIS ...... Error! Bookmark not defined. 1.1 PESTEL analysis for sharing economy platforms offering mobility solutions in Jakarta, Indonesia ...... Error! Bookmark not defined. 1.2 Opportunities and threats for each key group of actors .. Error! Bookmark not defined. APPENDIX 2: COMPETITION COMPARISON TABLE ..... Error! Bookmark not defined. APPENDIX 3: INTERVIEWS PLATFORM CONSUMERS . Error! Bookmark not defined. 3.1 Interview template ...... Error! Bookmark not defined. 3.2 Interview 1: Feodora ...... Error! Bookmark not defined. 3.3 Interview 2 ...... Error! Bookmark not defined. v
3.4 Interview 3 ...... Error! Bookmark not defined. 3.5 Interview 4 ...... Error! Bookmark not defined. 3.6 Interview 5 ...... Error! Bookmark not defined. 3.7 Summary table of consumers’ recurring answers ...... Error! Bookmark not defined. APPENDIX 4: INTERVIEWS PLATFORM PROVIDERS ... Error! Bookmark not defined. 4.1 Interviews template ...... Error! Bookmark not defined. 4.2 Interview 1 ...... Error! Bookmark not defined. 4.3 Interview 2 ...... Error! Bookmark not defined. 4.4 Interview 3 ...... Error! Bookmark not defined. 4.5 Interview 4 ...... Error! Bookmark not defined. 4.6 Interview 5 ...... Error! Bookmark not defined. 4.7 Summary table of providers’ recurring answers ...... Error! Bookmark not defined. APPENDIX 5: ILLUSTRATIONS ...... Error! Bookmark not defined. 5.1 GO-JEK illustrations ...... Error! Bookmark not defined. 5.1.1 GO-JEK interface ...... Error! Bookmark not defined. 5.1.2 GO-JEK ordering process ...... Error! Bookmark not defined. 5.1.3 GO-JEK advertisements ...... Error! Bookmark not defined. 5.2 Grab illustrations ...... Error! Bookmark not defined. 5.2.1 Grab interface ...... Error! Bookmark not defined. 5.2.2 Grab ordering process ...... Error! Bookmark not defined. 5.2.3 Grab advertisements ...... Error! Bookmark not defined. 5.3 Uber illustrations ...... Error! Bookmark not defined. 5.3.1 Uber interface ...... Error! Bookmark not defined. 5.3.2 Uber ordering process ...... Error! Bookmark not defined. 5.3.3 Uber advertisement ...... Error! Bookmark not defined. APPENDIX 6. SUMMARY TABLE OF GO-JEK’S ANSWERS TO INDONESIAN NEEDS AND PREFERENCES COMPARED TO ITS COMPETITORS ...... Error! Bookmark not defined. 6.1 Needs and preferences of Indonesian consumers ...... Error! Bookmark not defined. 6.2 Needs and preferences of Indonesian providers ...... Error! Bookmark not defined. 6.3 Needs and preferences of Indonesian regulators ...... Error! Bookmark not defined.
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INTRODUCTION
Over the past decade, a wave of new businesses has emerged and started disrupting a number of industries. Contrarily to traditional businesses, they favour access over ownership on Internet-based platforms. These so-called sharing economy platforms are empowering consumers to become not only consumers on the platform but also providers, creating a community of sharers and an alternative to traditional businesses. Like most technology pioneers, the first sharing economy platforms were funded in the Silicon Valley, then expanded to other regions to become a worldwide phenomenon. The first part of this master thesis examines this international phenomenon, analysing the available literature on the subject. This literature review first aims at clarifying the definition, concepts, and characteristics of the sharing economy. Secondly, it analyses the reasons for its development and success. Thirdly, it provides a managerial approach to the sharing economy platforms’ business model. Finally, it looks at the various controversies surrounding this disruptive phenomenon.
From the Silicon Valley-based IT start-ups perspective, the world often looks like a large undifferentiated market. In fact, many IT start-ups build their worldwide success providing one unique solution across regions of the world. However, the past few years have seen the successful development of sharing economy platforms adapting their offers to local needs and preferences. This led, for instance, to the acquisition of the giant Silicon Valley sharing economy platform Uber by its local rival Didi on the Chinese market. The direct competitive environment for sharing economy platform has evolved, with more and more platforms competing against each other on the same markets. The second part of this master thesis examines the case of the Indonesian start-up GO-JEK. Since the launch of its application in 2015, GO-JEK has expanded from motorcycle taxis to a wide range of mobility, lifestyle, and payment solutions, becoming the leading sharing economy platform in Indonesia and the first Indonesian unicorn (start-up valued at over US$1 billion). Based on analyses of the Indonesian environment and of the innovative strategies of GO-JEK, this research aims at understanding the unexpected success of this start-up facing international competitors Uber and Grab. This analysis has for ambition to uncovers new ways to perceive sharing economy platforms in the context of a developing country, as well as different strategies to successfully tap into its opportunities and neutralize its threats. 2
PART I: LITERATURE REVIEW
1. INTRODUCTION The first part of this master thesis consists in a literature review of sharing economy platforms, the chosen international management subject of this master thesis.
A literature review aims at exploring existing publications on one subject as a basis for the future research. In this case, publications about sharing economy platforms from academic and corporate research centres were collected. Their findings were analysed and put into perspective to develop a strong understanding of the international sharing economy platforms question.
The following sections summarize this analysis and present the main subjects explored by searchers on the sharing economy platforms question. How can sharing economy platforms be defined? How did they develop into such an international phenomenon? How are they managed? And how are they perceived by different actors in the society?
2. DEFINITION
2.1 Introduction Over the last decade, a new range of businesses have flourished allowing individuals to share and monetize underutilized resources in new Internet-related ways (Belk, 2014; Cohen & Kietzmann, 2014). Owyang and his colleges (2014) see it not simply as a new way to buy and sell items, but as a powerful new movement in the business landscape. In fact, over the last years this movement went from nothing to wide range of businesses all over the world valued in billions of dollars and casting a shadow over various industries (Vaughan, 2014; Ransbotham, 2015). This movement and the diversity of businesses it encompasses are difficult to define in one term, and in fact academics and practitioners have come with various terms (Schor, 2014; PWC 2015). However, in this thesis, we choose to use the term “sharing economy”, the most widely spread term in academic papers and the one used by recognized organizations such as Price Waterhouse Coopers and the European Union Commission (Demary, 2015).
This first section of the thesis attempts to define the “sharing economy”, what is the meaning of sharing in this movement, what is shared, how it is shared and among whom. It will also 3 specify what sharing economy is not and finally compare it to other terms used by some academic searchers. Providing a clear definition of what it understood as sharing economy is particularly important since many organizations have recently positioned themselves under this umbrella term, not always rightfully. Schor (2014) explains that by doing so, organizations want to be associated with the “positive symbolic meaning of sharing, the magnetism of innovative digital technologies, and the rapidly growing volume of sharing activity”.
2.2 What is the sharing economy?
2.2.1 Definitions There is currently not one definition of sharing economy accepted unanimously. The European Commission, working on a regulation of the sharing economy industry, is defining it as “platforms that link individuals and/or legal persons […] allowing them to provide services and/or exchange assets, resources, time, skills, or capital, sometimes for a temporary period and without transferring ownership rights” (EU Commission, 2015, p.33). Price Waterhouse Coopers explains to businesses that “sharing economies allow individuals and groups to make money from underused assets […] in this way, physical assets are shared as services” (PWC, 2015, p.5). Finally, Rachel Botsman, one of the most famous authors in the field, describes sharing economy as an “economic model based on sharing underutilized assets from spaces to skills to stuff […] among a network of connected individuals and communities” (Botsman, 2013, p.5).
Let’s come back on the various aspects a definition of sharing economy should contain.
2.2.2 Sharing? Sharing can be broadly defined as anything to which access is granted to, to more people than its owner (Belk, 2010; Bardhi & Eckhardt, 2012). In that sense, the main idea behind the sharing economy is to make possible transactions that enable access rather than transfer ownership, as explained by the European Commission.
Giving access rather than ownership has, according to Botsman (2013), the potential to radically change the way we consume. In fact, it solves the problem of underutilized resources. These resources have untapped potential use that can be exploited through the sharing economy (Matzler et al., 2015; PWC, 2015). Sharing economy allows on one side for owner to make full 4 use of the “idling capacity” of the resource (Botsman, 2013) and on the other side for a consumer to enjoy the benefits of it even though he doesn’t want or cannot afford its ownership (Lamberton & Rose, 2012; Belk, 2014; Nielsen, 2014; Horton & Zeckhauser, 2016).
2.2.3 Sharing what? The sharing economy concerns the sharing of a wide variety of resources: goods, knowledge and skills, time, money, and space, sometimes taken in combination (Cohen & Kietzmann, 2014; Demary, 2015; Matzer et al., 2015; Helberger, 2016). AirBnB for instance is a platform that allows individuals to give access to their accommodation (space), and become a host (time, knowledge and skills) to guests. Platforms such as Uber, Lyft and BlaBlaCar provide ride-sharing or ride-hailing solutions, giving a seat in a car (space or good) to a passenger and transporting him to his destination (time, knowledge and skills). TaskRabbit allows anyone to find an individual willing and able to accomplish any task (time, knowledge and skills). Finally, Snapgoods and 1000tools are example of platforms that enable short-term access to some tools (goods) needed for a specific task.
These resources shared come from a wide variety of industries such as accommodations, transportations, manufacturing, households’ appliance, high-end clothing with a potential to disrupt many more in the future (Sundararajan, 2013; Schor 2014).
Botsman (2013) distinguishes four main aspects of the economy already disrupted by the sharing economy: consumption, finance, education and production. Consumption is the most developed of them; in fact, examples mentioned above change the way we traditionally consume (Botsman, 2013). Finance has more recently, been disrupted as well, particularly after 2008. Platforms like Zopa, Kickstarter, and IndieGoGo allowing people to lend money to each other (P2P banking) or to finance others’ projects (crowd-funding) have grown in popularity (Botsman, 2014; Masset & Luyckx, 2014; Sundararajan, 2014). The rise of Internet has also opened the door to new access to education and the creation of Massive Open Online Courses (MOOC). Cousera, for instance, enables access to top universities courses to individuals all over the world (Agyeman et al. 2013; Botsman, 2014; Schor, 2014). Last but not least, production and businesses can more and more benefit from sharing economy 5
(Feller et al., 2013; Botsman, 2014; Schor, 2014). Vaughan (2014) considers that it represents probably an even larger opportunity than consumption. In fact, he considers that businesses could avoid costs and gain competitive advantages by sharing underutilized physical space, industrial equipment or intangible resources such as some of their talent’s skills or intellectual capital. In that idea, LiquidSpace and Sharedesk offer a platform for co-working and platforms such as oDesk and Quirky help freelancers and ideas to find projects and realization (Botsman, 2014; Sundararajan, 2012; Vaughan, 2014).
2.2.4 Sharing how? The sharing economy as we live it now is, contrarily to other sharing mechanisms of the past, highly dependent on the Internet (Belk, 2014; Nica & Potcovaru, 2015; Helberger, 2016). In fact, if there was willingness to share resources in the past, the Internet now allows sharing at a speed and scale that were impossible before it (Owyang et al., 2014; Schor and Fitzmaurice, 2015). Mobile, social and location-based technologies enable platforms to match people more efficiently and create value for the different actors interacting in the sharing economy (Evans & Schmalensee, 2007; Botsman, 2013). The role of technology and Internet will be further developed in the section about the origins and development of sharing economy of this thesis.
2.2.5 Sharing among whom? There are theoretically three types of actors participating in the sharing economy. The first is the platform provider, who provides the underutilized resource that can be shared. The second actor is the platform that will serve as a marketplace, match the provider of a resource with a consumer for it, facilitate the transaction and possibly offer other services such as trust mechanisms, insurance and control, or advertising (Helberger, 2016). The third and last actor is the platform consumer, who creates a demand for the shared resource and takes part in the review writing for the trust enhancing mechanism of the platform (Sundararajan, 2014; Helberger, 2016). However, it is important to note that providers can and do become consumers in sharing economies platforms, and vice versa, hence one individual can play two of these roles (Schor, 2014). The business aspects of platforms will be further explained in the third section of this thesis.
Another critical point is that these actors can be individuals or businesses as shown in the examples above (Botsman, 2013; Demary, 2015) and that in the case of services, the provider can be a professional/free-lancer or a non-professional (Sundararajan, 2014). 6
2.3 Other terms used As more and more businesses flourished in this global movement, authors started writing and theorize it, which resulted in a variety of terms being developed about it. “Collaborative economy and collaborative consumption” (Botsman & Rogers, 2010), “the mesh” (Gansky, 2010), “access-based economy” (Bardhi & Eckhardt, 2012), “commercial sharing systems” (Lamberton & Rose, 2012), “peer economy” (Sundararajan, 2013), “peer platform markets” (Demary, 2015), those terms are sometimes used interchangeably with “sharing economy”; they are linked to the same movement but each of them emphasize on different aspects. For instance, the OECD uses “peer platform markets” to capture the fact that there is an economic compensation in those transaction and that it is not one unified economy but different markets affected by this new model. Botsman (2010) analyzes mainly the new ways of consumption coming from access rather than ownership which she calls “collaborative consumption” in difference to “collaborative economy” which encompass as well production, finance, and education. “Peer economy” emphasize on the slice of sharing economy or platform businesses that create person-to-person marketplaces (Botsman, 2010; Sundararajan, 2013). In the end, they are all similar-but-different ideas with two commonalities: the temporary access non-ownership model and use of Internet-based platforms to facilitate transactions.
2.4 What the sharing economy is not? The divergence in definitions of the sharing economy movement is important. Since definitions differ, it is only natural that they encompass different elements and as Schor (2014) explains that some businesses take advantage of it to position their activities (not always rightfully) under this new attractive umbrella. However, there are three groups of organizations that will not, in this thesis, be considered as part of the sharing economy, the first one because it does not fit the chosen definition and the two others in order to make the business focus clearer.
First group of organizations to be mistakenly, according to the chosen definition, identified as part of the sharing economy are those organizing recirculation of goods (Schor, 2014), also called redistribution markets (Botsman, 2014) or peer-to-peer resource sales (Sundararajan, 2014). In fact, in those cases, the owner of a good sells it to someone else through a platform such as eBay, Craigslist, or other online auction sites. The fact that there is transfer of ownership of the underutilized resources goes against the chosen definition of the sharing economy. 7
The second group of organizations that will not be considered in this thesis is based on the decision of sharing as defined by Weber (2015). According to the author, sharing a resource (in this case a good or a space) is a decision that can be made ex ante or ex post. Ex ante means that the decision is made before the realization of a need, which is the case of the creation of public goods such as public library, public parks, or even content on Wikipedia or Youtube (Lamberton & Rose, 2012). In this scenario, the resource is shared prior to its use. The alternative, ex post is to share the resource after the realization of the need which corresponds better to the sharing economy cases where providers decide to share something and go to a platform to ask for it to be shared. This thesis focuses on what is shared ex post, excluding public goods and crowd-sourced websites considered by some authors in the scope of the sharing economy.
The third and last group of organization that will not be taken into account in this thesis can arguably be part of the sharing economy but does not include business-wise the innovation of the sharing economy. Zipcar and BMW Drive Now are two transport solutions that enable access to a car even for an hour. By doing so, they allow the increased utilization of a durable resource, the car, through a temporary access non-ownership transaction, enabled by an online application, making it in line with the sharing economy. However, the business model behind those solutions is the same as a traditional renting company: the company owns the fleet of cars and rents it to customers. Helberger (2016) named these organizations “resource hubs” explaining that they only differentiate themselves from traditional renting companies through a higher degree of customers’ organization and of service disaggregation (Rauch & Schleicher, 2015; Helberger, 2016). On the contrary, organizations in the sharing economy are characterized by a business model “resource-light”, where the provider is not the platform but platform users (Schor, 2014; Sundararajan, 2014; Helberger, 2016). For instance, Turo (formerly known as RelayRides) allows individuals to rent their car to stranger in the same geographic area; the platform does not own any car itself. If the ideas behind those organizations are close, their business models are very distinct. This thesis will focus on organizations that are part of the sharing economy and following the business model that characterize this new movement, which will be develop in a further section.
These three sets of exclusions allow us to focus on the most innovating aspects of the sharing economy. In fact, redistribution markets, public goods, and rental business models, even enhanced by the Internet, already existed in the last century and are based on traditional business 8 models. The aim of this thesis is to analyze the business novelties and impacts of the organizations part of the sharing economy movement and how to apply them to new markets.
2.5 Conclusion The last decade has seen the rise of a new type of businesses that searchers all over the world have been trying to define, analyze and encapsulate in a word.
In this thesis, it has been decided to use the term “sharing economy” as the generic word for this movement and the wide variety of organizations it encompasses. The sharing economy is defined as the recent movement that comprises all organizations enabling temporary access to a specific resource, intermediated by an Internet based-platform. In other words, it is considered that someone enters the sharing economy when he/she decides to give or enjoy temporary access non-ownership of an underutilized resource (good, knowledge and skills, time, money, or space) thanks to an Internet-based platform. Those platforms gather sharers who provide and consume the resource, and by doing so, offer an alternative way to consume, finance, educate or produce, disrupting more and more industries overtime.
