Grab acquires Uber: What does it mean to users?

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In light of Grab's acquisition of Uber, Grab might find it difficult to include destination-masking in their services because this feature undercuts their established drivers who are used to seeing the rider destination before accepting a booking. Illustration by JL JAVIER

Editor’s note: Godofredo Ramizo Jr. is a doctoral candidate at the Oxford Internet Institute (OII), University of Oxford. His dissertation is on the socio-political impact of ride-hailing apps in Southeast Asian megacities. The opinions expressed in this commentary are his.

Manila (CNN Philippines Life) — To shore up Uber’s precarious global financial situation, it has sold its Southeast Asian operations to its rival ride-sharing app Grab, while earning a 27.5 percent stake in the company.

What does this mean to the commuters who rely on ride-hailing apps amid Southeast Asia? Where cities are beset with gridlock, dilapidated vehicles, grueling commutes, and crowded mass transport systems.

As an academic researcher from the University of Oxford working on ride-hailing apps in megacities such as Manila and Jakarta, I have been investigating the impact of ride-hailing apps on commuters from all walks of life, app users who described inter-city travel with warlike metaphors — “bakbakan,” “giyera,” “labanan.”

How can the acquisition affect everyone?

Ride-sharing app users from various backgrounds enjoy benefits from ride apps that they do not always get from conventional public transport. These benefits include increased convenience and comfort from point-to-point transport, better safety, and time savings, among others.

Due to the importance of ride-hailing apps to many people, it is all the more crucial to reflect on the implications of the acquisition. Based on emerging data from my ongoing research, it is reasonable to offer the following points:

Inevitable but advantageous?

The acquisition is said to have happened because Uber’s parent company is losing money due to unprofitable operations in Southeast Asian cities where it faces competition from Grab, and GoJek (in Indonesia). To stay competitive, Uber was forced to lower fares, and thereby operate to unsustainable levels.

If Uber was going to collapse anyway due to profit loss, it is better that it be bought by Grab so that its technologies and driver base can be absorbed by Grab, and reconfigured to serve commuters.

This is much better than seeing Uber collapse and just withdraw from the market completely, without selling to Grab (although the economics involved make it unlikely for Uber to exit without selling off to Grab).

Other upsides are worth thinking about. If Uber’s unsustainable business model meant it was going to exit anyway, then it is better that it happened sooner rather than later due to two reasons.

First, it allows the winning company (Grab), commuters, and government to deal with the new reality and develop new solutions sooner rather than later.

The second reason revolves around the financial situation of the winner, which may shape how it will use (or abuse) its newfound market power.

In face-offs where competing companies are willing to incur losses just to win market share, and when one company finally surrenders, the winner’s victory could come at a huge cost. The bigger the size of the winner’s losses at the point of victory, the more reasons it has to exploit the captive market and recover its losses.

If Uber surrendered much later, it is possible that Grab would have much bigger losses by then, thereby creating more pressure from Grab shareholders to exploit this newfound market power. Compared to that alternative scenario, Grab has less incentives now to exploit its dominant status in Manila.

Ironically, whereas government regulation on ride-hailing apps was not warmly received by the public before, the presence of a monopoly means it is now government regulation which can protect commuter interests.

The impact on commuter leverage

App users benefit from having multiple ride-hailing apps because it gives them options. In turn, the presence of options gives commuters leverage when dealing with other ride-hailinh apps, and with public transport. But now it looks like this leverage will be gone.

What will happen to destination-masking?

In Uber, drivers do not see the rider's destination, a feature we can call destination-masking. Uber riders benefit from this feature because Uber drivers find it harder to cherry-pick passengers based on their destination — a problem we often encounter with regular taxis.

In contrast, Grab drivers know the destination at the onset. Due to the acquisition, it is unclear whether destination-masking will be included in Grab's menu of services.  

At the same time, Grab might find it difficult to include destination-masking in their services because this feature undercuts their established drivers who are used to seeing the rider destination before accepting a booking.

In other words, why will users book a normal GrabCar without destination-masking, when they can book an Uber-style GrabCar with destination-masking?

The possible rise of pseudo-competition

The Uber app will stop operations on April 8 in Manila. But if in the future, Grab reboots the Uber app under Grab management, we could potentially see an example of pseudo-competition.

This refers to the presence of several brands/service channels which create an illusion of competition, when in fact there is none due to these apps belonging to the same corporate interests.

In the book “Standing on the Sun,” which analyzes monopolies and capitalism, Chris Meyer and Julia Kirby find that pseudo-competition may enable companies to circumvent antitrust regulators, but it prevents society from enjoying the real benefits of true competition: innovation from competing firms, and efficient allocation of society’s scarce resources.

The government’s role in defending commuter interests

The loss of competition may mean that Grab becomes a ride-hailing app monopoly that may be harder to regulate due to its market power.

This could mean that riders will be at the mercy of a monopolist in cities where many have become reliant on this service. Ironically, whereas government regulation on ride-hailing apps was not warmly received by the public before, the presence of a monopoly means it is now government regulation which can protect commuter interests.

But despite all these risks to social good, we must always entertain the possibility that companies and their leaders truly aspire to ensure corporate interests also serve the public good.

It is most productive to view companies and government agencies in good faith, while cautiously yet firmly monitoring implications on social good. This is an endeavor that academic researchers, journalists, concerned citizens, government, and ride-hailing app companies must be in dialogue over.