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Q: Do you think super apps will find similar success in Southeast Asia and why? Which markets here are, in your view, the most suited for the growth of such apps?

A: Yes, super apps will definitely have a future in Southeast Asia. In fact, we are already seeing different startups extending a multitude of service on one single platform (e.g. Payfazz, Carro), albeit using a different approach  from Go-jek or Grab.

Meituan-Dianping and Wechat started in China with group buying and messaging services, both being high usage frequency mass services. They expanded quickly into super apps because of several key factors. Emerging markets, like Indonesia and Vietnam, that share similar traits with China would be the perfect breeding ground for such apps in the region.

Undeveloped internet ecosystem

Internet penetration in China was undeveloped in the early 2010s. With the first launch of the iPhone and subsequent availability of cheaper chinese phone brands, most Chinese skipped the desktop era and their first access to online services was through the smartphone medium. This created a market of emerging middle income consumers who were mobile-first and unbanked.

Lack of existing online services

The result of the undeveloped internet ecosystem was that many consumer services such as leisure & entertainment, health & beauty and bill payments were largely offline. There was pent up consumer demand for such services to move online. Hence, the evolution of super apps was a natural result of Meituan-Dianping and Wechat moving into adjacent consumer services.

Transaction based monetizing

With the exception of Baidu, business models for major technology platforms in China were very different their comparables in the US. The relatively lower consumer spending power in China meant that monetization through advertisements were less viable. The only way for technology platforms to monetize was through a transaction-based model where they expanded into multiple verticals and took a commission from every transaction they facilitated through the platform.

Q: In particular, is Singapore one of the markets where super apps are likely to succeed? What factors will the success of such apps here depend on?

Scale

Super apps start by providing a high usage frequency basic service before increasing user stickiness by layering other adjacent services. The basic services are the core product of the platform and serve as the entry point to acquire users and build important data. However, it is difficult to monetize such services, including mobile messaging and ride-hailing, due to the razor thin margins. Thus, super apps require massive scale in order for the unit economics to work. Given the small market size in Singapore, super apps here have to begin with a large vertical.

User stickiness

Singapore is a highly competitive market with sophisticated users who can easily switch loyalties if a particular platform is able to provide more value. The ecosystem here is diverse with multiple competitors within each vertical. E.g. besides Grabpay, every other major bank has their own digital payments app. In food delivery, there is Grab food, Deliveroo and Foodpanda. Within the deals discovery space, there is Shopback, Burpple, Entertainer, Chope and others.

Thus, increasing user stickiness and retention is key. This includes strategies such as Grab’s newly introduced subscription plans which bundle discount plans and incentivise users to return to the app,maximising the value of the discounts.

User adoption

Mobile payments in Singapore have been around for quite awhile but they have struggled to proliferate. This is due to the well developed banking infrastructure existing in Singapore. Consumers are accustomed to using physical cash and cheques, supported by the convenience of using easily accessible credit cards and ATMs. The success of super apps in Singapore depends on whether they can educate consumers and encourage a shift in consumer habits.

Q: Why are companies racing to create the first super app for the region? How sustainable and profitable can such a venture be, given the need to expend resources to provide a wide range of quality services?

Southeast Asia at an inflection point

Southeast Asia is at an inflection point where the combination of a rising middle income group across countries like Indonesia and Vietnam, and increasing mobile penetration make for perfect breeding ground. There is an opportunity to tap into a new customer base of mobile first and unbanked consumers who were previously inaccessible to the traditional offline incumbents. This represents a huge addressable market for the first super app that will  use technology to solve entrenched problems posed by the existing infrastructure and provide the best services to consumers.

Survival of the fittest, winner takes all

The super app playbook is to start with a high usage frequency core product and move into adjacent services, attracting new customers and increasing the time existing users spend on the app.  This progression further entrenches users into the ecosystem and makes it hard for them to move. In the early 2010s, China witnessed the war between group-buying websites where multiple competitors eventually consolidated into the O2O consumer services giant, Meituan-Dianping. This is essentially a winner-takes-all-market — the first competitor to expand into a core range of key verticals can build a  moat against competitors.

Importance of data

Steep discount wars are unsustainable in the long run as they push thin margin services into negative territory. Before they move away from discounts, companies must ensure users can extract similar value from the platform and stay entrenched in the ecosystem. Margins of the core services are likely to remain paper thin but the key lies in how data around high frequency daily transactions can be utilised to learn about users and recommend higher margin services such as financial and insurance products.