However, this definition of sharing economy organizations does not include those that transfer the ownership of underutilized resources, that come from an ex ante sharing decision, or that use a traditional “fee for service” rental business model. These exclusions allow us to focus this analysis on the most innovating aspects of the sharing economy.
3. ORIGINS AND DEVELOPMENT
3.1 Introduction Sharing origins go back to the beginning of civilization (Owyang et al., 2014; Helberger, 2016). In fact, Pagel (2012) even considers that sharing is part of our human nature, considering we are part of the “cooperative species”. For Rifkin (2012), the sharing economy is nothing more than the rediscovery of person-to-person exchanges which existed thousand years ago and have only been eclipsed over the last century.
If sharing has been around for so long, why is the recent movement of sharing economy attracting so much attention now? Why and how have those new businesses from the sharing economy enabled sharing on a whole new scale? To answer these questions, three sets of drivers identified by Owyang and his colleagues (2014) are used: economical drivers, societal drivers, 9 and technological drivers, and his analysis is further developed with elements suggested by other authors.
3.2 Economical drivers The financial and economic crisis that hit the world economy in 2008 and the economic downturn we live in since have played a significant role in the development of the sharing economy (Agyeman et al., 2013; Cohen & Kietzmann, 2014; PWC, 2015; Zervas et al., 2016).
On one hand, this severe crisis has created skepticism from the public toward the traditional capitalistic way of doing business. Besides, gaining investors’ trust to invest in new resources has been increasingly difficult for those organizations (Gansky, 2010; Agyeman et al, 2013; Heinrichs, 2013). In this context, the sharing economy has been seen by some as an alternative way of doing business, more human and easier to trust from its resource-light business model, requiring fewer funds to start doing business (Piper Jaffray, 2015; Pasquier & Daudigeos, 2016; Smith, 2016). In fact, where traditional businesses usually have high fixed costs, sharing economy businesses can share similar resources at low or even near zero marginal costs (Rifkin, 2014). The comparative greater ease to gain trust from the public and from investors has propelled the sharing economy in the recession context (Heinrichs, 2013; Smith, 2016).
On the other hand, the economic crisis has decreased the economic power of many households. According to Denning (2014), human nature will always value ownership for the control it offers. The only times in history, he says, sharing flourished was when there was not enough wealth for everyone to access ownership. With less money to spend during the crisis, consumers have had to rethink their habits of overconsumption and the necessity of ownership (Heinrichs, 2013; Cohen & Kietzmann, 2014; Piper Jaffray, 2015; PWC, 2015). Renting some resources instead of buying them became more economically attractive (Schor, 2014) and even the idea to share personal property for extra cash was welcomed (Nielsen, 2014; Owyang, 2014). In fact, on one hand, the money that is not invested in ownership can be spent smarter with access to a wider variety of quality products and services (Sundararajan, 2014). On the other end, the money that is invested in ownership can generate new income making ownership profitable and thus accessible (Ransbotham, 2015). These new perspectives on ownership and access to goods and services increased significantly the demand for sharing economy, creating opportunities and consumer bases in various industries for those new businesses (Owyang et al., 2014). 10
3.3 Societal drivers Besides the economic difficulties, this last decade has been characterized by some societal phenomena that have helped significantly the rise of the sharing economy.
The recession-fueled change of perception on ownership and overconsumption has generalized in the population (PWC, 2015). In fact, a survey conducted in 2011 by BAV Consulting showed that 66% of consumers and 77% of millennial preferred to adapt their lifestyle by decreasing their amount of possessions. The trend is keeping on as affirmed by PWC in a recent report; four out of five consumers see real advantages in access over ownership (PWC, 2015). These people find new meaning and satisfaction from the sharing act and the social interaction and new experience it creates (Belk, 2010; Botsman & Rogers, 2013; Denning, 2014). Happiness studies exposed in PWC report confirm that idea, showing that experience has a better impact on contentment than purchases (PWC, 2015). Access rather than ownership is also said to be in line with the desire for an independent lifestyle, a life as an active citizen, and the development of more sustainable and socially connected communities (Botsman & Rogers, 2013; Heinrichs, 2013; Denning, 2014; Owyang et al., 2014; Borel et al., 2016). This increasing number of consumers willing to pay for temporary access is changing the way individuals consume everyday life resources (Bardhi & Eckhardt, 2012; Sundararajan, 2014; Matzler et al., 2015) in favor of the sharing economy.
Beside the creation of an experience and of social contact, sharing economy is creating meaning to individuals with ecological and resources considerations. Over the last decade, the world has seen a growing environmental consciousness (Agyeman et al., 2013; Cohen & Kietzmann, 2014; Owyang et al., 2014). People realize that overconsumption and growth is leading to irreversible problems for the planet and its resources. Hence, solutions must be found to encourage a more efficient use of resources and lower their ecological footprint (Belk, 2010; Gansky, 2010; Lovins & Cohen, 2011; Heinrichs, 2013; Stead & Stead, 2013; Sundararajan, 2014). The sharing economy is seen as a simple solution that could easily help decrease production while encouraging the development of more durable product and increasing use efficiency (Lamberton & Rose, 2012; Agyeman et al, 2013; Botsman & Roger, 2013; Schor, 2014; Sundararajan, 2014; Borel et al., 2016). 11
Finally, sharing economy comes as a solution to urbanization. Worldwide, cities are becoming more and more populated which results in higher density, space constraints, increased demand for some resources and higher living costs (Agyeman et al., 2013; Sundararajan, 2014; Davidson & Infranca, 2016). According to the United Nations 1 , by 2050 global urban population will have doubled with over 70% of the population living in urban areas. For Sundararajan (2014), cities are natural sharing economies; hence urbanization trends should be seen as opportunities to sharing economy businesses as it is a way to manage limited resources and high demand (Gansky, 2010; Nica, 2013; Sundararajan, 2014; Davidson & Infranca, 2016).
3.4 Technological drivers Authors in the sharing economy field all agree on the importance of the digitalization of our economy and the invention of new Internet-related technologies to the development of the sharing economy. This importance is also reflected in the definition of the sharing economy that includes “Internet-based platforms” to define this new movement.
In almost every market, digitalization is changing businesses and consumers behaviors (Denning, 2014; Demary, 2015). Sundarajan (2014) suggests two essential components of this change. The first influential component is the “consumerization of digital technologies”. In fact, in the 1980’s and 1990’s, governments and businesses were the target of digital technologies innovation. It is only from the end of the 1990’s that innovations in this field have started to be driven by consumer needs, mainly non-commercial, such as crowd-sourcing content platforms, mobile devices, and social networks (Sundararajan 2014; Helberger, 2016). These innovations have allowed the familiarization of consumers with content exchange online, higher online connectivity and increasing connectedness among communities (Gansky, 2010; Lamberton & Rose, 2012; Matzler et al., 2014; Helberger, 2016). The second influential phase is the emergence of “digital institutions”, defined by Sundararajan (2014) as digital technology-based platforms that enable economic exchanges, similarly to what traditional economic institutions have done historically. In that way, commercial tech pioneers such as eBay, Amazon, Google, PayPal, and Apple have led the foundation and lowered barriers
1 United Nations, Department of Economic and Social Affairs, Population Division (2014). World Urbanization Prospects: The 2014 Revision, Highlights (ST/ESA/SER.A/352). 12 to online economic exchanges. Different concerns that made consumers hesitant to enter economic exchange online were answered, such as the development of secure online payment systems (Gansky, 2010; Owyang et al., 2014; Piper Jaffray, 2015; PWC, 2015), communication systems (Owyang et al., 2014) and of reputational mechanisms (Schor, 2014; Piper Jaffray, 2015; Ransbotham, 2015). Besides, engaging in online economic activities quickly showed advantages for consumers, encouraging them to by-pass traditional middlemen: wider range of products, often at a lower price, powerful research tools, data-based recommendation systems, geo-localization, etc. (Denning, 2014; Vaughan, 2014; PWC, 2015; Helberger, 2016; Horton & Zeckhauser, 2016). After two decades, consumers are now comfortable with the idea of commercial transaction mediated online (Burbank, 2014; Sundararajan, 2014; Piper Jaffray, 2015).
Without this digitalization of the economy, the sharing economy movement could hardly exist. In fact, what made sharing go from a private and local behavior to such an important global movement are the technological innovations in our lives (Heinrichs, 2013; Cohen & Kietzmann, 2014; Piper Jaffray, 2015; Helberger, 2016). From social networks to online payment to identity check mechanisms, digital innovations have brought to us the necessary trust and efficiency to interact on commercial Internet-based platforms such as those fundamental to the sharing economy (Gansky, 2010; Botsman, 2013).
3.5 Conclusion In this section, it is demonstrated that sharing has found in the beginning of the 21st century the perfect combination of opportunities to go from a private and local behavior to a global movement.
Our modern society, in search for more meaningful consumption and experiences, conscious about environmental issues, and living a new wave of urbanization also sees the sharing economy as a potential solution to manage in a more sustainable way our resources.
Moreover, in a challenging economic conjuncture, sharing economy comes as an interesting solution to individuals wishing for more human ways of doing business, to investors attracted by zero marginal costs businesses, and to consumers with reduced economic power.
Over the last two decades, the technological innovations responsible for the digitalization of our economy have led the foundations and lowered barriers to online commercial transactions, fundamental to implement sharing ideas in a larger scale, scope, and geographic reach. 13
As a conclusion, sharing economy can be seen, on those three levels, as a solution leveraging the right values, at the right time, with the right medium.
4. BUSINESS ASPECTS BEHIND THE SHARING ECONOMY
4.1 Introduction In 2016, the seven-years old sharing economy start-up Uber, leader in ride-hailing, was present in over 500 cities around the world2, and kept raising billions with a valuation at 62.5 billion USD, higher than that of General Motors, founded in 1908 (Van Alstyne et al., 2016). Airbnb, the house-sharing start-up founded in 2008, hosts on average 425,000 guests per night all over the world, and was valued at 30 billion USD, surpassing leading traditional players such as Hilton or Hyatt (PWC, 2015; Helberger, 2016).
Of course, not all sharing economy organizations are as successful financially as Uber or Airbnb, nor do they aim to (Schor, 2014). However, PWC suggested that the sharing economy has the potential to grow revenues globally to 335 billion USD by 2025 (PWC, 2015). With such impressive financial valuation, disrupting power and potential for growth, it is interesting to analyze more in depth how these organizations function.
In this section, first the profile of the individuals taking part in the sharing economy and their motivations will be analyzed. Then, the business model of these organizations will be examined based on the “four-box business model framework”, suggested by Johnson (2010). Finally, the competition will be described, how sharing economy businesses compete against each other, and how incumbents can adapt in an environment where sharing economy is expanding rapidly.
4.2 Sharers As explained in the first section of this literature review, there are two types of actors interacting on sharing economy platforms: the consumers and the providers of the shared resource. As consumers can and do become providers and vice-versa (Schor, 2014) and since they share similar characteristics, they will be referred to as the “sharers”. Most American studies agree to say that these sharers represent 20 to 25% of their population (Owyang et al., 2014; PWC, 2015).
2 https://www.uber.com 14
4.2.1 Who are they? To answer this question, two studies in particular help us understand the profile of sharers: the study conducted by Owyang and his colleagues in 2014 on 90,112 consumers across US, Canada and UK, and the study conducted by Nielsen team the same year on 30,000 Internet respondents in 60 countries around the world.
Sharing is, not surprisingly, most popular among the millennial generation (20-34 years old), with 48% of sharers in Owyang study and 35% in Nielsen study being in that age group (up to 49% of respondents in Asia Pacific region). Nielsen study adds that 17% of sharers are from generation X (35-49 years old), 7% from Baby Boomers (50-64 years old), and 7% from Generation Z (under 20 years old).
Owyang and his colleagues affirm that sharing is “mainstream” as the revenues and lifestyle choices of sharers are quite similar to those of the overall population. Among the sharers, they estimate that 14% earn more than US$100k a year (high-income), 37% of sharers earn between US$50k and 100k (the national average), and 49% of them earn less than US$50k (low- income). Note that 55% of the US population is considered as low-income, therefore, unlike what some authors assume, “sharers are more likely to be affluent and less likely to be low- income” (Owyang, 2014, p.16). On other lifestyle choices (marriage, number of children, political vote, religion…) the results are very similar to national statistics as well. However, they found that sharing was more prevalent in the 10 main cities of the US than in other areas of the country, which can also be explained by the higher proportion of millennial in urban areas and the sharing nature of cities (Agyeman et al., 2013; Sundararajan, 2014; Owyang et al, 2014). The online presence of sharers is described in both studies as high, with 73% of American sharers using social networking sites regularly (Owyang et al., 2014), and 69% of global sharers using social media to share feedbacks on products and services (Nielsen, 2014).
On the willingness to share personal resources in the coming months, Nielsen study found that 68% of individuals worldwide would be willing to become providers and 66% could be consumers. The higher results in willingness to share are found in Asia Pacific with 94% in China, 87% in Indonesia, and 85% in Philippines and lowest percentages come from Europe and North America. However, the authors explain that these higher results might come from the fact that Internet respondents in developing countries tend to be younger and more affluent than the general population (Nielsen, 2014). 15
The difference in gender, insignificant in Europe and Americas, is also more important in other developing countries where men are more likely to be sharer (49% men vs. 32% of women in Asia Pacific, 52% men vs. 19% women in Middle East/Africa), which can be explained, according to the authors, by cultural differences (Nielsen, 2014).
As a conclusion, “contrary to the image of sharers as tech-savvy urban hipsters, sharers are very much like the population as a whole, in other a lot like [traditional] customers” (Owyang, 2014, p. 14).
4.2.2 Why do they take part in sharing economy? According to Horton and Zeckhauser (2016), the very first reason to share rather than to own is the predicted usage of the resource, meaning that if the individual is not planning to use the resource regularly, this might be the first reason why he would not buy it. The Boston Consulting Group (2016) illustrates this idea, explaining that sharing a car is particularly valuable for drivers with low annual mileage.
However, most authors suggest more general reasons to engage in sharing economy activities such as lower price, higher convenience, better quality and selection of products and services, environmental benefits, social benefits, ideology, or even taste for novelty and new technologies (Botsman, 2010; Nielsen, 2014; Owyang et al., 2014; Schor, 2014; Stene & Holte, 2014; Matzler et al. 2015; Mohlmann, 2015; PWC, 2015; Stephany, 2015; BCG, 2016; Helbelger, 2016).
A study published by Price Waterhouse Coopers in 2015 among American adults familiar with the sharing economy analyzes their perceived benefits from participation to the sharing economy. In this study, 86% of respondents agree that sharing economy makes life more affordable, making it the first reason to share, closely followed by its convenience with 83% (PWC, 2015). Studies conducted in Norway, Germany, and France, show similar results (Stene & Holt, 2014; Mohlmann, 2015; Borel et al., 2016). In fact, it appears that sharers engage in sharing activities to either save money with resources available at lower price on sharing platform (Helberger, 2016), avoid costs and burden of ownership (Stene & Holte, 2014; Piper Jaffray, 2015; PWC, 2015; BCG, 2016; Helberger, 2016), or make extra money in ways that were previously not safe or easy (Schor, 2014; Stene & Holte, 2014). Besides, in some sharing categories, 16 consumers enjoy a higher quality of the good/service/experience or a larger variety of choice, not available on traditional markets (Owyang et al., 2014; BCG, 2016; Helberger, 2016).
Even though practical benefits are more often cited as the first motive to share, sharers still associate sharing with social en environmental benefits. In PWC study, 78% of respondents agreed that sharing economies help create stronger local communities and 76% believe it is a sustainable solution for the environment. Other studies found similar results, with social and environmental benefits being mentioned and recognized, though not dominant (Owyang et al., 2014; Mohlmann, 2015; Borel et al., 2016).
As to the question of what makes them take the plunge, word-of-mouth is the most influential source of advertising for 84% of global respondents to the Nielsen study (2014). Similarly, 64% of PWC respondents answered that they would not engage with a sharing economy organization unless someone they trust recommended it to them (PWC, 2015). Since sharing experiences are extremely satisfying and that 91% of sharers would recommend them according to Owyang’s study (2014), sharing could attract even more sharers easily by encouraging online word-of- mouth for instance.
4.3 Business model As specified in the chosen definition of the sharing economy, this thesis focuses solely on Internet-based platforms that allow access to specific resources between providers and consumers. The platform is, in this analysis, simply the intermediary between providers and consumers, not the provider of the supply, which is the case in some organizations that act as renting companies online (Demary, 2014).
To analyze the business model of those sharing economy platforms, how they create and deliver value, the “four-box business model framework”, developed by Johnson (2010) will be used. This framework identifies four aspects that define a business model: the customer value proposition, the key resources and key processes which are closely linked, and the profit formula.
4.3.1 Customer value proposition Identify the customer value proposition consists in understanding how the offer that the organization puts on the market brings value to its customers, which is essential to market that offer (Johnson, 2010). To analyze this aspect of sharing economy businesses, the previous 17 description of sharers profile and the benefits they perceive from the sharing economy is essential.
