Latest / The Dutch Investors / #108 | Grab: What Does Reliability Cost?

Transcript

#108 | Grab: What Does Reliability Cost? · The Dutch Investors

0:09
SPEAKER_00: In 1854, visitors to an exhibition in New York watched a man rise above them on a wooden platform.
0:18
SPEAKER_00: His name was Elisha Otis.
0:21
SPEAKER_00: Above him was the rope holding the platform up.
0:25
SPEAKER_00: And below him was the crowd he wanted to convince.
0:29
SPEAKER_00: Otis had developed a safety brake for elevators, and the problem was getting people to believe in it.
0:37
SPEAKER_00: Explaining a mechanism only gets you so far when someone has to trust it with their life.
0:44
SPEAKER_00: So, standing on the raised platform, he ordered the rope cut.
0:50
SPEAKER_00: The platform dropped a few inches, then it stopped.
0:55
SPEAKER_00: The brake had caught it.
0:57
SPEAKER_00: Anyone watching could understand what had just happened.
1:00
SPEAKER_00: The rope had failed, but the platform didn't fall.
1:05
SPEAKER_00: It was a beautiful demonstration because the most important feature was something you would normally never notice.
1:13
SPEAKER_00: You could take an elevator hundreds of times without thinking about the brake.
1:18
SPEAKER_00: But then, for a brief moment, it would become the only thing that mattered.
1:24
SPEAKER_00: That's an interesting way to think about value.
1:27
SPEAKER_00: Some things are worth very little to us until the circumstances change.
1:33
SPEAKER_00: You don't need to be standing on a suspended platform to experience just that.
1:38
SPEAKER_00: Sometimes you just need to be standing in the rain.
1:42
SPEAKER_00: Let's get into today's episode.
2:11
SPEAKER_00: We are in Southern Asia.
2:14
SPEAKER_00: You finish dinner, and though through the restaurant's open doorway you can see rain bouncing off the road.
2:23
SPEAKER_00: Motorbikes pass with their riders tucked beneath their rainy ponchos.
2:28
SPEAKER_00: Water collects along the edge of the pavement.
2:31
SPEAKER_00: Your hotel is too far away to walk comfortably.
2:35
SPEAKER_00: You step under the awning, take out your phone and open a right hailing app.
2:41
SPEAKER_00: The fare looks reasonable.
2:43
SPEAKER_00: You press a button, searching for a driver.
2:47
SPEAKER_00: You wait.
2:49
SPEAKER_00: It's still searching.
2:51
SPEAKER_00: You check your battery.
2:53
SPEAKER_00: Enough to get you home, probably, but you'd rather not spend the next half hour finding out.
2:59
SPEAKER_00: So you open grab.
3:01
SPEAKER_00: The price is a little higher.
3:04
SPEAKER_00: This time a driver immediately accepts.
3:07
SPEAKER_00: Three minutes away.
3:09
SPEAKER_00: So you book it.
3:11
SPEAKER_00: This is an imagined evening, but there's nothing unusual about this decision.
3:16
SPEAKER_00: Our co-founder Matthijs experienced this first hand when he went to Vietnam last summer.
3:22
SPEAKER_00: He knew there might be a cheaper ride, but he chose the one that just seemed more likely to arrive.
3:29
SPEAKER_00: He just wanted to go back to the hotel.
3:32
SPEAKER_00: Tomorrow afternoon, when the weather is pleasant and you have nowhere urgent to be, you might make a different choice.
3:39
SPEAKER_00: Tonight, the extra money feels worth paying.
3:42
SPEAKER_00: And that small decision is where I'd like to begin with GRAP.
3:46
SPEAKER_00: Because it contains a good investment question.
3:49
SPEAKER_00: What makes someone willing to pay a little more?
3:52
SPEAKER_00: What does GRAB have to do to earn that preference?
3:56
SPEAKER_00: And after it has done all that, how much money is left?
4:00
SPEAKER_00: When Matthijs visited Vietnam, he used GRAP repeatedly.
4:04
SPEAKER_00: Cars, motorbikes, food deliveries, groceries, the surface worked its way into the trip.
4:11
SPEAKER_00: That happens quite naturally when you find out something useful in an unfamiliar place.