Q: Apps like Gojek offer a variety of services in Indonesia, from ordering food to digital payments or hyper-local delivery. What do you think are the most promising areas of growth for super apps in Singapore, and South-east Asia respectively? Why so?

Fintech

With a 73% unbanked population in Southeast Asia, there is a huge opportunity to bring financial services beyond just mobile wallets and bill payments. This is especially for the emerging middle class populations in third and fourth tier cities where trust is a critical factor. Traditional financial institutions lack distribution here and transactions remain hyperlocal and mainly offline. Companies like Payfazz in Indonesia utilise a network of offline agents (i.e. local resellers and mom & pop stores) to overcome these issues. Starting from high frequency transactions like bill payments and money transfers, these companies move into different financial products like unsecured loans, insurance products, investment plans and evolve to become a financial super app — the next digital bank in Southeast Asia.

Hyper-vertical sectors

While current super apps in the region (Grab and Go-jek) are mass horizontal platforms across verticals from ride-hailing to logistics and O2O services, future super app platforms would be hyper-vertical. These platforms solve entrenched inefficiencies in a specific vertical and innovate on end-to-end solutions to service customers throughout the entire customer lifecycle. For example, Carro started as a used car marketplace to help car buyers make more informed purchase decisions before expanding into after sales support (roadside assistance), and financing and insurance (Genie Financial Services). It recently launched car subscription plans to service a separate set of customers — short term car owners.

Q: Conversely, what are the biggest risk factors for companies looking to expand their offerings rapidly? (e.g. Some have suggested that providing too many services may dilute Grab’s focus, for example, although others point out that there is a good chance these additional services such as food delivery bring better margins than their original function, which was ride-hailing)

Dilute from original focus

The biggest danger for companies is to dilute focus away from their original core product. It is the DNA of the company and the quality of this core product should never be compromised in the midst of the company’s expansion, especially when barriers to entry are low and it is easy for users to switch between apps. Although Wechat has morphed into a super app today, it has never deviated away from its core as a mobile messaging app and social network. Wechat has always refrained from introducing advertisements to the platform and has consistently focused on ecosystem development (mini-programs), user experience and core social network features.

Misjudging the market

Another great danger lie in misjudging the market and expanding into the wrong vertical. The natural evolution of a super app should follow a systematic expansion into adjacent verticals based on trends and user behaviours. For example, consumers were already using Meituan’s group-buying platform when they were dining out. Meituan subsequently moved into food delivery so that it could capture the remaining scenario when consumers decide to takeaway.

Similarly, Go-jek launched food delivery (Go-food) and on-demand parcel delivery (Go-send) services. This was a natural expansion given that users were already booking Go-jeks to deliver food or send parcels.

Conversely, an expansion into the wrong vertical would waste resources and fail to increase user stickiness when it doesn’t leverage on existing user behaviours.

Q: Why do you think super apps have not found similar success in the West? And do you think they are here to stay in South-east Asia?

Infrastructure in the West

Unlike China, the West already had a developed internet ecosystem when the smartphone era started with the launch of the first iPhone. As such, consumers were already accessing online services through multiple providers primarily through desktop. Examples of this would include eCommerce (eBay and Amazon), payments (Paypal), travel (bookings.com) and the list continues. With the transition into the mobile era, each competing service had their own standalone app.

In addition, the move into super apps was necessitated by a need for Chinese tech platforms to monetize through a transaction based business model (i.e. earning commissions from transactions facilitated through the platform). In the US, however, the advertisement based business model was the primary monetization model for many tech platforms like Facebook and Google.

Privacy and regulations

The growth of super apps was aided in part by the concept of privacy and personal data protection amongst Chinese consumers, and hence the level of data collection and usage they were willing to hand over to developers. Chinese consumers are most willing to sacrifice privacy with convenience – 94% of Chinese consumers were willing to let businesses share or reuse their personal data. This lies in stark contrast to the West where tightening privacy requirements and the Cambridge Analytica scandal have shaped an environment where consumers demand control over their own privacy and information they were willing to share.

Social and eCommerce platforms

The widespread adoption of Wechat in China was propelled by the social context of sending money, based on the established tradition behind sending red packets. With the adoption of a mobile wallet on the primary messaging platform used across China, it paved the way for Wechat to layer other eCommerce offerings and services on its platform.

In the West however, social and commerce don’t mix, at least not to the same degree of success seen in China. Amazon remains focused on expanding its eCommerce offerings, including groceries, while Facebook’s Marketplace has seen limited success and it has yet to integrate financial and payments services through its platform.

This article was developed with the assistance of Allen Chng.