Since studies showed that price, convenience and quality are the most important benefits that sharers attribute to sharing economy offers these are the aspects that those platforms should market (Owyang et al., 2014; PWC, 2015). Owyang and his team (2014) suggest that, contrary to the trend to advertise on environmental or social benefits that are secondary in the mind of consumers, sharing economies platforms should emphasize on the primary benefits they offer, more susceptible to drive interaction on their platform.
Overall, platforms allow sharers to connect and create value among them in ways that would not have been as easy otherwise (Evans & Schmalensee, 2007). They offer new valued ways to answer daily needs and problems by transforming access to a resource into a personalized service (Denning, 2014; Sundararajan, 2014; Stephany, 2015; Helberger, 2016).
4.3.2 Key resources and processes The key resources and processes are the elements of business essential to effectively deliver the value proposition to the customer (Johnson, 2010). Since the sharing economy platforms do not own the supply, their organization is “resource-light” and hence very different from traditional business model (Sundararajan, 2014). In fact, contrarily to traditional organizations that optimize a chain of internal activities, platforms need to enhance interaction among platform sharers (Van Alstyne et al., 2016). In order to create interaction among providers and consumers, platforms need to develop digital tools that enable efficient searching, matching, payment, insurance, trust, and communication (Smolka & Hienerth, 2014; Helberger, 2016).
Two elements in particular are essential to success. The first is the sharer experience on the platform. Sharing economy platforms must develop capabilities to provide the best user experience (UX) possible by creating a website/application with a nice interface, easy and quick to use, communicate with sharers in a friendly and personalized way, and answer quickly to their needs and problems on the platform (Botsman, 2013; Denning, 2014; Schor, 2014). In fact, consumer satisfaction is crucial to change behavior durably and to recommend sharing, which is the main element that makes non-sharers try sharing (Gansky, 2010; Botman, 2013; Owyang et al., 2014; PWC, 2015). The second element is the development of trust mechanisms on the platform. Trust is seen by 18 most authors as the biggest challenge for sharing economy platforms (Nielsen, 2014; Demary, 2015; Mohlmann, 2015; PWC, 2015; Ransbotham, 2015; BCG, 2016; Horton & Zeckhauser, 2016). In fact, when it comes to sharing personal resources, providers might be afraid that consumers misuse or damage their resource and similarly consumers might worry about the actual quality of the resource they will get access to (Weber, 2014; Demary, 2015; Horton & Zeckhauser, 2016). Luckily, tech pioneers’ experience and the development of social network and data analysis technologies provide solutions to this challenge for sharing economy platforms; as a result, consumers start developing trust through online identity, reputation and review systems (Gansky, 2010; Piper Jaffray, 2015; PWC, 2015; Horton & Zeckhauser, 2016). Ransbotham (2015) explains that these systems transform the interaction on platform from a single-stage game, where each sharer maximizes his own value (eg: exaggerate the description of the resource, provide a poor service, behave badly as consumer, or damage the shared resource) to a multi-stage game, where sharers face the consequences of their behavior. If those systems can still be hijacked, they enable the creation of a growing sentiment of trust among strangers on sharing economy platforms (Weber, 2014; Ransbotham, 2015). Besides, if building a good reputation on the platform is valued but takes time, these trust mechanisms can create a switching cost, preventing sharers to switch platform (Demary, 2014).
4.3.3 Profit formula The last element mentioned by Johnson (2010) to define a business model is the way the offer can be monetized to cover its costs, namely the profit formula. The costs faced by platforms are mainly coming from the development of the website/application and digital tools that enable the interaction among sharers, and from the maintenance of them. Other costs come from platform’s employees, whose number vary largely from one platform to another, who can be responsible to ensure for example good consumers experience, safety and security, dispute mediation, or advertising (Van Alstyne et al., 2016). Sharing economy platforms use different ways to cover these costs. Most platforms take a commission fee on each transaction, others offer monthly membership, subscription or freemium contracts, sell insurances, or rely on advertisement (Johnson, 2010; Bardhi & Eckhardt, 2012; Belk, 2014; Piper Jafray, 2015; Parker et al., 2016; Karmarkar, 2016). Some decide to charge only one side, either the providers or the consumers, or to charge them to different degrees, based on the value they perceive from the platform (Demary, 2014; Parker et al., 2016). 19
It is important to note that there are large variations among sharing economy platforms on the financial point of view. Some have simple ambitions, are financed by crowd-funding, and cover their costs through advertising in order to offer free sharing intermediation services to local communities (Belk, 2014). One wave of authors, whose vision of the sharing economy is rather utopian and anti-capitalistic, argues that those organizations are true to the “original spirit of the sharing economy […] to by-pass traditional institutions like the banking system that failed us in 2008” (Denning, 2014, p.6). In that spirit, they also consider that their internal organization should be horizontally managed and implementing participative decision making, like cooperatives (Masset & Luyckx, 2014; Scholtz, 2016). However, most authors consider that a traditional vertical management does not come in contradiction with sharing economy and is required to expand the scope of these platforms and sustain bigger ambitions. For-profit platforms successfully found ways to make profits, among which some have reached impressively high valuation and are backed by powerful traditional investors (Denning, 2014; Owyang et al., 2014; Schor, 2014).
4.4 Competition The last business aspect analyzed is the competitive environment sharing economy organizations face, made of other sharing economy platforms and traditional companies.
4.4.1 How to compete in the sharing economy? Traditional organizations usually have high fixed costs and low marginal costs; hence they need to achieve higher sales volume than their competition to reduce their costs, reduce their price. In fact, lower prices attract more consumers which increase further sales volume creating “supply-side economies of scale” (Van Alstyne et al., 2016). Sharing economy platforms do have some fixed costs and marginal costs, as already mentioned, but they are rather insignificant compared to most traditional organizations. Therefore, from a rather small scale, sharing economies platforms face almost no extra cost per new sharer and become beneficial. As a consequence, it is relatively cheap to launch a sharing economy platform, which makes the entry barriers low and the new entrant threat high (Demary, 2014; Piper Jaffray, 2015; Horton & Zeckhauser, 2016).
However, sharing economy organizations (and platforms in general) mainly win market power in a different way, that Van Alstyne and his colleagues call “demand-side economies of scale”, also called “network effect”. Network effect is defined originally by a positive correlation between the number of participant on a platform and the value this platform brings them 20
(Shapiro & Varian, 1999). In other words, platforms need to attract more sharers to increase the value of their offer. In fact, more providers increase the value of the offer (with lower prices, more choice and convenience in the available resources), which attracts more consumers (that can satisfy their needs on the platform), which in turn also incite more providers to share their resource. It goes on, creating a virtuous circle for the platform that enables more beneficial interaction (Demary, 2014; Karmarkar, 2016; Van Alstyne et al., 2016). Sharing economy platform thus compete among each other in a winner-takes-it-all dynamic, to attract the most sharers, essential to success.
As expected from the low barriers to entry, many sharing economy start ups have been founded over the last years, creating an increasingly competitive environment. If we look at the ride- hailing services, Uber is facing strong competition all around the world (Huet & Liyang, 2015; BCG, 2016). In August 2016, world-leader Uber even failed to conquer his largest market, China, and its local subsidiary was acquired by the main local competitor, Didi. In fact, besides adapting Uber’s offer to local sharers’ taste, Didi beneficiates from strong financial backings (Alibaba, Tencent, and Apple) which were decisive in the subsidies-based fight to attract Chinese sharers (Kirby, 2016).
4.4.2 How to adapt to the sharing economy? Whether sharing economy platform are competitors or substitutes to traditional players is an important source of disagreement among sharing economy authors. Airbnb can be seen as offering similar solutions as hotels but in such a different way and with different benefits and disadvantages that this solution will appeal to a very distinct segment, making it a simple unthreatening substitute (Denning, 2014; Zervas et al., 2016). Uber on the contrary offer a similar solution to taxi and limousines in a rather similar way, making it a closer competitor (Demary, 2014). Depending on the perception and the examples in mind, authors have come to very different opinions to the level of threat that sharing economy represent to the traditional companies.
In any case, the sharing economy is here and is disrupting some aspects of business. This is why some authors are trying to help traditional business find a way to adapt to this new environment. The first answer to this change has been, like in other cases of technological disruption, to invoke regulatory aspects to protect traditional ways of doing business. However, the use of 21 regulation to impede technological change has never been fruitful (Belk, 2014; Denning, 2014). Rather than fighting sharing economy, some authors suggest joining it and taking advantage of the new opportunities it brings (Belk, 2014; Demary, 2014; Owyang et al., 2014; Matzler et al., 2015; PWC, 2015; BCG, 2016). This can be done in three different ways. First, traditional organization can acquire or partner with firm in the sharing economy, copy them or adapt the concepts to their business. These strategic developments can occur in the sharing economy or simply tap on the trend of more durable use of resources (such a traditional rental and selling of pre-owned underutilized goods). For instance, Avis acquired the platform Zipcar, BMW sells access to cars, Patagonia and Ikea created platforms for the reselling of their products, luxury fashion brands offer rotating access to designer items for a monthly fee on Bag Borrow or Steal. All those initiative allow traditional organizations to take advantage of the sharing economy wave. By doing so, they increase their customers base, targeting new consumers that could not afford ownership and they position themselves in the eyes of consumer as a sustainable brand, earning credits among the environmental conscious (Belk, 2014; Owyang et al., 2014; PWC, 2015). Second, traditional organizations can provide information, repair, and maintenance services. In fact, since sharing economy allows increased use of goods, the need for those services is susceptible to rise. In that idea, Best Buy acquired Geek Squad, a specialist in maintenance, repair and assistance for electronics (Matzler et al., 2015). Third, traditional organizations can engage in resource sharing themselves. Since, in the US, manufacturing facilities are usually underutilized 20% of the time, one truck out of four travels empty and countless desks are unoccupied, there is a strong potential to monetize these tangible resources. Adding to that is the potential of underutilized intangible resources, such as ideas, intellectual property and talent (Matzler et al., 2015; Piper Jaffray, 2015; PWC, 2015). Platforms to connect businesses to other businesses’ spare resources are being launched, such as LiquidSpace for offices and desks or Quirky for crowd-sourced intellectual property (Owyang et al., 2014; Matzler et al., 2015). Some sharing economy platforms also match freelancers and entrepreneurs with businesses. In this perspective, human resource departments might need to reevaluate their employment strategy and adapt their remuneration and benefits to what their talents seek, whether it is flexibility or security (PWC, 2015). These solutions allow traditional organization to surf on the sharing economy wave, making profits, winning over new consumers and fostering their brand image, hence to take completely advantage of the new opportunities that come along the sharing economy. 22
4.5 Conclusion In this section, various business insights of sharing economy platforms, developed in the literature have been covered.
It has been demonstrated by various studies that the consumers active on sharing platforms, the sharers, are mainly young people (20-34 years old), living in cities, active online and on social media, and with mainstream revenues and lifestyle. It has also been shown that the highest willingness to share comes from Asia Pacific region and its young connected and affluent population. Individuals choose access over ownership when the predicted usage for a resource is low. The benefits they perceive from sharing are mainly practical (lower prices, higher convenience, larger selection, better quality) but they also recognize some environmental and social benefit to sharing. Word-of-mouth makes them take the plunge and trust sharing economy platforms.
From this analysis, it was deducted that the general business model behind sharing economy platforms. The customer value proposition of those platforms is the access to cheaper, more convenient and better adapted quality solutions to sharers daily needs. To efficiently deliver this value to sharers, platforms need to develop search, match, and secure payment tools, as well as trust and communication mechanisms. Two elements are crucial to the success of platforms. First, the sharer experience and satisfaction on the platform comes from a well-managed customer-relationship and provide beneficial word-of-mouth to the platform. Second, trust is enhanced by the previously mentioned trust and reputation mechanisms, which transform sharing into a multi-stage game where sharers are more responsible of their actions. To cover their costs of development, maintenance and other services, platforms have found different ways to monetize interactions: commission fees, membership, subscription, freemium contracts, insurances, advertising… However, on the funding, the finality of the platforms, the internal management style and the attitude toward traditional institutions, opinions in the literature diverge largely.
Finally, the competition among sharing platform was found to be increasingly intense as barriers to entry in the sharing economy are relatively low. Sharing economy platforms compete to attract the largest number of sharers and achieve network effect (demand-side economies of scale), bringing more value to their sharers. 23
Traditional organizations, whether they are seen as direct competitors or substitutes to sharing economy platforms, can benefit from this new movement as well. The literature suggests three main ways to do so: acquire, partner or develop solutions taping on the sharing economy trend; offer maintenance, information, and repair services; share underutilized organization’s resources. Authors argue that these solutions can be profitable, attract more consumers and improve their brand image of traditional organizations in an environment where sharing economy platforms have the potential to gain even more market power.
5. CONTROVERSIES SURRONDING THE SHARING ECONOMY
5.1 Introduction In its early years, the sharing economy benefitted from a positive, almost utopian image. Authors were putting forward the positive impacts sharing economy was bringing to the society: a more sustainable way to consume, diminishing carbon foot print, reconnecting communities, and empowering low-incomes (Botsman & Rogers, 2010; Heinrichs, 2013; Schor, 2014; Scholz, 2016). Sharing economy was presented as a “feel-good story in which technological and economic innovation ushered in a better economic model […] hard to resist in the aftermath of the financial crash” (Schor, 2014, p.8).
However, when sharing economy organizations started to reach high financial valuations with the help of traditional investors, disrupting more and more industries, critics started rising from inside and outside the sharing economy and the positive impacts of sharing economy were challenged. Under the pressure of disrupted traditional organizations, politicians and regulators are wondering how to handle the situation mitigated between unsure long-term impacts (Schor, 2014; Borel et al., 2016; Martin, 2016).
In this section, those controversies will be reviewed, briefly explaining the diverging opinions on the effects of sharing economy on consumption, environment, labor, social connections, and regulation.
5.2 Consumption Traditionally, the consumption choice was to buy or not buy. Today, besides buying or not buying, there are two new options: buy and earn extra money by giving access, or not buy but access temporarily when needed (Sundararajan, 2014; Fraiberger & Sundararajan, 2015; Piper Jaffray, 2015). 24
Initially, sharing economy was presented as a way to consume less and consume in a more sustainable way. However, considering these new possibilities of consumption, authors of the sharing economy wonder what the effect of it will be on sales (Sundararajan, 2014; Weber, 2015; BCG, 2016; Borel et al., 2016). Will the possibility of convenient access drive consumers away from ownership and its burden? Or will the possibility of monetizing ownership entice consumers to buy? In his rapport on car sharing, the Boston Consulting Group predicts that part of the loss in new cars sales will be offset by new sales to providers on sharing economy platforms. The answer might also vary across resources, their quality, their price, and their characteristics. For instance, expensive high-quality resources might see their sales increase while low-cost bad-quality resources might not be the preferred solution anymore (Weber, 2015; Borel et al., 2016).
Moreover, in opposition to what traditional organizations may believe, economists argue that the sharing economy does not result in a new way to divide the “pie”, with sharing economy platforms taking shares from them. Rather, the arrival of sharing economy grows the “pie”, generating new economic activity, creating new markets, new income, and new consumption experiences, which will most probably translate into economic growth (Botsman, 2013; Schor, 2014; Sundararajan, 2014; Zervas et al., 2016). Some authors mention that this growth will be particularly beneficial to low-income individuals and developing countries (Fraiberger & Sundararajan, 2015; Horton & Zeckhauser, 2016).
All in all, sharing economy is thus expected by experts to increase consumption and but it is unclear if it will significantly increase sales or not, since other way of consumption are now possible.
5.3 Environment The environmental argument of the sharing economy seems rather obvious: by sharing underutilized resources, we avoid useless overproduction and overconsumption. If we produce and consume less, we use fewer natural resources and we lower our ecological and carbon footprint (Schor, 2014; Martin et al., 2010; Cohen & Kietzmann, 2014; Matzler, 2015; Borel et al., 2016). For instance, Martin and his colleagues (2010) found that between 9 and 13 individual cars were suppressed per shared car. 25
However, further reflections and researches have put forward a ripple effect. In fact, sharers either earn money or save money from sharing. This extra money will necessarily be used in some way, allowing the sharer to consume more and by doing so, increasing his carbon footprint (Schor, 2014; Borel et al., 2016). In that idea, Schor and her students (2014) showed that since Airbnb made travelling more affordable, its sharers travel more than before. Moreover, resources that were previously underutilized can now be fully exploited. In the case of resources using energy or polluting during their use, a (near to) fulltime utilization might as well increase their footprint. For instance, while a typical car is used on average only 5% of the time, when it is shared it will be used much more, resulting in more emission (Martin, 2010).
Overall, it is thus difficult for experts to say if sharing economy has a positive or negative impact on the environment, balancing the reduction in production with the ripple effect and the increased utilization (Schor, 2014).
5.4 Labor Rifkin (2014) explains the impact of the sharing economy movement on labor as follow: consumers become “prosumers”, able to both consume and provide. By doing so, sharing economy enables to tap in underutilized human potential (Sundararajan, 2014; Stephany, 2015).