4:17
SPEAKER_00: The first booking requires a little attention.
4:20
SPEAKER_00: You check the address, you work out where you stand, you watch the driver move across the map.
4:26
SPEAKER_00: And after several good experiences, you spend less and less time thinking about it.
4:32
SPEAKER_00: You finish dinner and reach for the same app.
4:35
SPEAKER_00: There's value in becoming that familiar choice.
4:38
SPEAKER_00: But we should be careful about how we interpret it.
4:42
SPEAKER_00: A tourist has a holiday budget and a limited amount of time.
4:46
SPEAKER_00: A local resident might be paying for the same journey twice a day, every working day.
4:53
SPEAKER_00: That extra amount that barely registers during a holiday can become meaningful over a longer period of time.
5:01
SPEAKER_00: So Matthias's experience gives us a useful observation.
5:06
SPEAKER_00: The surface can be very convenient.
5:10
SPEAKER_00: To understand the business, we need to follow the right beyond the passenger's phone.
5:15
SPEAKER_00: So let's go and sit inside the driver's car.
5:23
SPEAKER_00: Now imagine you're driving for a living.
5:27
SPEAKER_00: Your working day is passengers pay for.
5:30
SPEAKER_00: It also includes the space between them.
5:32
SPEAKER_00: Waiting in a car park, driving across town to collect someone, dropping a passenger somewhere quiet, and wondering where the next booking will come from.
5:43
SPEAKER_00: The fuel gauge keeps moving whether there's someone in the backseat or not.
5:48
SPEAKER_00: Now, there are two different mornings.
5:51
SPEAKER_00: On the first morning, you complete a journey, wait 15 minutes for another booking.
5:55
SPEAKER_00: When it arrives, the passenger is a long way away.
5:59
SPEAKER_00: On the second, you drop someone off, drive around the corner, and collect your next passenger.
6:05
SPEAKER_00: Even if the payment per trip is similar, the next morning could leave you better off.
6:11
SPEAKER_00: You spend more of your time doing paid work.
6:14
SPEAKER_00: And that helps explain why a driver might prefer a platform with plenty of customer demand.
6:20
SPEAKER_00: And when more drivers find that platform worthwhile, passengers may find it easier to get a ride.
6:26
SPEAKER_00: You can see how the two sides reinforce each other.
6:30
SPEAKER_00: The passenger wants a driver nearby, the driver wants another passenger nearby.
6:35
SPEAKER_00: A busy local network can provide both.
6:41
SPEAKER_00: This is what I find useful about looking at an actual working day.
6:46
SPEAKER_00: Network effects sound abstract.
6:49
SPEAKER_00: A driver spending less time waiting between fares is much easier to understand.
6:54
SPEAKER_00: It also shows why copying an app isn't enough to beat it.
7:00
SPEAKER_00: A competitor can design a booking screen, especially in today's day and age.
7:05
SPEAKER_00: They can display a map and let you enter an address.
7:09
SPEAKER_00: But it still needs someone close enough and willing enough to collect you.
7:16
SPEAKER_00: But now imagine taking our driver out of Ho Chi Minh City and placing him in Kuala Lumpur.
7:23
SPEAKER_00: The person is just as hardworking and the car is just as comfortable.
7:28
SPEAKER_00: He's now completely useless to the person waiting outside our restaurant.
7:33
SPEAKER_00: It sounds obvious, right?
7:36
SPEAKER_00: Yet it's easy to forget when looking at a company's regional user numbers.
7:41
SPEAKER_00: The network has to work in the place where the booking happens.
7:44
SPEAKER_00: Even within one city, the experience can vary.
7:48
SPEAKER_00: There might be plenty of other drivers around a shopping district at lunchtime, and very few near an apartment building late at night.
7:56
SPEAKER_00: A strong position in one neighborhood doesn't automatically solve the next one.
8:02
SPEAKER_00: Then there's the matching itself.
8:04
SPEAKER_00: The closest car on your screen might be on the wrong side of a divided road.
8:10
SPEAKER_00: The driver could need to travel farther before turning around.
8:14
SPEAKER_00: Maybe there aren't enough seats in the car.
8:17
SPEAKER_00: Grab explains that its matching system considers things like estimated arrival times and other practical constraints, rather than simply choosing the nearest dot.
