Will ads help Southeast Asia’s “super apps” become profitable?

Grab and Go-Jek became big on the back of ride-hailing and other paid services. But to become profitable, they might need to monetize through ads.

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Will ads help Southeast Asia’s “super apps” become profitable?

“Senator, we run ads.”

With a smirk, Mark Zuckerberg described Facebook’s business model as he testified before the US Congress last year, in the aftermath of the Cambridge Analytica data scandal.

Facebook making billions of dollars from serving ads is obvious to most, but it took years before it had found the right formula. It came up with ways to let advertisers work with all the data it had accumulated. Over time, brands could not only push different types of ads to finely segmented groups of people within Facebook’s own properties; they could also target these users with ads as they moved around the internet to other sites.

This strategy saw the social media giant rise to become an ad powerhouse, and ad revenue poured in month after month.

These days, Facebook’s user growth comes mostly from emerging economies. In Southeast Asia, Facebook users totaled more than 350 million across the region as of 2019. However, Facebook users in the entire Asia-Pacific region, which includes wealthy nations like Japan and South Korea, generate less than one-tenth of the ad revenue per user in North America.

At the same time, brands across APAC are ready to spend more on digital advertising. It’s just not clear yet how to effectively target customers, especially in Southeast Asia’s “leapfrog-to-mobile” societies, and what this new ad landscape will look like.

Which platforms might emerge and who might find the best mechanisms for brands to engage with users and win customers is still being negotiated. As this unfolds, Grab and Go-Jek, often referred to as Southeast Asia’s homegrown super apps, have a big part to play.

Unprecedented data sets

Both apps have their roots in ride-hailing but have since expanded services to span food delivery, couriers, mobile payments and financial services, and more. Chasing growth in emerging markets, where digital habits still needed to be formed and consumers have less disposable income, was costly. Even though customers pay for their rides, mobile top-ups, and deliveries, and they add up to millions of daily transactions, margins for Go-Jek and Grab on these services are thin.

The ride-hailing business may never become profitable, Go-Jek co-founder and CEO Nadiem Makarim admitted in an Interview with Nikkei. He pointed out that revenue from the food delivery and payments businesses fair much better.

But people in the advertising industry think Go-Jek and Grab are sitting on another potential goldmine waiting to be tapped.

”These super apps have an unprecedented amount of data—from food delivery drivers, ride-sharing riders to the various consumers and merchants—which, if given the right treatment and right circumstances, will become a veritable powerhouse for marketing,” Nuno Jonet, the chief product officer of ad technology firm Pocketmath told KrASIA.

Dhawal Shah, managing director of 2Stallions Digital Marketing Agency, agrees. Knowing exactly where a passenger is heading, and knowing their habits and spending patterns, enables Grab and Go-Jek to potentially launch ads on many channels, like inside the vehicle—some cars are already equipped with screens to entertain passengers during their rides.

Push notifications are another option—they would bring higher conversion rates, says Shah. He thinks that serving highly localized targeted ads through push notifications, offering the right discounts or promotions at the right time with a high degree of detail, is something that none of the other dominant ad platforms can provide.

Ideal targeting

In Grab’s own words, its vision for how brands can interact with customers on the platform looks like this:

“If you book a Grab to go to Changi Airport, you might get an offer for one of the retail shops there. Next time, when you purchase with GrabPay e-wallet at the shop, it could unlock an additional discount,” Ken Mandel, Grab’s regional lead for ads and brand insights told KrASIA.

“Partner brands see tremendous and unique value in working with Grab. They’ll be able to track the return of investment of their marketing spend and see whether an ad links directly to a sale,” he added.

Go-Jek wasn’t available to offer its comment, but the company’s ambition to achieve precisely targeted advertising through push notifications and tailored campaigns are likely to look similar to Grab’s.

What’s still missing is the technical infrastructure that would allow brands to launch, pay for, and track these campaigns through a self-service mechanism. It’s the type of complex ad technology that companies like Pocketmath would like to build—which is why it’s paying close attention to the situation.

It takes time to build these ad tools, Pocketmath’s Jonet said. He sees all kinds of advertising opportunities for Go-Jek and Grab that aren’t fully explored yet, from keyword searches, to classic display ads within their apps, to physical and digital ads in or on cars and motorbikes, and then allowing these users to be re-targeted as they visit other apps or sites. To make all of this easy for advertisers, there should be a real-time bidding system to determine the value of an ad at a given time, which is how ad exchanges, including Facebook’s, work.

“Of course, these super apps can build these technologies in-house, but what about time-to-market?” said Jonet. The pressure to monetize rises as these companies mature and it could lead them to consider acquiring such technology from third parties.

More and more inventory

While neither Go-Jek nor Grab were willing to share specific roadmaps for ad earnings and what technical solutions they are working on, it’s obvious that ads, at some point, will make up at least a part of their revenue mix.

You can see Go-Jek experimenting with a newsfeed-like experience, aimed at guiding users through the app to discover deals, news, games, or other apps. Go-Jek recently also released its own chat feature, allowing users to chat one-on-one or in groups.

It’s developing features that resemble a social network, and these could help keep users inside the app longer, instead of dropping out as soon as their rides are booked or the food has arrived. The more engagement and the more time spent in-app, the more opportunities to serve ads.

Digital marketers tend to think social features shouldn’t be the focus for these “transactional platforms” that people use specifically to buy products or services.

The social part’s already covered by the existing powerful social media apps—Facebook, Whatsapp—and people don’t need another social media tool unless there is a unique selling point, 2Stallions’ Shah argued.

Sheji Ho, who was a digital marketer and is now working on his own startup, thinks that Grab and Go-Jek will likely gain most of their revenue from transactions rather than ads and sees this as an opportunity to bypass the ad-based model altogether–a topic he has elaborated in his publications. Ho brought up China’s Meituan-Dianping as an example. It’s an on-demand services company that has some similarities with Grab and Go-Jek.

“If you look at [Meituan’s] latest annual report, 90% of revenues come from [its] core services, i.e. food delivery, ‘in-store,’ hotel, and travel. Only 10% coming from ‘new initiatives and others’ which I assume includes Mobike, among others,” he told KrASIA.

Still, the evolution of Grab and Go-Jek hasn’t been following any known trajectory, and who’s to say that new mobile app users who discover Go-Jek and Grab at the same time as they are introduced to WhatsApp and Facebook won’t be drawn to the social features of the former, building connections and habits around these apps instead?

Even once monolithic brands can go out of fashion, as the shutdown of Blackberry Messenger earlier this year demonstrated.

China provides ample evidence that internet companies can be flexible and run several business models at the same time.

WeChat, China’s largest app with a user base nearing one billion active users, was a chat app before it became a transactional platform and allowed people to book and pay for flights, order taxis, and perform many other actions. WeChat also demonstrated that it can even monetize a chat app with ads—it’s slowly adding more and more inventory to its “Moments” feed.

Only one thing is certain, according to experts in the advertising field. Data plus advertising will serve as an important contributor to the monetization strategy of Southeast Asia’s “super apps” in the making.