On the plus side, sharing economy platforms may enable a more efficient match between tasks and providers. Professional providers might hence find more employment opportunities through platforms (Schor, 2014; Sundararajan, 2014). In some cases, those professional providers become able to bypass the coordination from an agency or an organization that traditionally matches them to consumers and extract more value (higher fees) than sharing economy platforms (Schor, 2014). Nonprofessional providers can earn, on sharing economy platforms, extra money to complement their main profession, on flexible basis. Since anyone can become a provider, benefit from a large base of consumers (sharers of the platform) and relatively lower risk, sharing economy could, as a result, encourage entrepreneurship (Sundararajan, 2014; Stephany, 2015).
On the minus side, sharing economy platforms offer no kind of social protection or union organization to their providers; hence sharing economy providers face more risk than traditional employees (Fraiberger & Sundararajan, 2015; Martin, 2016; Scholz, 2016). Some providers on the sharing economy platforms experience less stable employment and lower wages (Houseman, 2014; Scarpetta, 2015). Critics first pointed Uber, then denounce the precarious 26 employment conditions that most sharing economy platforms create (Roose, 2014). Kalamar (2014) even accuse platforms of “sharewashing”, in his book “sharewashing is the new greenwashing”, claiming that platforms shift all risks on their providers under the excuse of sharing.
Here again, experts are unsure about the long-term effect of sharing economy platforms on the labor. As Schor (2014) puts it, the fact that this phenomenon is developing in a time where employment rates are bad and work conditions are decreasing makes it even more difficult to assess. She suggests that if labor conditions were to improve, providers could demand more from platforms since alternative opportunities would be better (Schor, 2014).
5.5 Social connections Another aspect advertized by the sharing economy is the creation of new social connections among members of a community. In fact, sharing economy platforms enable stranger to share resources which previously was only done among friends and family (Schor, 2014; Stephany, 2015; Borel et al, 2016). Rifkin (2014) claims that sharing economy is fundamentally based on social interactions. Smith (2016) adds that providers in the sharing economy experience a different nature of work, based on personal services and hence much more social.
This aspect is also challenged by some authors. For them giving access to personal resources is dictated by self-interest and utilitarism (Bardhi & Eckhardt, 2012; Borel et al., 2016). Researchers have found that in the actual exchanges, there is not always the creation of a warm relationship, rather a very casual sometimes even sterile interaction (Parigi & State 2014; Schor, 2014; Borel et al., 2016). They also found that sharers tend to exaggerate positive experiences in the reviews and minimize the negative ones (Schor & Fitzmaurice, 2015). Paradoxically, according to Parigi and State (2014), platforms with a strong trust mechanism and many reviews actually create less good relationships among their sharers. What is more is that choice of provider or consumer on the platforms can be made based on racial, gender or class discrimination. For instance, racial discriminations were reported on Airbnb and it was found that some sharers discriminated some members based on their writing skills (Hardin & Luca, 2014; Schor, 2014; Schor et al., 2016).
Here again, it is unclear whether sharing economy can translate into new real relationships and strengthen communities. 27
5.6 Regulation The last controversial aspect briefly developed is the regulation. In fact, sharing economy platforms consider that current laws do not apply to them since their providers are in most cases individuals and not organizations (Demary, 2014; Schor, 2014; Horton & Zeckhauser, 2016). They are hence entering markets characterized by heavy regulations without complying with them. For example, hosts on Airbnb do not respect hygiene norms, fire escapes, or labor law, nor pay taxes on their revenues like traditional hotel do. Since complying with those laws is costly and restrictive, traditional organizations consider this situation as unfair competition and pressure regulators to intervene (Demary, 2014).
Fundamentally there are two possible answers from regulators. The first is to extend existing regulation to sharing economy platforms, which according to traditional organization is the right thing to do to ensure fair competition. However, doing so could be deadly to sharing economy platforms; no Airbnb host could comply with all the hotel industry regulation as it is (Demary, 2014; Cohen & Sundararajan, 2015). The second possible answer is to review and adapt the existing regulation. Since sharing economy is increasing competition, consumers might benefit from it (Demary, 2014). However, sharers need to be protected: be able to assess the quality of the platform and the safety of the shared resources, have their personal data protected, be aware of their responsibilities, know if they will be subject to some kind of taxation, etc (Schor, 2014; Miller, 2015; Demary, 2015). Most authors agree that there must be some kind of regulation to the sharing economy, because legal uncertainty is seen as a threat. However, some suggest that regulation for sharing economy platforms be just a light intervention. In fact, they argue that sharing economy platforms bring innovative solutions to traditional market problems through their data and trust mechanisms (Schor, 2014; Cohen & Sundararajan, 2015; Miller, 2015; Horton & Zeckhauser, 2016).
5.7 Conclusion This section has covered the main controversies about the sharing economy. In fact, recently the positive impacts of sharing economy platforms have been challenged and criticized.
The idea that sharing economy would reduce global production and consumption has been confronted by various authors. They argue that this new movement enables sharers to consume more, that some resources will see their sales increase, and that sharing will lead to a beneficial growth. 28
The environmental benefit of sharing has been challenged to. Critics argue that since sharing leads to more consumption and more intense utilization of resources, the ecological and carbon footprint could increase rather than decrease.
The impact of sharing economy on labor is unclear as well. Defenders of the sharing economy argue that it offers new labor opportunities, enables providers to earn more, and encourages entrepreneurship. Opponents claim that it promotes bad and unstable labor conditions, lowers wages, and transfers risk on providers. Moreover, the present conjuncture does not help determine if sharing economy is to have positive or negative long term impacts on labor.
The creation of new social connections among sharers is also debated. Even though it is believed that sharing is by nature social, qualitative and quantitative studies have shown that it does not translate into real relationships creation. Critics argue that sharing is only driven by utilitarism and self-interest and cases of discrimination were found on sharing economy platforms.
On the legal point of view, uncertainties remain. In most cases, there are no regulations specific to sharing economy platforms and these do not comply with existing industry regulations. Critics argue that this situation creates an unfair competition to traditional organizations that do comply with heavy regulations. Authors agree that some kind of regulation must be adopted to protect consumers and enable the development of sharing economy, but disagree on the extent of this regulation.
As a conclusion, only time and further researches will tell the actual impact of sharing economy on our societies.
6. CONCLUSION This first part of the master thesis summarized the analysis of publications of past researches on the sharing economy platform question.
Sharing economy was defined as the recent movement that comprises all organizations enabling temporary access to a specific resource, intermediated by an Internet based platform. The recent international popularity of this movement was explained by the combination of economic, societal, and technological drivers, providing a favourable context to the development of sharing economy platforms. The originality of sharing economy platforms on a business level is that the company behind it 29 only manages and generates revenues from the Internet-based platform, no other traditional resource is owned. The platform connects consumers and providers to provide convenient access to cheaper quality goods. Successful sharing economy platforms attract large quantities of consumers and providers to create network effect and offer higher quality connections between these actors. However, the disruption brought by sharing economy platforms is seen as controversial on various levels. The divergence in the perception of the sharing economy in the eyes of consumers, traditional incumbents, and authorities creates an uncertain future for sharing economy platforms.
The sharing economy platforms question was studied over the last decade by a large number of searchers from various origins (academic or corporate) and various disciplines (strategy, marketing, economics, law, sociology, etc.). Despite the number of publications, two areas of research less covered were identified. First, existing research focuses largely on the development of sharing economy and its impacts in developed countries, with most publication coming from American and European research centres. Developing countries, in which environment conditions are very distinct could present interesting differences in the way sharing economy platforms are developed and perceived. Second, only a small number of researches are case-based, and those that are case based usually analyse the main Silicon Valley players, namely Uber and AirBnB. Over the past decades, numerous sharing economy platforms have flourished and successfully adapted the Uber model to other goods and services and other contexts. For this reason, the second part of this master thesis presents a sharing economy platform case- based research in the context of a developing country. 30
PART II: PRACTICAL RESEARCH
1. INTRODUCTION The second part of this master thesis consists in a case-based research on the sharing economy platform question in the context of a developing country.
The research took place in Indonesia’s capital, Jakarta and focuses on the popular sharing economy platform, GO-JEK. GO-JEK launched its sharing economy platform in 2015 and became since then the first Indonesian unicorn (start-up valued at more than US$1 billion) and the leader for sharing mobility services, beating international competitors Uber and Grab. This research aims at understanding this unexpected success in the developing context of Indonesia through an induction analysis. The research question leading this case research is therefore formulated as follow: how can sharing economy platforms succeed in Jakarta, Indonesia?
To answer this question, the research will first focus on the specific elements of the sharing economy platform’s environment, Jakarta. The opportunities and threats identified by this environment analysis will enable to derive Key Factors of Success (KFS), essential strategic elements sharing economy platforms need to take into account to succeed in that specific environment (Johnson et al., 2014). Then, the research will focus on GO-JEK’s innovative strategies and compare them to its competitors, constituting the case analysis. Finally, the environment analysis and the case analysis will be put into perspective to discuss how GO-JEK’s strategies tap into the KFS identified and to explain its success.
2. METHODOLOGY The information collected during this research are both primary and secondary data.
Primary data includes observations, interviews, and discussion with a manager. Over the past six months (January to June 2017), the daily use of mobility sharing economy platforms in Jakarta enabled to collect some first insights. These observations were used to orient the general reflexion, establish interview templates and required information to find. Then, interviews were conducted with both consumers and providers of GO-JEK’s platform. In total, five consumers and five providers were interviewed, number after which enough similar 31 opinions enabled to draw general conclusions. The selection of interviewees was done based on specific criteria to ensure the collection of relevant information. Selected consumer interviewees needed to live in Jakarta, be millennials (18-35 years old), middle to high income, and using the GO-JEK application as well as at least one other competing application. These conditions correspond to the profile of typical sharing platform consumer as defined in the literature review and to a predominant profile in the population of Jakarta. However, the five selected interviewees have different professions, backgrounds, and origins, described at the beginning of their respective interviews in appendices 3.2 to 3.6, to vary point of views. On the providers side, the research focused on GO-JEK’s motorcycle drivers, responsible for most services provided by the platform. Contrarily to consumers, it can easily be observed in Jakarta that providers do not correspond to one specific profile. To encompass this variety, the providers interviewed have different ages, backgrounds, and (past) professions described at the beginning of their respective interviews in appendices 4.2 to 4.6. Three out of these five interviews were conducted with the help of a translator. In fact, only the more educated citizens of Jakarta learned enough of English to communicate, which is not the case of most drivers. All these interviews were conducted in a semi-directive way, based on a template of open questions (Appendices 3.1 and 4.1), but adapted in some cases to enable interviewees to express fully their thoughts. These interviews aim at uncovering insights on consumers’ and providers’ motivations to use ride-hailing and mobility sharing economy platforms, perception of the specific value proposition of GO-JEK compared to its competitors, and change in behaviour. The tables in appendices 3.7 and 4.7 summarize interviewees’ recurring answers for each for these three categories of insights. Because of the intense competitive environment between sharing economy platforms in Indonesia, no recorded interviews were granted by GO-JEK. However, a business analyst in the industry accepted to anonymously review the results of this research and comment them. The input provided helped clarify the political and legislative situation in Jakarta and Indonesia, and confirmed the other results of the research.
Secondary information consists in the overall documentary analysis. On the one hand, reports from international and national development organizations were analysed, especially for the environment analysis. However, data at the level of Jakarta are not always available nor updated, and therefore occasionally replaced by available national or regional data. On the other hand, press releases, news articles, and specialized publications were collected. 32
These present facts, interviews, and specialists’ analysis that were mainly used to enrich the case analysis, beyond primary information.
Together, primary and secondary researches enabled to analyse the environment and the GO- JEK case in to answer the exploratory research question. Last researches and updates for these analysis date from end of June 2017.
3. ENVIRONMENT ANALYSIS
3.1 Introduction In order to understand the success of GO-JEK in Indonesia, the first step is to analyse the environment to which it was confronted. Since GO-JEK was created in a South East Asian developing country, conditions might differ from other sharing economy platforms creation context. This first analysis enables to identify the specific opportunities and threats Indonesia and, more specifically, the metropolis of Jakarta, presents to sharing economy platforms providing mobility solutions.
The traditional PESTEL framework was used to analyse the different components of this environment and is presented in Appendix 1. However, these data were reorganized into three sections to highlight and link the most relevant elements of it.
3.2 General development
3.2.1 Population Indonesia has a population of 257 million people, which makes it the fourth most populous nation in the world and the largest economy in South East Asia. This archipelago nation comprises three hundred different languages and ethnic groups, and recognizes six religions (World Bank, 2017). The literacy rate is improving from 95.44% among adults to 99.71% among the youth (UNESCO, 2017). The Indonesian age pyramid shows a young population, with over 60% of the Indonesian population being under 35-year-old and 21% being between 35 and 49 years old (United Nations, 2017a).
According to the United Nations (2017b), the urban population represents 53% of the total Indonesian population. The largest city, Jakarta is the capital of Indonesia and the main focus for this study. Jakarta and its surrounding municipalities, also called the “Greater Jakarta” or “Jabodetabek”, has a population of 28 million inhabitants, making it the largest metropolis of 33
South East Asia. World Bank (2016) analysts measure an average annual urbanization rate of 4.1% which is greater than other Asian countries. Therefore, they predict that the population of Jakarta will have double between 2000 and 2020.
3.2.2 Economy Since the end of the Asian financial crisis in the late 1990s, Indonesia has been in constant growth to become the world’s tenth largest economy in term of purchasing power (World Bank, 2017). According to World Bank’s data, Gross Domestic Product (GDP) per capita has grown from US$857 in 2000 to US$3,603 in 2016. Over the same period, the poverty was reduced by half, corresponding now to 10.6% of the population. A Deloitte rapport of 2016 affirms that more than 50% of households in Indonesian cities earn more than five million Indonesian rupiah per months (US$375), enabling them to access consumption goods and services. Despite the growing middle-income population, 28 million of people still live below the poverty line and 40% of the population remains clustered around it.
With an estimated 57.6 million Small and Medium Enterprises (SME), according to the Indonesia central agency for statistics (2015), being an entrepreneur is a common thing in Indonesia. SME represent 90% of the enterprises and 60% of the nation’s GDP. Despite being traditionally led by manufacturing, natural resources, and mining activities, the Indonesian economy has seen in the last decades a progressive growth in services. In 2014, Indonesian services accounted for 51% of GDP and for 43% of total employment, which is better than most of its neighbouring countries but far behind the average 70% of developed countries (Damuri, 2016; McKinsey, 2016). In its Medium Term National Planning 2015-2019 (RPJMN), the Indonesian government recognizes the importance of the services sector on its own and as an essential input to other sectors. Making the Indonesian service sector more efficient is hence one of their priorities for this half-decade.
Another important project of the government is the thrive for a more cashless society and greater financial inclusion. According to World Bank’s survey (2014), only 36% of Indonesian adults have an account in a financial institution, 1.6% of Indonesian adults own a credit card, and less than 1% personally pay for health insurance. This makes Indonesia the second country most relying on cash after India. Furthermore, it is estimated that the informal sector represents 60% of the Indonesian economy and 80% of its workforce. 34
From this first set of information, some opportunities and threats can already be identified. In the literature review, it was identified that sharing platforms typically appeal to young, middle-class, urban individuals. All three characteristics are particularly well represented in Jakarta, which can be favourable for sharing economy platforms. The growth trends of these characteristics could further strengthen this opportunity over time. The importance granted by the government to the development of services and of a cashless society can be considered as opportunities as well for sharing economy platforms. This link will be made clearer by explanations in further chapters. The rather high proportion of people living close to the poverty line can be seen as threat since those people will not be able to afford paying for the access as consumer. However, it might also be seen as an opportunity if sharing the asset enables them to afford the resource by becoming a provider, generating new income from it. The diversity in languages, religions, and cultures in Indonesia, which is reflected in Jakarta could also potentially create a threat for marketing efforts and for communication between sharers. Finally, the high dependence on cash can create a first threat and entry barrier to platforms, used to operate payment by credit cards in developed countries.
3.3 Mobility development Mobility has been a long-standing issue for the government of Jakarta and for Jakarta citizens, and the situation keeps getting worse. This section will explore the different means of transportation available in Jakarta and the sources of the mobility issues.
3.3.1 Public transportations Public transportations in Jakarta are underdeveloped, not easy to access, and considered as inefficient, costly, uncomfortable, and dangerous (Susilo et al, 2010). The percentage commuters using public transportation has fallen from 35.5% to 12.9% between 2002 and 2010 (Sumaedi et al., 2014). The first public transportation is the so-called Angkot, mini-vans with a fix route, relatively fix price, transporting a dozen persons, with no schedule, and most of the time stuck in traffic (Joewono and Kubota, 2007). In 2004, the regional government introduced a second public transportation, the Transjakarta, a Bus Rapid Transit carrying an average of 200,000 daily commuters on eight routes for a total 35 of 97 kilometre. However, a study showed that if no improvements were made, 15 to 17% of the current consumers could switch to another mean of transportation. In fact, commuters spend on average 10 to 20% of their income to take these public transportations and are unhappy with them: 60% of respondents say transportation often arrive very late, 80% believe it should be cleaner and more comfortable, 35% of respondents were victims of thieves and 30% had accidents during rides (Susilo et al., 2010). The third public mean of transportation, a Mass Rapid Transit, is currently being build and should have a first junction operating in 2018 and a second one in 2024, according to the Ministry of Transportation. When compared to other metropolis in Asia, such as Bangkok, Kuala Lumpur, or Singapore, Jakarta is considered to be 20 years late in the development of its public transportations (Manurung, 2012).