8:30
SPEAKER_00: Those details are important, because a few minutes of wasted movement, repeated across many journeys, can become quite expensive.
8:40
SPEAKER_00: Still, even excellent software eventually runs into a physical limit.
8:46
SPEAKER_00: And if there's nobody available, then there's nobody to send.
8:51
SPEAKER_00: Which is why a rainy evening is such a useful test.
8:59
SPEAKER_00: We're going back to the restaurant doorway.
9:01
SPEAKER_00: You aren't the only person who has decided against walking.
9:05
SPEAKER_00: Other people are leaving restaurants.
9:08
SPEAKER_00: Somebody is finishing work, another person who would normally take a motorbike wants a car instead.
9:14
SPEAKER_00: It's pouring rain.
9:16
SPEAKER_00: Meanwhile, somewhere else in the city, a driver is deciding whether another hour on the road is worth it.
9:23
SPEAKER_00: The rain makes the work less pleasant.
9:26
SPEAKER_00: Traffic is slower.
9:27
SPEAKER_00: Getting to each passenger takes longer.
9:30
SPEAKER_00: The passenger's need has increased.
9:33
SPEAKER_00: So has the difficulty of meeting the person.
9:37
SPEAKER_00: To keep the service working, the platform needs to make that work extra attractive.
9:42
SPEAKER_00: Perhaps the customers pay a higher fare.
9:46
SPEAKER_00: Perhaps the driver receives an incentive funded by graph.
9:50
SPEAKER_00: The passenger may never see the full agreement.
9:53
SPEAKER_00: A booking gets accepted.
9:55
SPEAKER_00: A car turns the corner, you fold yourself into the backseat and close the door against the rain.
10:03
SPEAKER_00: From your perspective, the problem has been solved.
10:06
SPEAKER_00: But from the investor's perspective, we've reached the part that needs a little more explaining.
10:11
SPEAKER_00: Who paid to make the driver available?
10:15
SPEAKER_00: And was there enough left to make the transaction worthwhile for GRAB?
10:21
SPEAKER_00: That is a difference between noticing a good service and understanding a good business and the business model.
10:29
SPEAKER_00: In Q2 of 2026, Grab's on-demand incentives were equivalent to about 11th of the value of rights and deliveries booked through its platform.
10:40
SPEAKER_00: That share had increased from a year earlier.
10:43
SPEAKER_00: Management pointed out partly to supporting driver earnings as fuel costs rose, alongside spending to encourage customer activity.
10:52
SPEAKER_00: These incentives cover more than discounts for passengers.
10:57
SPEAKER_00: But they show that keeping the marketplace active requires substantial support.
11:02
SPEAKER_00: I don't think the right response is to immediately dismiss that spending.
11:06
SPEAKER_00: Think about our driver.
11:08
SPEAKER_00: If fuel becomes more expensive, the same day's work leaves less money in his pocket.
11:14
SPEAKER_00: Some additional support could help keep him on the road.
11:23
SPEAKER_00: Does the platform, in this case Grab, still provide enough useful work for him to keep choosing Grab?
11:30
SPEAKER_00: Or does he stay mainly because of a bonus?
11:34
SPEAKER_00: Imagine he tries a new platform because it offers a new introductory incentive.
11:40
SPEAKER_00: At first the payment is the attraction, and over the following weeks he discovers that the bookings are consistent and the pickup distances are manageable.
11:49
SPEAKER_00: When the introductory offer ends, he decides to stay.
11:54
SPEAKER_00: The company spends money to introduce him to something economically useful.
12:00
SPEAKER_00: Now, imagine the offer ends and the bookings don't justify his time.
12:05
SPEAKER_00: He switches to whichever platform offers the next promotion.
12:10
SPEAKER_00: The spending produced activity.
12:13
SPEAKER_00: It didn't establish much lasting preference.
12:16
SPEAKER_00: From a distance, both situations can look like growth.
12:21
SPEAKER_00: You have to follow them for longer to see what was actually built.
12:26
SPEAKER_00: There's another person we should bring to the story.
12:29
SPEAKER_00: A competitor.
12:31
SPEAKER_00: Suppose the competitor gradually attracts enough drivers to offer a reasonably dependable service in the same part of town.