3.3.2 Private vehicles As soon as they can afford it, Indonesian tend to buy a motorcycle or a car. More than a way to escape the inefficient public transportation, owning a vehicle, and especially a car, is a social sign of success (Susilo, 2007). “It’s because when you own a car, you can feel confident, and when you come back in house, parents are happy” explains one of the consumers interviewed (Appendix 3.4). Nielson study (2014) reports that 93% of non-car owners believe that not having a car is embarrassing for them. Figures show that the number of vehicles grew even more than the GDP per capita in real terms: between 2005 and 2010 GDP grew by 20% whereas the number of cars increased by 25% and the number of motorcycle doubled (Kawaguchi et al., 2010). Moreover, four out of five Indonesian would intend to acquire a car within the next two years (Nielsen, 2014). This can be explained by the cost of fuel and loan that are amongst the cheapest in Asia (Batu, 2016). “Actually, now buy a car it’s cheap, with the down-payments, but you must pay for long time” an interviewed consumer explains (Appendix 3.4). Police data for 2016 reported 18,668,056 vehicles in Jakarta, which represents a growth of 7% compared to the previous year for a growth of roads total length of 0.01% (Batu, 2016). With such a disequilibrium between growth of number of vehicles and growth of infrastructures, the congestion issue becomes obvious. The average car speed in Jakarta is estimated at 8.3km/h, far below the average 20km/h of other cities in the world (Khafian, 2013). An index measuring the number of start-stops based on navigation devices obtained an average of 33,240 start-stops per driver per year, ranking Jakarta the number one city with worst traffic (Castrol, 2016). The annual cost of congestion in Jakarta (in time, fuel, and health costs) was estimated at IDR12.8 36 trillion (US$960 million) in 2004 and projected at IDR65 trillion (US$4.8 billion) by 2020, impacting negatively the growth potential of the metropolis (Khafian, 2013). “You know how in Europe everyone complains about the weather because it’s the worst, well here everyone complains about traffic problems, it is our own burden” says a consumer interviewed to explain the situation (Appendix 3.6).
3.3.3 Taxis The third main mean of transportation in Jakarta are taxis and motorbike taxis. Taxis are, similarly to other countries, organized in companies and follow strict regulations. They must for instance pass a special public driving license (SIM A Umum), pass car control (KIR), and have the yellow plate meant for public transportation. The ratio of taxi-to-people in Jakarta is of 1.4 taxi per 1000 people, which is relatively low when compared to other Asian metropolis (Bangkok 10.2, Singapore 5.3; Hong Kong 2.5) (Sumaedi et al., 2014). Motorbike taxis, called ojeks in Indonesia, can navigate faster through traffic jam and are cheaper than conventional taxis. They started operating in the informal industry in the 1990’s after the government banned the rickshaws. They organize themselves in territory gangs: one ojek driver is part of one territory gang and can only pick up consumers in that territory. Consumers must find them on the streets, bargain the price of the ride and leave with the first ojek of the line (Freischlad, 2015). The territory and queuing organization makes ojek drivers quite inefficient, consuming a lot of time and fuel between orders. One of the driver interviewed mentioned that on a twelve-hour day, he had an average of 3-4 orders (Appendix 4.4).
This second set of information illustrates the problematic state of mobility in Jakarta, which generates both opportunities and threats for sharing economy platforms involved in the mobility sector. The underdeveloped and unpopular public transportations, the roads congestion, the low ratio of taxi-to-people and the inefficient ojek system are opportunities for any more efficient mobility solution provider. In fact, there is a clear need for efficient mobility solutions that reduce time and cost of getting around the city. Nevertheless, the popularity of vehicle ownership and its financial accessibility can be challenging for sharing economy platforms that favour access over ownership. Finally, taxi regulations and organizations might be problematic like in other cities, where taxi companies and governments blocked the entry of sharing economy mobility solutions. 37
3.4 Technological development
3.4.1 Internet Indonesia is only in an early stage of digital development. In fact, the national Internet penetration rate is only of 30%, whereas Asia Pacific average is of 66% and global average is of 76%. ITC infrastructures in Indonesia need improvement, especially outside of main cities (PEW, 2016). However, Indonesia still presents digital opportunities. Internet penetration rate grew from 23% in 2013 to 30% in 2015, in main cities the rate goes above 45%, and 52% of Indonesian between 18 and 34 years old have daily access to Internet (McKinsey, 2016; PEW, 2016). With the low cost of mobile data and the increasing affordability of smartphone, the smartphone penetration rate is growing as well: it went from 11% in 2013 to 21% in 2015. Moreover, it is expected to attract some 50 million new users in the coming years, rising the penetration rate to 53% by 2020. Since smartphones are in many cases the only personal access to Internet, 73% of Internet accesses are mobile (McKinsey, 2016; PEW, 2016). Connected Indonesians are among the most digitally engaged in the world, particularly active on social media and e-commerce platforms. For instance, 90% of Internet users are active on Facebook and 78% make online purchases (McKinsey, 2016). In a report released in May 2016, Google and the Singaporean sovereign wealth fund Temasek forecast South East Asia’s Internet economy to be worth US$200 billion annually by 2025. In fact, the region represents the fastest growing Internet market in the world, with an average of 3.8 million new users per month and an estimated Internet population of 480 billion in 2020, presenting a massive opportunity for tech companies (Russel, 2016).
3.4.2 Tech pioneers Indonesians’ online ease has been developed since the early 2000s by several local technology pioneers. The first online interactions in Indonesia took place on online user-generated news communities and forums, such as Kaskus or Detik. Then online marketplace trend reached Indonesia from 2010 on, with local and international players developing platforms for B2C (such as Lazada, MatahariMall, BliBli, Zalora) as well as C2C (such as Tokopedia, OXL, FJB Kaskus, Bukalapak, Qoo10). Beyond exchange of goods, platforms also offer accommodations (such as Rumah, Lamudi, Rumah123), tutors and teachers (ruangguru, gurulesinfo, tutor.co.id) travel tickets booking (Traveloka, ticket.com), or car resale (carmundi, mobil123) (Cossebom, 2015; Darmawan, 2016). 38
3.4.3 Sharing economy The first sharing economy success in Indonesia was Nebengers. This initiative consisted first in posting on Twitter a ride sharing offer, detailing the number of available seats and the destination, then it became an application. Indonesian consumers welcomed these innovative solutions with interest. According to Nielsen (2014), 87% of them are likely to share products and services, which is well above the global average (66%), and in fact, all interviewed consumers were familiar with sharing economy platforms, being consumers and sometimes also providers. In their 2016’s rapport, Google and Temasek forecast that the on-demand mobility services in South East Asia could grow at 18% per year, attracting 29 million monthly consumers and be worth US$13 billion by 2025 (Russel, 2016). AirBnB entered Indonesia in 2013 and Uber in 2014, followed within the next year by other regional and local competitors, such as Grab. Uber Technologies Inc. needs no extensive introduction. The sharing economy platform created in 2009 with the intend to simplify the process of ride-hailing soon became the flagship of a new disruptive business model that interested other industries. The word uberization is now even used to describe the disruption wave that started in 2009. Despite the challenges and critics, Uber expanded in over 600 cities all around the world applying its business model with rare changes. In 2016, it earned over US$6.5 billion revenues, supported by strong investors, and valued at over US$60 billion (Lee, 2017). Grab, its regional competitor in South East Asia was founded in Malaysia in June 2012 under the name of MyTeksi. The app that initially enabled to book taxis expanded its services to private cars and to six other countries (Philippines, Singapore, Thailand, Vietnam, Indonesia, and Myanmar). It rebranded itself as Grab, relocated its head-quarters in Singapore and gained the backing of powerful Asian investors such as Japan’s Softbank and China’s ride-hailing leader Didi Kuaidi (supporter of many competitors to Uber). Its most recent valuation in September 2016 valued the ride-hailing app at over US$3 billion (Freischlad, 2017). In reaction to Uber and Grab successful entry on the Indonesian market, the two largest taxi companies BlueBird and Express launched application to enable their consumers to order their taxi, track them, and have an estimation of the price. However, the experience, the cheap prices, and the novelty of the ride-hailing application played in taxis disfavour.
Like in other cities around the world, taxi drivers started protesting against ride-hailing applications and the disruption they brought on the market. 39
On the 17th of December 2015, the Indonesian Ministry of Transportation banned the use of ride-hailing apps. However, twelve hours later, President Joko Widodo urged the Ministry of Transportation to lift the ban. In fact, he recognizes the lack in sufficient and safe public means of transportation and is a strong defender of digital innovation. He regularly mentions in his public declaration that he wants to make Indonesia the leading digital nation of South East Asia. He asked his government to work on new regulations to provide a legal environment to manage the different mobility solutions. However, the protest continued with application drivers being threatened by traditional taxi drivers. On March 22nd, 2016, the largest scale protest occurred: thousands of taxis blocked the roads in Jakarta, joined by angkot, busses and ojek drivers, showing their anger against ride- hailing apps. Following that event, the Ministry of Transportation started working on a new regulation. End of April 2016, they presented the Transportation Ministerial Decree N32/2016 which aimed at making ride-hailing apps legal while protecting incumbent mobility players, mainly the taxi drivers. In this decree, the Ministry of Transportation defines taxi companies, private car-rental companies, and ride-hailing (car) apps as providing one common service: “personal transportation with public vehicles not following a fixed route” (Freischlad, 2016, p1), where the term public vehicle means that consumers need to pay for that personal transportation. This implies that all rules mentioned in the decree apply to all three categories of transportation uniformly. These rules include that cars need to pass the KIR (a safety technical control), drivers should obtain the SIM A Umum, the specific driving license that allows to transport strangers, and that apps cannot work with private car owners, cannot recruit and cannot set fares, instead drivers must organize in a transportation company that follows similar rules to a car-rental company (vehicle owned by the company, display a sticker with company name, display a hotline phone number, minimum 5 vehicles in the fleet, car pool, and garages in the company). All mobility solution providers were given six months to comply to the regulation. This represented a huge challenge for ride-hailing apps, that had thousands of drivers to get through the inefficient Indonesian bureaucracy. In October, the implementation of the decree was further delayed to April 2017 (Santoso, 2016; Freischlad 2016). In March 2017, the Ministry of Transportation amended the decree. This amendment plans for regional administrations to propose minimum and maximum limits in rides prices as well as a limitation in the maximum number of drivers partnering with the app. The government would then organize a consultation forum and provide the definitive numbers. Since this process is forecasted to take 2 to 3 months, the application of the decree is yet postponed. After the 40 announce of this amendment, ride-hailing applications wrote a common complaint letter, saying that this amendment is unrelated to safety and will negatively impact the quality of their service. Multiple national agencies also criticized the decision of the Ministry of Transportation, supporting that a digitally-oriented nation should find innovative ways to ensure safety and consumers’ experience. (Freischlad, 2017; Susanty & Boediwardhana, 2017).
This third and last set of information develops the balance between technological opportunities and threats in the studied context. First, the early stage of digital development, the low national Internet and smartphones penetration rates, and the weak national ITC infrastructures development can be seen as a serious threat for sharing economy platform that operate exclusively online. However, these national data need to be balanced with the fact that the digital industry is experiencing an important growth, that the millennial generation shows higher Internet and smartphone penetration rates, and that cities like Jakarta have better infrastructures. Moreover, data show that connected Indonesians particularly enjoy using mobile applications which, with the current growth could constitute a strong opportunity. Second, similarly to developed countries, Indonesians have also gotten used to online economic interaction through the efforts of various tech pioneers, which was mentioned in the literature review as an essential element for sharing economy acceptation and development. And in fact, Nielsen study showed that Indonesians have one of the best perception of sharing economy in the world. This opportunity has been confirmed by the successful entry of international and regional strong players on the market, competing with their offers of car ride-hailing. Third, the ongoing legislation process could represent a serious threat. The requirements to comply with favour the traditional taxi and car-rental models, and could be costly and harmful to ride-hailing disruptive business model. However, the disagreement between government entities makes the outcome of this legal process unsure. While the Ministry of Transportation seems to protect incumbents taxi and car-rental models, the President and other agencies want innovative regulations in line with their objective to become the first digital nation of South East Asia.
3.5 Conclusion This environment analysis explored the state of development of Indonesia and more specifically Jakarta. It focused especially on general living conditions, mobility conditions, as well as online activity conditions. This first analysis highlighted the opportunities and threats specific to 41 sharing economy platform offering mobility solutions in Jakarta and is synthetized in appendix 1.2. These results can be summarized based on the group of actors they are linked to. In this case, we believe there are three such groups of actors: potential consumers of the platform, potential providers of the platform, and regulators of the platform. Based on those opportunities and threats, Key Factors of Success (KFS) can be formulated for each group of key actors.
There are strong opportunities associated with potential consumers of sharing economy platforms providing mobility solutions in Jakarta. In fact, Jakarta contains a bigger-than- average and growing share of citizens corresponding to the typical sharers profile: urban, middle-income millennials. Moreover, other parts of the Jakarta population might as well be needing of new mobility solutions that would make them loose less money, time and energy than currently available transportation means. The Internet and smartphone penetration rates as well as the ITC infrastructures in Jakarta create a good enough environment to launch an online sharing economy platform and keep improving. The potential consumers enjoy online interactions and have already been educated to online economic exchanges by technology pioneers. Besides being prepared, they are also particularly enthusiastic to take part into the sharing economy. Nevertheless, let’s not forget the differences in language, culture, and religion which might create challenges in marketing efforts and communication between platform consumers and providers. The habits and social status linked to vehicle ownership could also make convincing of the advantages of access over ownership more challenging than in other regions. The KFS linked to the potential platform consumers can be formulated as follow: “offer an efficient solution to their mobility needs that taps into their tech savviness and takes into account their national identity”.
Jakarta also presents opportunities linked to the potential base of platform providers. Among the current ojek drivers and among the 40% of Indonesian living close to the poverty line, some might be interested in becoming provider of mobility solution if these are decently remunerated, helped by an efficient platform, and with little qualifications needed. Providing mobility services on such platforms could also help them earn the needed additional revenue to afford vehicle ownership and the higher social status that goes with it. According to the Nielsen survey, 87% of Indonesians would agree to share assets on platforms, which is one of the highest rate in the world, and encouraging for sharing economy platforms in Jakarta. Moreover, since entrepreneurship is common in Indonesia, they might easily decide to operate as independent providers on the platform. 42
However, they might lack some general skills that could threaten the quality of the service provided. The potential providers, especially those becoming provider to escape poverty, might also not have access to smartphones and bank accounts, which international sharing economy platforms traditionally rely on to operate. The KFS linked to the potential providers of the platform can be formulated as “offer a solution to access vehicle ownership and higher social status by increasing work efficiency and revenues, while taking into account the lack of general skill, knowledges, and bank and digital literacy”.
Finally, regulators can also be linked with a set of opportunities and threats. Looking at some of the government’s priorities and objectives is encouraging for sharing economy platforms. Become the first digital nation in the region, provide safer and more efficient mobility solutions, promote cashless transactions, increase citizens’ welfare, promote the service industry are all objectives in accordance with sharing economy platform operations. Regulators, and especially the Ministry of Transportation, however, present a major threat for sharing economy platforms involved in mobility solutions. If the announced decree enters in application, it will require deep changes in the sharing economy platforms business model, which might have severe impacts on their operations. The KFS linked to the platform regulator can be formulated as follow: “offer a solution that helps the government achieve its objectives and leverage political support in the legislation process”.
Sharing economy platforms willing to introduce mobility solutions in Jakarta should find ways to tap into opportunities and neutralize threats linked, developing a strategy that answer the KFS linked to the three groups of key actors.
4. GO-JEK CASE ANALYSIS
4.1 Introduction The second step to understand the success of GO-JEK in Jakarta is to analyse its strategies and compare them to its main competitors’.
GO-JEK was launched in 2010 as a call-centre to connect motorcycle taxi (ojek) drivers with their potential consumers in Jakarta. Consumers simply called the GO-JEK central to request an ojek driver at a certain address and GO-JEK sent one of its drivers. Nadiem Makarim, its 43 founder, used ojeks’ services daily to cut through traffic on its way to work at McKinsey and was searching for a more efficient way to contact them. Therefore, he launched GO-JEK call- centre, marketing it to friends and family, with a fleet of 20 ojeks, which recruited other ojek drivers overtime. During the next four years, the company grew slowly. Makarim went to Harvard Business School, then helped launching the popular e-commerce platforms Zalora and Lazada in Indonesia. In the summer 2014, the successful entrance of Uber in Indonesia rose investors’ interest in GO-JEK. By January 2015, GO-JEK had launched its motorcycle ride-hailing app in Jakarta with 800 ojek drivers, which soon became very popular. Nowadays, GO-JEK has become a real Indonesian digital phenomenon, downloaded over 40 million times, with 250,000 drivers across 25 cities in Indonesia and counting. Their fundamental values are “speed, innovation, and social impact” (Go-jek.com, 2017).
In the following sections, the development of the tech start-up and its strategic moves in the competitive environment are described. A synthetizing comparison table of the three competitors is available in appendix 2 and illustrations of their applications are available in appendix 5. Three phases of innovation can be distinguished in this development.
4.2 New option for ride-hailing
4.2.1 Motorcycle ride-hailing The first notable innovation of GO-JEK was to adapt the Uber ride-hailing app model to ojeks. In Indonesia, and particularly in Jakarta, motorcycles make more sense than cars for the sharing economy. In fact, they are more affordable than cars, so the number of providers on the platform can potentially grow faster. Plus, on the congested streets of Jakarta, motorcycles are a faster mean of transportation since they can move between stopped cars.
Adapting the Uber model to motorcycle taxis creates advantages for both providers (drivers) and consumers of the platform. For drivers, the application makes booking orders process considerably more efficient. Once they complete an order, instead of going back to their gang location and wait in line, the application finds them a new order in the same area, indicating the exact location on its navigation system. This new process increases the number of orders drivers can obtain during working hours, and despite a lower price per order, it increases overall their revenues (Appendix 4.4). 44
The green jackets and helmets worn by the drivers were quickly associated with an image of reliability and trust in the mind of their consumers. In fact, on the GO-JEK app like on other sharing economy platforms, consumers can see the name of their driver, contact him, and evaluate him after the order (Appendix 5.1.2). Evaluating providers, seeing their average number of stars, and sending reviews to the application managers facilitating trust creation, as explained in the literature review and mentioned by consumers interviewed (Appendix 3.2 and 3.5). One of the former ojek drivers interviewed also mentions that since consumers don’t have to bargain for price anymore, the contact became more friendly and agreeable (Appendix 4.5).
For consumers, all interviewed consumers agree that the application makes it the most efficient mean of transportation and now represent their first mean of transportation. The time from door- to-door is considerably reduced. A consumer interviewed explains that before, when using public transportation or traditional ojeks, she had to walk to the main street first which takes time and is unsafe (Appendix 3.4). Consumers now input their exact location and their destination location in the application (Appendix 5.1.2). GO-JEK drivers can for instance pick them up in front of their house and take them directly to their office. A foreigner interviewed explains that this is particularly convenient when you do not actually know the place you need to go to. The driver will not stop until you arrive at destination, looking at the app navigating system and asking security agents along the way if needed (Appendix 3.2). All interviewed consumers also agree that using GO-JEK is relatively cheap. Consumers interviewed mentioned that order a taxi, Uber or Grab car, remain a quite exceptional thing to do (to carry heavy things, go to the airport, or move during a storm), or is be done when the price could be divided among several people (Appendix 3.3, 3.5, 3.6). In opposition, the cheap price of GO-JEK makes it an affordable daily solution to go to work, university, meetings, etc. Finally, all consumers interviewed consider it as a safer mean of transportation. In fact, foreigners interviewed explain that traffic laws in Jakarta are not very clear. “Cars and motorcycles can come in your way from anywhere, usually they just try to move on, without following any priority rule. At first, I thought it was pretty chaotic” (Appendix 3.6). For those unused to ride a motorcycle or unused to drive in Jakarta’s traffic, GO-JEK is a convenient solution. “Drivers are actually pretty safe, they ride slowly and have eyes everywhere, I was impressed, I could never ride as well in here”, interviewee explains (Appendix 3.2). Another consumer interviewed also mentions as a plus the safe and clean helmets and face masks provided by GO-JEK drivers, in opposition to the old and dirty ones from conventional ojeks (Appendix 3.5). 45
For its application launch in 2015, GO-JEK gave consumers vouchers with value of Rp50,000 to give to their friends or family first-time consumers. The vouchers spread thanks to social media together with the curiosity towards the new green jackets on the street. In two months, GO-JEK reached its end-of-the-year target. Over its first year of existence, GO-JEK application was downloaded 11 million times (Jelita, 2015; Porter, 2016).
4.2.2 Competition in motorcycle ride-hailing When GO-JEK launched its application for motorcycle ride-hailing, there was no other sharing economy platform offering the same service. However, its rapid success encouraged its two main competitors, Grab and Uber, to add motorbikes to their fleet of cars in Jakarta. Grab launched GrabBike in May 2015, and Uber launched UberMotor in April 2016.
Overall, the functionalities and services offered by the three competitors tend to grow more and more similar. When one feature added by one of them is appreciated by consumers, the others develop it for their own platform. Over the last six months, it could be observed for instance the following features spreading across all three platforms: ride-hailing application and information available from Google Maps (Appendix 5.1.2.1), traffic density visible while waiting order (Appendix 5.1.2.2), driver’s plate number (Appendices 5.1.2.2, 5.2.2.2, 5.3.2.2), or typical reason for less-than-five stars reviews (Appendices 5.1.2.3, 5.2.2.3, 5.3.2.3).
Price computation vary across competitors. GO-JEK operates a flat price pre-defined based on the hour of the day. This means that every morning between 7am and 8am, the price paid to go to work is the same, and the price will not change during the ride even if the driver is stuck in traffic, gets lost, or take more time for other reason. This price stability is appreciated by consumers, and forces drivers to be as efficient as possible (Appendices 3.3, 3.5, 3.6). If consumers pay with the Go-Pay feature (which will be developed in a further section), the price to pay can have a discount up to 50-70%. Uber, on the contrary, applies the pricing model it is famous for worldwide, which is based on a supply-demand algorithm. This means that the price will be based on real time data. In case of a heavy rain for instance, even in a non-peak hour, prices can quadruple. It also means that if the driver takes a wrong route or take more time than what the algorithm predicted the price will be adjusted and consumers will have to pay more, for what might be a driver’s mistake. However, the hard discount and promotion send by Uber by email make sometimes rides cheap or even free for consumers, incentivizing them to switch app (Appendices 3.3, 3.6). Recently, Uber created a penalty feature for consumers who cancel their order more than five minutes 46 after ordering. This penalty rule supposes that the driver has already spend time processing the order and is coming to the consumer. However, consumers interviewed explain that usually the reason for cancelling is that the driver is not moving or going in the wrong direction. It was also mentioned that Uber drivers could cheat, for example start the ride on the application, as if they had already picked up the consumer when they are actually far from arriving to their place, making booking cancelation impossible and price of the ride higher. Consumers further explain that it is time consuming and difficult to process refund procedure to Uber, which has no customer centre based in Indonesia (Appendices 3.2, 3.3, 3.6). Grab pricing policy is less straightaway. Over the last six months the basic fares changed several times. However, the price is not changing if the driver takes longer than expected, there are no Uber-like penalties, and promotion appear directly on the application. Consumers interviewed all grant a lot of importance to the price of their rides and do not hesitate to switch applications to get lower prices. Price sensitivity is thus a strong criterion in consumer choice among the different mobility sharing economy platforms, lower prices attract consumers. All interviewed consumers show preference for the pricing method applied by GO- JEK considered as fairer than Uber’s.
A recent survey from the Indonesian Consumer Protection Foundation (YLKI) interviewed 4,668 online respondents on online transportation services. It asked respondents which is/are (more than one answer allowed) their favourite application: GO-JEK reached 72.6%, followed by Grab with 66.9%, and Uber with 51%. Overall, consumers are satisfied with those applications, with less than one percent of the respondents describing quality of online transportation services as not good or bad (Jakarta Globe, 2017).
4.2.3 Issues related to motorcycle ride-hailing Along with the rapid growth and growing popularity, GO-JEK faced three sets of issues.
The first set of issues were technologic. Platform engineers had not expected such a rapid launch and the system nearly imploded in the first few weeks due to the high number of consumers. Then various sorts of security issues were detected during the first months by Internet bloggers showing that they could access drivers and consumers’ data. Drivers on their side found out that they could cheat on their position and create fake orders with the help of a friend’s smartphone, reaching more easily the 10 rides a day required to receive a bonus. While hiring as many Indonesian engineers as possible to be able to fix and prevent those issues, GO-JEK also acquired since 2016 several Indian start-ups. In fact, the Indonesian workforce 47 lacks senior engineers with the right experience to guarantee security and efficiency of such large-scale platforms. GO-JEK thus decided to enter India to access its qualified talent pool and launched its training centre in Bangalore, the Asian Silicon-Valley, meant to train both its Indian and Indonesian engineers. After those first issues that could have caused severe problems, the company decided to rather over-hire and have strong engineering capacities to avoid further issues and launch new developments faster (Bhattacharjee, 2016; Cosseboom, 2016; Suzuki & Sharma, 2016).
The second set of issues were financial. To sustain its growth and remain attractive in the new competitive environment, GO-JEK needs strong financial support. In fact, since consumers compare prices between apps and easily switch between competitors, a price war started between the ride providers. Uber and Grab having already strong financial investors could afford to subsidize ride cost for consumers and increase driver’s monetary incentives to achieve network effect. GO-JEK could not afford to be more expensive at the risk of losing its consumers and drivers to the competition. After the initial investment for the app launch, it received new investments in August 2016 and May 2017 of respectively US$550 million and US$1.2 billion. Investors include regional private equity groups such as Sequoia Capital and Northstar group, as well as Chinese Internet leader Tencent. They value GO-JEK at over US$3 billion post money, making it the first Indonesian “unicorn” (start-up whose financial value is over US$1 billion) (Lee, 2016; Russel, 2016; Russel, 2017).
The third and last set of issues were institutional. Conventional ojek drivers reacted even more violently to the arrival of GO-JEK than taxi drivers to Uber and Grab. In fact, there has never been any law recognizing and protecting ojek drivers. Over the first few months, the success of GO-JEK decreased by four the number of orders booked by traditional ojek drivers (Freischlad, 2015). GO-JEK requires from its new drivers to present identity papers, motorbike registration papers and driving license in order to be registered as providers on the platform. Consequently, without support of the government, ojek drivers who could not comply to GO-JEK rules were helpless and became violent towards GO-JEK drivers, rescued by police officers or protecting themselves in shelters build by GO-JEK in sensitive areas. Since its launch, GO-JEK has been developing good relationship with the national and local governments, earning its support and recognition, positioning itself as a partner on the development of efficient and sustainable mobility solutions. In March 2015, Jakarta’s governor organized a meeting with Nadiem Makarim, GO-JEK’s founder and CEO, and the President 48 director of Transjakarta buses to discuss the future of mobility in the city. An agreement was made to make Transjakarta buses more accessible with the help of GO-JEK. This year, for the two rounds of elections in Jakarta, GO-JEK teamed up again with the authorities to offer free rides to go to the vote offices and provided information on the importance and functioning of elections. The Indonesian president himself is also an ardent supporter of GO-JEK that has become a symbol of the digital potential of his country. Besides lifting the ban on sharing economy, he took Nadiem Makarim on his USA economic visit in October 2015, along with leaders of local technology pioneers Tokopedia, Traveloka, and Kaskus. This approach is not at all intended by competitors.
4.3 New definition of mobility
4.3.1 One-stop-shop solution Analysing the Indonesian consumers’ more general needs and preferences, GO-JEK understood that congestion is not only an issue for transportation. It identified services closely linked to mobility or for which difficulty of access due to congestion is impeding business development.
Based on this analysis, GO-JEK’s scope widened to more means of transportation and to access to a wide variety of services. New modules offering these services were added to GO-JEK’s platform, most of them delivered by its growing fleet of drivers. All these modules are integrated on the GO-JEK application, sharing similar interface, functionalities, and payment method options (Appendix 5.1.1). In an interview back in 2015, Nadiem Makarim, GO-JEK’s founder and CEO explains that it is this variety of services that enables his company to scale faster than competitors in Indonesia (Cosseboom, 2015). His strategy, comparable to the one of the popular WeChat in China, is reflected in GO-JEK’s slogan “a GO-JEK for every need”. By providing solutions to Indonesian’s consumers every need, Makarim hopes that consumers will get used to click on his application and not the competitors’, creating this way an ever-stronger GO-JEK community.
4.3.2 Transportation and logistics The first expansion in transportation services offered by GO-JEK is called Go-Busway. This new service was developed in October 2015 following the previously mentioned meeting with the governor of Jakarta and the president director of Transjakarta buses. Go-Busway is described on GO-JEK’s website as “a service to monitor Transjakarta bus service schedules 49 and order Go-Ride [new name for motorcycle ride-hailing services] to take you there” (Appendix 5.1.1.2). This service aims at making public transportation easier of access.
The second expansions concern logistics, deliveries and courier services. Go-Send is described by GO-JEK as “an instant messenger service that you can use to send mail and goods within 60 minutes” (Appendix 5.1.1.3). It is completed by Go-Box for “large moving goods using a tub truck or blind van” (Appendix 5.1.1.3). These two new services enable businesses and individuals to have their deliveries taken care of in a short time within a city. In 2016, e- commerce website Lazada also partnered with GO-JEK to offer a premium faster delivery option for its deliveries. Grab launched a similar service to Go-Send but with less options and functionalities (Appendix 5.2.1.3).
The third expansion adds private cars to GO-JEK platform (Appendix 5.1.1.4). With this expansion, GO-JEK became in April 2016 a direct competitor to Grab and Uber cars services. Consumers interviewed estimate that it took around one year for GO-JEK fleet to be comparable to its competitors’ (Appendices 3.5 and 3.6). However, Go-Car and GrabCar do not offer different standings of cars like Uber does. All three competitors join forces in trying to limit the impacts of the ongoing regulation process on their businesses. In fact, if applied as announced, the changes to implement would be consequent for all of them. Hopefully, the entrance of the national champion GO-JEK in this segment might impact the outcome of the legislation process.
The fourth expansion occurred in May 2016, barely two months after the largest taxis protest against ride-hailing applications. Go-Bluebird consists in a partnership between GO-JEK and the largest taxi company in Indonesia, Blue Bird, involving agreements on technology, payment, and promotion. GO-JEK consumers can since then order a conventional taxi through Go-Bluebird on their GO-JEK application (Appendix 5.1.1.4). Instead of attacking the traditional taxis industry in the Uber-way, GO-JEK suggests that his technology can benefit the entire mobility industry, making access to mobility easier for consumers. And indeed, by including Blue Bird 300,000 taxis on the GO-JEK application, Blue Bird announced that it experienced a significant increase in its orders. Since then, Grab and Uber also teamed up with traditional taxi companies to offer more mobility choices to their consumers. 50
Finally, the fifth expansion consists in an “auto care, auto service, and auto towing and emergency service to meet with your automotive needs”, under the name of Go-Auto (Go- jek.com) (Appendix 5.1.1.5).
These five expansions offer a wider range of means of transportation and mobility-related services to GO-JEK’s consumers. Competitors offer services similar to Go-Ride (motorcycle), Go-Send, Go-Car (cars), and Go-Bluebird, but nothing comparable to Go-Box, Go-Busway, and Go-Auto. Although, let’s mention that Grab recently conducted a feasibility study for helicopter services, GrabHeli, in Jakarta. Uber conducted a similar study in 2015 but never launched its UberChopper service. Profitability of such a service remains questionable.
4.3.3 Health and lifestyle Besides these new means of transportation, GO-JEK also developed health and lifestyle services solutions for which access to the service can be considered as an issue for businesses due to the dense traffic in the capital.
GO-JEK’s first lifestyle expansion was Go-Food, a food delivery service launched in April 2015 (Appendix 5.1.1.6). With 64,000 culinary ventures partners, Go-Food is the food delivery leader in Indonesia. Food delivery is particularly popular in South East Asia where people are used to eat food made out-of-home. Recently, GO-JEK announced that it had 95% of market shares in food delivery services. All interviewed consumers admitted that they now frequently order Go-Food rather than going to the restaurant or using other food delivery applications. One of the consumers interviewed explains that she even uses Go-Food to search restaurants near her area, since Go-Food is more accurate than TripAdvisor in Jakarta (Appendix 3.2). Specific competitors for this service such as regional start-ups FoodPanda and OpenRice ended their operation on the Indonesian market last year due to the growing influence of GO-JEK. Some international food companies, such as McDonalds, KFC, or Pizza Hut still offer delivery services, but according to consumers interviewed, they are less efficient than Go-Food drivers (Appendices 3.3 and 3.6). Uber, who launched UberEAT, its food delivery services in other cities in the region, did not launch it in Indonesian cities. Grab, however, launched GrabFood in Jakarta (Appendix 5.2.1.3). but has a considerably smaller base of restaurant partners than Go-Food making it less attractive to consumers. 51
The second expansions consist in concierge and delivery services. Since September 2015, Go- Mart enables to select items in partner food grocery stores and have them delivered, whereas Go-Shop enables to ask for specific items in any shop in the city (Appendices 5.1.1.7 and 5.1.1.8). This service is growing more and more popular in the congested city as consumers interviewed attest, particularly among the active population. “Go-Mart is very convenient for me, because going after work to the supermarket, with the traffic, parking etcetera, takes me almost 2 hours. With Go-Mart, I place my order before leaving work, go back home, and only have to wait a few minutes before being delivered” (Appendix 3.6). Contrarily to the food delivery segment, regional competitors, such as HappyFresh and HonestBee are still operating on the Indonesian market. Grab and Uber do not offer these services.
The third expansions have no direct competition. Launched in October 2015, Go-Glam and Go- Massage enable to get a professional beautician or masseuse at home providing a wide range of cares. These services specifically correspond to the preferences of the growing Indonesian middle and upper-classes, with for instance creative hijab folding (Appendices 5.1.1.10 and 5.1.1.11). They avoid for the consumers to need confronting the traffic and for the care providers to own a well-located and well-decorated costly institute.