12:41
SPEAKER_00: A bit like Uber and Lyft in Western countries.
12:45
SPEAKER_00: It doesn't have to outperform the other in every category, it just needs to become a sensible alternative.
12:54
SPEAKER_00: Now the passenger outside the restaurant opens two apps and finds an available car on both.
13:01
SPEAKER_00: One will arrive in three minutes, the other in seven.
13:05
SPEAKER_00: But the second one is cheaper.
13:08
SPEAKER_00: That decision is less obvious than choosing between an accepted booking and a screen that keeps on searching.
13:16
SPEAKER_00: And it reveals a limit to the advantage.
13:19
SPEAKER_00: An improvement from 20 minutes to five can change how useful a service feels.
13:25
SPEAKER_00: An improvement from 3 to 5 minutes may be pleasant without being worth much extra.
13:33
SPEAKER_00: As competitors become good enough, customers have more room to compare prices.
13:39
SPEAKER_00: That doesn't erase Grab's network, but it can limit what Grab earns from it.
13:44
SPEAKER_00: A company can provide the best experience and still face pressure on the margins.
13:50
SPEAKER_00: A customer can prefer it, but still check another app.
13:54
SPEAKER_00: Our passenger doesn't owe Grab every future journey because it got them home last night.
14:02
SPEAKER_00: So, what would make me, personally, more confident as an investor?
14:08
SPEAKER_00: What would make me want to own Grab?
14:12
SPEAKER_00: I'd want the story to become better for the passenger, the driver, and the shareholder together.
14:19
SPEAKER_00: The passenger finds a car without repeated cancellations.
14:24
SPEAKER_00: The driver spends more of the working day earning and less of it traveling empty.
14:29
SPEAKER_00: Grab retains more profit after paying the costs that needed to make it happen, which would suggest that the network is becoming more productive.
14:38
SPEAKER_00: I'd be less encouraged if the experience only improved because GREP kept adding more money to every transaction.
14:46
SPEAKER_00: And we'd be cautious about forecasts that assume incentives can eventually be removed almost entirely.
14:54
SPEAKER_00: Some may be a continuing cost of operating it.
14:58
SPEAKER_00: It's also worth admitting things we can't see.
15:01
SPEAKER_00: Public investors don't always get comparable waiting times, cancellation rates, or driver earnings after expenses for each local market.
15:11
SPEAKER_00: The available numbers can support a view without settling every question.
15:17
SPEAKER_00: That's where I would leave some uncertainty in your thesis.
15:23
SPEAKER_00: Going back to the beginning, Otis's demonstration lasted for a moment.
15:27
SPEAKER_00: The platform dropped and the break caught it.
15:30
SPEAKER_00: The audience could see the result.
15:33
SPEAKER_00: Grab now has to demonstrate its usefulness repeatedly across different neighborhoods and across different conditions, in different geographies with different regulation.
15:47
SPEAKER_00: That's not as easy.
15:49
SPEAKER_00: Every accepted booking is a small promise that someone will arrive.
15:54
SPEAKER_00: Every completed journey gives the customer another reason to believe it and use it next time.
16:01
SPEAKER_00: Our view is that a dense local network gives GRAP a very credible way to earn that trust.
16:07
SPEAKER_00: There is something economically useful in bringing passengers and drivers together with less wasted time.
16:15
SPEAKER_00: It's the reason some of us own Uber.
16:18
SPEAKER_00: But maintaining it requires work, spending, and the service people continue to choose.
16:26
SPEAKER_00: Back at the restaurant, our passengers see the car pull up.
16:30
SPEAKER_00: They check the registration, step out from under the awning and get inside.
16:35
SPEAKER_00: They probably didn't think about driver utilization and incentives or network effects.
16:42
SPEAKER_00: They simply wanted to go home.
16:45
SPEAKER_00: That's a perfectly good reason to pay a little more.
16:49
SPEAKER_00: For us, shareholders, the next question is whether Graph can keep providing that experience at a cost that leaves a good, attractive return.
17:00
SPEAKER_00: The customer can just arrive when it ends, the investor has to keep following the money.
17:06
SPEAKER_00: As always, stay curious, keep learning, and happy investing.