The fourth expansion is a cleaning service. Go-clean launched in October 2015 too enables to book occasionally “a professional cleaning service to clean your room, house, and office” (Go- jek.com) (Appendix 5.1.1.9). Kliknklin, its main competitor in Indonesia is more known for its laundry services than room cleaning services. Grab and Uber do not provide such solutions.
The fifth expansion is called Go-Med and offers “an integrated service to buy medicines, vitamins and other medical needs from licensed pharmacies” (Go-jek.com) (Appendix 5.1.1.12). In order to develop this additional health service, GO-JEK acquired the Indonesian start-up HaloDoc and the Indian start-up Pianta, both facilitating ordering medicines and appointment booking with healthcare specialists, in their clinic or at the patient home. Go-Med also enables to call a doctor to have a medical opinion on symptoms or medicines to order. These services are not provided by other competitors.
The sixth and last expansions are Go-Pulsa and Go-Tix. Go-Pulsa derives from a partnership with Telkomsel, Indonesia’s largest mobile operator. With Go-Pulsa, consumers can directly top-up their mobile credits and data using Go-Pay (Appendix 5.1.1.13). Go-Tix is described by GO-JEK as “an event information service with direct ticket purchase and ticketing access to your hands”. It enables to book for instance movie tickets, tickets for tourism, sports, art and 52 culture, attraction, music events (Appendix 5.1.1.14). Recently, GO-JEK became sponsor of the Indonesian football “Liga 1”. Go-Tix provides information on each team of the Liga 1, results of past games, and tickets for the next games.
Except for the food delivery segment, these services are not provided by GO-JEK’s traditional competitors Uber and Grab. All interviewed consumers use frequently Go-Food and more than half of interviewed consumers use other lifestyle services frequently. Some of these services are provided by regional start-ups, offering just one of those services. However, let’s note that Grab recently acquired the Indonesian start-up Kudo specialized in Online-to-Offline (O2O) service, with 400,000 agents across Indonesia helping entrepreneurs to offer goods and services online. Grab also announced a partnership with Lippo Group, which is behind the e-commerce MatahariMall. These acquisition and partnership could be seen as an intention from Grab to offer a wider range of services in the future as well. Uber on his side created a partnership with Lazada and Netflix in Singapore. This partnership would be an intend to compete with Amazone Prime but hasn’t shown results yet, nor expressed intention to launch on the Indonesian market.
4.3.4 Payment solutions As developed in the environment analysis, Indonesia heavily relies on cash for its transactions. Silicon-Valley platforms usual payment method is credit card, however in Indonesia, only 1.6% of the population owns a credit card. Hence, other payment solutions must be provided by sharing economy platforms.
The most obvious payment solution to offer to Indonesian consumers is cash payments, which is accessible to all. GO-JEK and Grab offered this solution from the start. Uber however, took 22 months after its launch in Indonesia to offer this fundamental payment method, which requires some coordination with the drivers.
Nevertheless, cash transactions require drivers to have enough change money which is not ideal. Most online businesses in Indonesia require to pay cash or to go physically to a bank to make the transfer. However, more practical and secure payment systems are being developed all around the world and in Indonesia. Two of them are interested GO-JEK. E-wallet is a payment solution that enables to pay via Internet Banking, Mobile Banking, and SMS Banking. To offer this payment solution to its consumers, GO-JEK partnered with PermataBank. The system developed by PermataBank enables to top-up a virtual account 53 through Internet, Mobile or SMS banking. E-money is a solution that enables to store funds. The European Central Bank defines it as an “electronic store of monetary value on a technical device that may be widely used for making payments” (European Central Bank, 2017, p1). In Indonesia, companies willing to provide e- money solutions to their consumers must own a license issued by the Indonesian Central Bank. However, the issuing of licenses was frozen a while ago, in order to develop the infrastructures needed to support more e-money activity. Only 21 companies own such licenses in Indonesia, mainly banking and telecom groups. GO-JEK partnered with MVCommerce, one of the 21 licensed groups, that developed PonselPay, an e-money mobile payment service. With those two partnerships, GO-JEK launched in April 2016 Go-Pay, its digital payment solution (Appendix 5.1.1.16). Consumers can put money on their Go-Pay virtual account either by toping it up through their internet, mobile, or SMS banking system (e-wallet), by going to an ATM machine (e-wallet), or by giving cash to a GO-JEK driver that will make the transfer (e-money). This money can be stored on consumer’s mobile phone and used to pay for any of the services available on the GO-JEK application. Recently, GO-JEK announced that it now also be possible for consumers to transfer money to each other and to withdraw cash from Go- Pay credits in some partner banks. Grab also partnered with one of the licensed group, but so far its GrabPay only offers e-wallet options, operating transfers from Internet banking, ATM, and credit cards, providing no solution to consumers without bank account (Appendix 5.2.1.4), which corresponds, according to World Bank (2014), to 64% of Indonesian adults. Uber provides no alternative solutions to credit cards and cash payments. Since its launch, Go-Pay has convinced more and more GO-JEK consumers. In January 2017, GO-JEK announced that more than half of the transactions were now paid through Go-Pay. All interviewed consumers now use Go-Pay to pay for their mobility services, highlighting how convenient this solution is compared to carrying small cash. Go-Pay is according to them one of the main reason they use GO-JEK more and more. One of the consumers interviewed explained “in previous time, I worried that I left my wallet in the house because I cannot pay nothing and etcetera. But now I am more worried I left my phone, because all my money is in here” (Appendix 3.3). The success of Go-Pay can also be explained by the easy top-up process, accompanied of clear explanations, and of discounts linked to it. 54
4.3.5 Promotion and marketing Since the launch of Go-Pay, except discounts on new products, discounts on rides and services are exclusive to payments with Go-Pay. The discounts can go up to 50-70% of the original price, making Go-Pay very attractive. In turn, by encouraging consumers to pay with Go-Pay, GO-JEK increases their loyalty. In fact, consumers interviewed explain that Go-Pay is so seamless to use that when they have money on GO-JEK, they tend to first open and use this application, rather than its competitors’ (Appendices 3.3, 3.5, and 3.6). Grab offers discounts on rides, which appear as pop-up when the application is opened (Appendix 5.2.3.3). Uber usually sends discount and promotion offers by email to its consumers (Appendix 5.3.3.3).
Besides discounts with Go-Pay, GO-JEK developed Go-Points, a loyalty program for its services. Every time consumers book services on the application they receive a token. Tokens can then be played at any time by consumers. Each token looks like a coin that consumer swipes, the coin spins until it stops on a number of points between 5 and 65 (Appendix 5.1.1.15). Points accumulate on Go-Points and give access to vouchers and discounts in the many partner companies active in e-commerce, F&B, travels, health and beauty, electronics, lifestyle, entertainments, hobbies and education, and for GO-JEK services. For instance, with 600 points, consumers can get a buy 1 and get 1 free pizza, with 750 points they can get a rebate of IDR50,000 on an e-commerce platform, or with 150 points they can get 30% discount at a barber venture. The variety of rewards for points owned convinced most consumers interviewed to accumulated points. One consumer interviewed even adds that many of his friends became addicted to the swiping game and suspense on the number of points they will earn from it (Appendix 3.6). Grab also developed recently a loyalty program in which points add up automatically for each ride. The number of points earned depends on the type of ride and the cost of it. Consumers can go from “member” to “silver” to “gold” to “platinium” when earning more points. Rewards can be chosen from a small number of partners (Appendix 5.2.1.5). None of the consumers interviewed seemed aware of this loyalty program. Uber offers no such program.
Other marketing efforts include the application interface and the image of the company developed through marketing campaigns. One of GO-JEK’s main objective is to “maximize consumer experience” Chief Marketing Officer Piotr Jakubowski repeated in many interviews. GO-JEK interface is therefore quite simple, colourful, always containing the company green and white logos (Appendix 5.1.1.1). 55
When opening the application, the consumer sees all the services offered by GO-JEK and clicks on the icon of the desired one. Consumers interviewed find it customer-friendly and attractive despite the number of services (Appendices 3.1, 3.4 and 3.5). Uber application is more sophisticated, in black and white, without logos (Appendix 5.3.1.1). When opening the application, the consumer sees a map of its localisation and swipe to select his mean of transportation. One of the consumers interviewed explains that this interface vehiculates the image of a more premium service, which she would not use for daily needs (Appendix 3.4). Grab interface is fully white and green, Grab’s colours which happen to be the same as GO- JEK’s (Appendix 5.2.1.1). Two of the consumers interviewed explain that they find it confusing that both competitors had similar colours, but that in their minds green jackets were GO-JEK’s (Appendices 3.2 and 3.3). The interface sophistication is half-way between GO-JEK’s and Uber’s, showing the map of the localisation as well but selecting the mean of transportation from a drop-down menu.
The war between GO-JEK, Grab and Uber goes on on social networks (Facebook, Instagram, Twitter, Youtube, LinkedIn) and urban billboards, where all three competitors advertise their services and special promotions. GO-JEK’s and Grab’s ads usually follow their white and green colours. GO-JEK’s usually show on half of the image a picture usually including one of its green jackets or helmet (Appendix 5.1.3.1) whereas Grab’s ads have incrusted image of for instance a hand holding the voucher or an image of smiling consumer (Appendix 5.2.3.1). Uber’s ads follow its black and white theme, with no image on them (Appendix 5.3.3.1) Consumer interviewed expressed their preference for GO-JEK’s advertisements (Appendices 3.3 and 3.5).
Contrarily to its competitors, GO-JEK’s marketing always reflects its national identity, with drivers wearing the Indonesian flag on their jacket, taglines such as “Indonesia chooses GO- JEK”, and the support of national celebrities. In interviewed consumers’ mind, it seems pretty clear that GO-JEK is Indonesian, and for many consumers, Indonesians or foreigners, this has become a reason to use the application rather than its international competitors (Appendices 3.2, 3.3, and 3.5). GO-JEK’s deep understanding of its market can also be illustrated by its Ramadan program. During these past two Ramadan periods - which are particularly important to the Indonesian people, largely Muslim - GO-JEK has adapted its design and functionalities (Appendix 5.1.3.3). All services offered by GO-JEK were adapted to the spirit of Ramadan, bringing people 56 together, helping disadvantaged ones, and doing good. For the occasion, GO-JEK partnered with charity association, enabling for instance consumers to donate points or order delivery for disadvantaged children. GO-JEK also organized cleaning activities in popular mosques through Go-Clean. Go-Clean added a reference list of food stalls available during sahur (3.00am) and iftar (6.00pm) time and offering fasting packages. For Ramadan, GO-JEK also awarded its best drivers with for instance travel coupons to go back to their families in the country side. This year, GO-JEK shared data collected during Ramadan. They show that donation to charity increased by 60% since last year, surpassing IDR100 million (US$7,500). Tips to Go-Ride drivers through Go-Pay increased too with additional income of IDR400 million (US$30,000). Similarly, Go-Food orders during sahur increased up to 450%, with one GO-JEK consumer out of four placing Go-Food orders for sahur and iftar. All initiatives were meant to maximize consumers experience during their holy month of Ramadan, while still offering usual services for consumers of different religions.
4.4 New bases for entrepreneurship
4.4.1 Work conditions and revenues GO-JEK defines itself as a “social-tech enterprise that aims to improve the welfare of workers in various informal sectors in Indonesia” (Go-jek.com, 2017). Social impact is indeed one of its three fundamental values.
Among the drivers interviewed, when asked why they became GO-JEK drivers, all mentioned the potential to increase their revenues in unbelievable proportions. One driver interviewed who used to be a traditional ojek driver explains that when he first tried GO-JEK he was disappointed by the lower tariffs per ride. However, he quickly understood that he could get more rides per day with the application and earn overall more than before (Appendix 4.4). Another driver interviewed explains that her previous work as a salesperson in a home furniture shop paid her IDR3 million a month (US$225), just above the minimal wage. She now earns IDR18 million a month (US$1,350) as a GO-JEK driver (Appendix 4.3). A former construction worker interviewed used to earn IDR2 million per month and is now making almost ten times more, which will enable him to send his two sons to college (Appendix 4.6). Another driver interviewed explains that riding with the green jacket a few hours a day enables him to cover the cost of his own motorbike first and now most of his university costs as well (Appendix 4.2). 57
Drivers interviewed also largely mention the more flexible work conditions as a main advantage of their new job. The mother interviewed enjoys quality time with her children and rides when they sleep or are in school (Appendix 4.3), the university student adapts his working hours to his lesson schedule (Appendix 4.2), the father helps his wife food business in the morning and does food deliveries in the afternoon (Appendix 4.6). Overall, every driver can decide when he or she wants to drive and there is no limitation in the number of hours a day. For instance, before Ramadan, one of the driver interviewed was riding 16 hours a day to earn extra money to spend time with his family and to buy presents for them (Appendix 4.4).
4.4.2 Financial inclusion GO-JEK’s commitment to empower actors in the informal sector is translated in its “Swadaya program”, whose initiatives aim at a greater financial inclusion and welfare for its drivers and services partners.
When asked why they choose to ride for GO-JEK, most drivers interviewed answer that a friend of them convince them to join or that a recruiting event happened in their neighbourhood which was convenient. However, when asked if they would consider switching platforms and become a GrabBike or UberMotor driver, they show no enthusiasm. Some of them mention national pride or explain that advantages they get with GO-JEK are more interesting for them (Appendices 4.3 and 4.6). The Swadaya program indeed offer four sets of advantages to their “partners” (drivers and service providers).
First, partners who do not own a bank account are accompanied by GO-JEK in the procedure to open one and receive an ATM card. Then, GO-JEK teaches them to use their ATM card to make money transfers, deposits and withdrawals. In the Indonesian context, helping drivers through these steps is essential since the large majority of them never owned a bank account. Basic bank literacy is essential for providers to transfer cash payments they received to GO- JEK, and for GO-JEK to handle payment of income made by its hundred thousand drivers and service providers. Out of the five drivers interviewed, only one had a bank account shared with his entire family, which he rarely used (Appendix 4.2), the others simply hid cash in their house. All interviewed providers explained they had to learn using their ATM card and make financial transaction. Since their bank account creation, they become able to save money and afford goods and services unaffordable before (Appendices 4.3, 4.5 and 4.6). 58
Second, the Swadaya program automatically signs up all its partners for health and accident insurances. It also enables partners to purchase health insurance for members of their family at an affordable price. Access to health insurance is also an important improvement in Indonesia where less than one percent of the population is covered. For instance, one of the driver interviewed mentioned that he had tooth care for the first time in his life thanks to the program (Appendix 4.5), another that he could take his ill mother to the doctor (Appendix 4.4).
Third, partners can access basic goods and services with advantageous discounts from a selection of retail stores, minimarkets, and automotive shops. The goods purchased at discounted price can serve for their family as well, the mother interviewed for instance can feed her children with quality products on discount (Appendix 4.3).
Finally, fourth advantages are instalment programs to purchase motorbikes, smartphone, vision glasses, or other electronic goods, paying only IDR6,000 to 29,000 (US$0.45 to 2.17) a day until full reimbursement with zero interests. In fact, in Indonesia it is not rare to decide to become a driver or service provider on a sharing economy platform without owning yet the vehicle. Among the providers interviewed, three out of five accessed personal vehicle ownerships for the first time in their life, and four out of five accessed their first smartphone through GO-JEK instalment program. This can sound ironic for sharing economy academics who imagined owners to share their assets and not people to become owner in order to start a sharing activity.
4.4.3 Entrepreneurial support Beyond an increase in revenues, flexible work hours, and greater financial inclusion and welfare, GO-JEK platform offers great support to micro-entrepreneurs. Being listed on the popular application offers considerably greater visibility for the service providers. This in turn can generate larger demand for their services and help them scale their business. For instance, one of the consumers interviewed opened a burger business. By joining Go-Food, the number of orders per evening grew from 10 to 50. Even with the 15% cut for GO-JEK (when orders are paid in cash and not with Go-Pay), being a Go-Food is still very profitable for them (Appendix 3.4). Another driver interviewed explained that his wife, who enjoys cooking, started offering food delivery services from home on Go-Food and now plans to open her own stall open to the public (Appendix 4.6). 59
GO-JEK also provides education solution to compensate lack in some skills and knowledges of its drivers and services providers. For instance, many drivers interviewed did not know how to use a smartphone or a navigation tool (Appendices 4.2, 4.3, 4.4, and 4.6). To train its thousands of partners, GO-JEK favours online education solutions. Basic training includes smartphone usage, mobile navigation systems, and safety and eco-driving workshops. More specific area of improvement included for instance communication skills, which was mentioned by an expat consumer interviewed (Appendix 3.2). GO-JEK recently partnered with Bahaso, Indonesian leader in online languages learning to improve partners’ English skills. Partners who complete the Bahaso program obtain an official certificate from the University of Indonesia. To encourage partners to change their behaviour, incentives and rewards are created, such as additional Go-Points when they transfer cash to consumers Go-Pay accounts. By doing so, GO-JEK hopes to improve the quality of their services and of their partners professional development.
4.5 Conclusion In this second analysis, GO-JEK strategies we described, distinguishing three innovation phases.
The first innovation phase disrupted the traditional ojek market with a digital innovation. Providing access to motorcycle taxis on an online application made this service more efficient and attractive to both consumers and drivers, which attracted competitors. These competitors, Grab and Uber now offer similar functionalities but different price computation systems. Technological, financial, and institutional issues encountered by GO-JEK were resolved respectively by the acquisition of qualified Indian IT workforce, strong financial backers, and recognition from the Indonesian authorities.
The second innovation phase widened the definition of mobility, including more means of transportation and services for which access could be problematic due to traffic. These additional features and the way they are marketed is based on a deep understanding of the Indonesian people. In two years, GO-JEK has become a one-stop-shop solution providing a “GO-JEK for every need”, differentiating itself creatively from its international and regional competition.
The third innovation phase aims at improving GO-JEK’s partners welfare beyond revenue increase and workhour flexibility provided by most sharing economy platforms. GO-JEK also 60 support its partner financial inclusion, developing new skill and knowledge, and provides them a base to launch and scale their professional services.
5. DISCUSSION & RECOMMENDATIONS
5.1 Introduction Building on the two previous analysis, this section aims first at explaining the success of GO- JEK’s strategies in its development context, Jakarta. Key Factors of Success (KFS) deducted from the environment analysis will be put in perspective with the innovation moves described in the case analysis. Then, lessons from GO-JEK’s success will be derived for other sharing economy platforms. Finally, this section explores future possible development of the mobility sharing economy platforms in Indonesia.
5.2 Key Factors of Success As conclusion of the environment analysis, it was determined that there were three key actor groups, each of them associated to a set of opportunities and threats for mobility sharing economy platforms in Jakarta. Let’s see how GO-JEK’s strategies answer these KSF, comparing which of these strategies are also followed by its main competitors, Uber and Grab, and which are unique to GO-JEK. A summary table of GO-JEK’s answers to Indonesian needs and preferences compared to its competitors is available in appendix 6.
5.2.1 Consumers The first key actors for GO-JEK and its competitors are the potential consumers of the platform. The KFS formulated for this group is to offer an efficient solution to their mobility needs that taps into their tech savviness and takes into account their national identity.
GO-JEK, Uber, and Grab now all offer application-based motorcycle ride-hailing services. This technological innovation disrupts the traditional informal ojek sector, making it more efficient and trusted. The door-to-door service provided is fast, cheap, and safe, making it an efficient solution for Jakarta people’s mobility needs and taping in their tech savviness.
However, GO-JEK particularly distinguishes itself from the competition with its wider range of mobility solutions. In fact, GO-JEK identified other needed and desired services for which the congestion in Jakarta is an issue for consumers becoming a one-stop-shop solution with an 61
“ojek for every need”. The identification of these services and the way GO-JEK marketed them relies on a deep understanding of its Indonesian consumers. Price computation, available payment methods, discounts, loyalty program, interface, and marketing efforts correspond to Indonesian consumers’ preferences and needs, differentiating themselves from international sharing economy platforms practices.
5.2.2 Providers The second key actors are the potential platform providers, in GO-JEK and its competitors’ case, the providers are their drivers, at the core of the mobility solution, but also in the case of GO-JEK, its other services providers. The KFS for this group is defined as offer a solution to access vehicle ownership and higher social status by increasing work efficiency and revenues, while taking into account the lack of general skill, knowledges, and bank and digital literacy.
Most sharing economy platforms offer the possibility to their providers to earn more revenues, work flexible hours, making their offer more efficient and visible on the platform. GO-JEK, Uber, and Grab are no exceptions; they enable easy booking process, payments, and trust creation making provider’s work more efficient, more flexible, and overall potentially increasing their revenues.
Besides those common advantages, GO-JEK assists its drivers and services providers on needs specific to the Indonesian market. First, the services, assistance, and education GO-JEK offers to its providers to improve their financial inclusion is very important in the Indonesian context. For operations to run smoothly, providers need a bank account and need to know how to use it, which is not common among potential providers in Indonesia. Access to health and accident insurance is also a huge step forward for Indonesian not provided by other competitors. Then, their instalment and zero interest loans enable potential provider to afford a vehicle, smartphone, or other goods essential to start their entrepreneurial activity on the platform. Contrarily to developed countries where providers share owned assets on the sharing economy platform, in developing countries providers use sharing economy platform as a way to access ownership. Helping potential providers to access ownership and become provider on the platform enables it to scale and enjoy network effect. In fact, having more drivers and services providers than its competitors is a strong advantage for GO-JEK, enabling it to answer more quickly and efficiently to consumer’s need and increase their loyalty. Finally, the online education support compensates the lack in skills and knowledge providers 62 might have. Taking care of this issue enables GO-JEK to improve the quality of its services above the industry average, and further increase its value proposition to consumers.
5.2.3 Regulators The third key actors are regulators, institutions organizing the society with laws and development objectives. The KFS for regulators in the Indonesian context is formulated as offer a solution that helps the government achieve its objectives and leverage political support in the legislation process.
Sharing economy platforms around the world have traditionally operated in a grey legal area, positioning themselves as digital disruptors of traditional industries. In the Indonesian context, the digital development, provided among others by the sharing economy platforms, is perceived positively as it is one important objective for the development of the country. Providing efficient mobility solutions is also a way for GO-JEK and its competitors to answer one of the government main challenges.
Besides providing these two solutions, GO-JEK positioned himself as a true partner and solution provider to the national and local authorities. Developing cashless solutions with incentives to adopt them, facilitating access to and use of smartphones, and enabling entrepreneurship in the services industry to scale their businesses all are in line with the government priorities. GO-JEK also position itself as a partner to the entire mobility industry. Instead of positioning itself as a competitor to traditional mobility services provider, it invites taxis, ojeks, and public transport to join its platform and take advantage of its technology to offer more efficient mobility solutions.
5.3 Recommendations Looking at these results, it can be concluded that GO-JEK developed strategies that tap into the opportunities presented by the Indonesian context and neutralize its threats. Moreover, they are built on a strong understanding of the local needs and preferences that enables GO-JEK to offer more suited solutions. These solutions attract more consumers and providers and generate a network effect positive for GO-JEK in its competitive environment, leading it to become number one on the Indonesian market.
Based on this analysis, three recommendations can be formulated, corresponding to the three groups of key actors to sharing economy platforms in Indonesia or in environment comporting 63 strong similitudes. First, to develop consumers’ loyalty and diminish the effects of price sensitivity, it is important to adapt to local needs and preferences in the solutions provided and the way to market them. In the ride-hailing case, all competitors develop similar core functionalities for their ride-hailing application. It is important to stay updated on these functionalities development, however differentiation is achieved by the development of additional supporting functionalities, such as payment methods, loyalty programs, promotions, marketing, and interface or the development of additional services on the platform.
Second, to attract providers on its platform and provide quality services, it is important to understand local challenges to entrepreneurship, provide adapted support and incentives to providers. GO-JEK understood that it needed to go beyond the basic support and incentives offered by sharing economy platforms in developed countries, as the local challenges such as lack of bank and digital literacy were too important to the platform operations to be ignored.
Third, to obtain political support in the legislation process, understand local and national authorities’ challenges and goal in order to become a partner and solution provider to them. Beyond providing an innovation for potential platform consumers and providers, be an innovation for authorities providing solutions, not additional issues to handle with regulations.
5.4 Future developments What could happen in the future for mobility sharing economy platform in Jakarta? Currently, GO-JEK seems to be leading on the Indonesian market, based on surveys, proportion of drivers observed on the streets, and Makarim’s last announcement. According to him, GO- JEK has a market share of 50% of the Indonesian ride-hailing market, and of 95% of the food delivery market (Freischlad, 2017). However, since none of the three main competitors are public companies, nor do they release data that can be compared, it is difficult to assess their performance on the Indonesian market. For instance, Grab says it is booking 2.5 million rides per day in South East Asia, while GO-JEK says it has 10 million weekly consumers in Indonesia. Uber provides no data for its activities in South East Asia (Freischlad, 2017).
Grab recently announced that Indonesia was its fastest growing market and its intention to invest US$700 million in its Indonesian operations as part of a 2020 masterplan. In fact, it is learning from the creative competition on the Indonesian market, and implementing these innovations in its other markets across South East Asia. These funds would be used to build a 64
R&D centre in Indonesia, where it would develop its local teams and talents, founder and CEO Anthony Tan explains. Grab also aims at investing in start-up providing solutions to social issues, payment solutions, and e-commerce. Furthermore, it announced its objective to become leader in Online-to-Offline, mentioning industries such as lifestyle, retail, and hospitality. These efforts to localize its strategy and tap into similar services opportunities as GO-JEK, with strong financial backers and regional influence, would make Grab a particularly strong competitor.
Uber has strong financial capacities as well. However, it is not as agile to adapt to local challenges. For instance, it took 22 months after its entry on the market to enable cash payments and one year after the launch of GrabBike to provide motorcycle taxis services. Besides, over the past six months, Uber’s name has been associated with numerous scandals such as sexual harassments, miscalculated drivers’ revenues, stolen self-driving car research, which resulted in CEO and founder Travis Kalanick’s departure, along with 20 managers, and a reflexion on the start-up’s corporate culture. The outcome of these changes in management is uncertain: the new management can develop innovative strategies or weaken even further the position of Uber on Asian markets.
The future in this competitive environment is hard to predict. Grab seems to be determined to invest and compete with GO-JEK, whereas Uber could give up its operations in Indonesia as it did in China where competitors had a better understanding of the market or as in Taiwan where regulation was too hard to comply to. The legislation process also needs to be monitored closely since it could cause severe difficulties for competitors on the market. Complying to the same requirements as traditional taxis and rental companies would be time and money consuming and would impact the business model of sharing economy platforms. Price limits would probably increase the price of sharing economy services to match the price of traditional mobility providers. Would price sensitive consumers still use sharing economy platforms then? On the other hand, even without this price legislation, if in the future competitors leave the market or merge into one platform, prices could rise for consumers and revenues diminish for providers. How long can sharing economy platform be unprofitable on the Indonesian market? The outcome of this competitive war is also uncertain, and positive impacts brought today by these sharing economy platforms could turn out less advantageous in the future.
5.5 Conclusion This last section built a bridge between the environment analysis and GO-JEK’s strategies analysis. 65
First, it shows that GO-JEK developed innovative strategies tapping into the specific opportunities and threats for each of their key actor groups in Jakarta. These strategies based on a deep understanding of key actors’ needs and preferences enabled GO-JEK to differentiate itself from its competitors and become the most successful sharing economy platform on the market. They are summarized in appendix 6.
Second, to explain GO-JEK’s success on the Indonesian market to other sharing economy platforms in Indonesia or other similar environments, GO-JEK strategies could be summarized by three recommendations, one for each key actor group. To attract and retain potential platform consumers, adapt to local needs and preferences in the solution provided and the way to market them. To encourage potential platform providers and provide quality services, understand local challenges to entrepreneurship, provide adapted support and incentives to providers. To gain support from the governments, understand local and national authorities’ challenges and goals in order to become a partner and a solution provider to them.
Third, it is important to note that this success is not definitive. The competitive environment is quickly evolving and legislative future is unsure. This research includes data until end of June 2017, and changes in the near future can be expected. Grab and Uber remain strong competitors, active on international markets, and supported by powerful investors. Their strategic decisions could impact the future of sharing mobility services in Jakarta. The implementation of the announced legislation could also create an important obstacle to all competitors in the industry with uncertain consequences.
6. CONCLUSION This second part consisted in a case-based research to answer the question how can sharing economy platform succeed in Jakarta? To answer this question and understand the success of GO-JEK in Jakarta, primary (observations, interviews, expert review) and secondary data (international and national reports, press release, news) were collected. An environment analysis and a case analysis were conducted, which enabled to identify the specific opportunities and threats in Jakarta and the strategies GO-JEK developed to tap into them. It was identified that GO-JEK went beyond what its competitors did in offering solutions that corresponded to its three key actors group needs and preferences. For potential platforms consumers, a first group of key actors, the Key Success Factor (KSF) 66 based on the environment analysis was formulated as an opportunity to offer an efficient solution to their mobility needs that taps into their tech savviness and takes into account their national identity. Beyond its initial motorbike ride-hailing tech solution, GO-JEK adapted its interface, range of services, price computation, payment methods, promotions, and communication to its consumers’ needs and preferences to gain their loyalty. A recommendation based on GO-JEK’s strategy could be formulated as follow: adapt to local needs and preferences in the solutions provided and the way to market them. For potential platform providers, the second group of key actors, the KSF was formulated as offer a solution to access vehicle ownership and higher social status by increasing work efficiency and revenues, while taking into account the lack of general skills, knowledges, and bank and digital literacy. Besides increasing revenues and enabling access to vehicle ownership like other mobility sharing economy platforms, GO-JEK developed financial inclusion, online education support, and access to zero interest loans to access vehicle and smartphones ownership. GO-JEK’s strategy to increase its network effect on the provider side can be formulated as follow: understand local challenges to entrepreneurship, provide adapted support and incentives to providers of the platform. For platform regulator, the third and last group of key actors, the KSF was phrased as offer a solution that helps the government achieve its objective and leverage political support in the legislation process. Contrarily to its competitors that mainly try to take advantage of the legal grey area, disrupting traditional industries, GO-JEK provided solutions in line with the governments objectives such as cashless payment solutions, efficient mobility solutions, access to digital solutions and support to entrepreneurship in the service industry. This strategy can be described as understanding local and national authorities’ challenges and goals in order to become a partner a solution provider to them. Developing a strategy based on a deep understanding of the needs and preferences of these three groups of key actors enabled GO-JEK to be successful in Jakarta.
However, let’s not forget that these results are subject to the limitations of the research. Three limitations in particular open room for further researches. First limitation concerns the sample of people interviewed. For this research, the number of consumers and providers interviewed enabled to uncover some first recurrent insights. However, it is too small to encompass the wide variety in income, education levels, and social classes of Jakarta. Future researches could consider leading larger scale qualitative interviews or quantitative surveys to take into account more accurately this diversity. 67
Second limitation is geographic. This research is limited on Jakarta area, which presents an advanced level of development compared to other urban and rural areas in Indonesia. It would be interesting to analyse in further researches how these sharing economy platforms are adapting to less developed areas in Indonesia. Third limitation is a limitation in time. Data stopped being collected by end of June 2017. However, the competitive war between mobility sharing economy platforms is not over. Future researches could follow the future strategic developments of GO-JEK and its competitors, as well as the result of the ongoing legislative process. The outcome of these elements could deeply impact these platforms, their consumers, and providers. Moreover, as Indonesia is a developing country, new challenges, needs and preferences will emerge along with the development of the country, such as attention to pollution for instance, which could impact mobility solution providers. 68
CONCLUSION
This master thesis analysed the development of the sharing economy phenomenon and focused on the case of GO-JEK in Indonesia. This research aimed at developing new ways to perceive sharing economy platforms and to conceive their managerial strategies in the context of a developing country.
Sharing economy is not in the first stages of its life cycle anymore. Like other traditional innovative product, after a few years of development and introduction, it has now clearly entered the a more mature stage characterized by high competition. The competition among mobility sharing economy platforms in Indonesia is no exception, all around the world first- mover Uber is challenged by local and regional followers like Grab and GO-JEK. When analysing the success of GO-JEK in Indonesia, the adaptation factor was particularly highlighted. In fact, like in most industries, when competition intensifies, two strategies can be considered: low-cost or differentiation. Since in Indonesia all competitors are already offering low prices, GO-JEK developed other strategic moves based on its deep understanding of the Indonesian market and of Indonesians’ needs and preferences. This strategy differentiates GO- JEK from its competitors in the mind of its key groups of actors and enables it to become more successful than undifferentiated platforms such as Uber.
Another strategy used by GO-JEK and proven successful for other platforms is to become a multi-service platform. By adding more services under the same umbrella-application, platforms can benefit synergies and increase their consumers’ loyalty, creating an ever-stronger community, like Tencent’s WeChat in China. However, one might wonder if this aggregation of services in one application would suit Western consumers’ needs and preferences. In fact, so far, despite numerous acquisitions, the most successful applications did not combine their services into one application (ie. Facebook, Instagram, Whatsapp remain distinct applications with separated communities).
Finally, an important and inspiring element in the success of GO-JEK is the new perception on sharing economy it offers. In opposition to the image of opportunist disruptors taking advantage of grey legal areas sharing economies can vehiculate in Western countries, GO-JEK position itself as a partner and solution provider to the development of its country. By raising revenues, education, financial inclusion, and digital literacy for less favoured segments of the population, and by providing to all Indonesian affordable efficient mobility solutions, access to services, 69 cashless payment solutions, and support to entrepreneurship in the service industry, GO-JEK has become a national champion and earned the support of the President and the people. Its impact on the Indonesian people is non-negligible. It is interesting to note that a number of providers on the platform did not own their vehicle before joining GO-JEK. This can seem controversial to those that laid the foundation of sharing economy with the idea of sharing underutilized owned assets. Moreover, instead of disrupting traditional mobility solution providers, GO-JEK offers them to join its platform, believing that sharing economy platforms could be beneficial for traditional players as well, ultimately trying to become a wide partner in mobility solutions. This strategic positioning can forge new perspectives on sharing economy platforms, making them drivers of positive changes in the context of developing countries. 70
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