This Q&A was taken from an interview with Ursula Florene from KrAsia for her story: “Should Southeast Asian super apps follow the same route as their Chinese peers?”

Thanks to the success of the likes of WeChat and Meituan Dianping in China, the “super app” branding has been leveraged by many startups aiming to tread on a similar path of growth, perhaps none more so than Grab and Gojek.

In reality, however, the nature of Southeast Asia as a composite region (resulting in more permutations for competition, lower capitalizations on potential acquisitions, and different operating environment in each vertical) make the super app trajectory a lot less straightforward. The optionality afforded to the business by a super app trajectory carries with it the weight to make the right choices on which revenue lines or markets to prioritize in growth.

Key Takeaways

(1) Given the costs of regional expansion, intense competition, and capitalization of potential acquisitions, the hypervertical approach to building super apps is more practical and cost-effective in Southeast Asia, though it may not result in super apps as ubiquitous as those in China.

(2) The reason fintech is an attractive proposition for developing a super app is because it accelerates the virality and stickiness of other services on the app. But rather than fintech in general, it’s simply being able to store money (e-wallet) and transact on the app (payments) that serves as a backbone for super apps to ease their users into more paid products and services.

(3) Developing a super app is all about creating optionality for the business. The idea is that the business can leverage a critical mass of returning users (both trusted suppliers and loyal customers) to build an ecosystem of product and services that ensures the business’s longevity. The question then is what kind of ecosystem does the business build to endure?

(4) Three main risks for the super app trajectory in Southeast Asia: go-to-market strategy, local or focused competition, and the weight of expansion. Capitalization provides an advantage in reducing these risks but will not always be the answer to growth.

(5) Factors that will contribute to the success of super apps in the region: the ability to leverage acquisitions and integrations in regional expansion, ability to find (and secure) the profitable verticals, ability to leverage data for growth

Q: From your interview with Strait Times, you mentioned that in Southeast Asia, super-apps will take the hyper-vertical form. Can you elaborate more on that?

A: The next generation of super apps will be hypervertical. The hypervertical super app aims to cover the entire customer journey around a singular product or vertical, keeping customers engaged with the super apps’ offerings. This trajectory of growth alongside the customer focuses on a specific vertical and maximizes the lifetime value (LTV) it can offer to its users.

One example in our portfolio is Carro, which has grown to become Southeast Asia’s leading car marketplace in the last five years. From setting up a used car marketplace, they have since evolved to provide a variety of services for car owners, from repairs and maintenance to same-day insurance and financing. By becoming an all-in-one platform for car owners and dealers, users repeatedly avail Carro’s services for a long period of time.

This focus on their users gives them clarity when it comes to dealing with crises. For example, when COVID19 hit, they quickly addressed the new pain points of car owners over the lockdown, doubling down on their car subscription service and contactless transactions (using video calls and smart locks).

Read more about Carro’s hypervertical approach >>>

Another example is Payfazz’s ecosystem of fintech applications for Indonesia’s rural economy. From bill payments to loans and offline merchant payments, Payfazz has continuously rolled out mobile-first financial services that its users have been unable to easily access in the past. Payfazz’s continuous development of new fintech apps creates stickiness for both their users and the agents who distribute these services. This trajectory enabled Payfazz to lead the way towards financial inclusion for Indonesia’s rural communities.

Listen to CEO Hendra Kwik talk about Payfazz’s growth trajectory >>>

Q: What factors contribute to this difference with super apps in China, where it tends to be horizontal and cover all grounds?

A: Horizontal super apps are primarily driven by network effects (or virality) for both supply and demand. Rather than focusing on the customer journey, vertical expansion is tied to the super app’s ability to attract suppliers (or in-app developers), who are in turn attracted by the massive user base that are on these super apps.

Southeast Asia’s heterogeneous nature as a region means accumulating the kind of user base seen in China is more challenging and expensive. It requires developing the super app to the local tastes of each new market, putting together a local team to drive distribution and operations, and all the while competing with local players for each service they are offering.

For example, Vietnam has been a contentious landscape for both Grab and Go-jek in their super app aspirations, especially in the food delivery lane because of the competition they both face with companies that are primarily focused on food delivery.

The hypervertical model is a way for Southeast Asia’s tech companies to carve out market leadership by drilling down on what they are good at rather than firing shots in the dark to see what eventually sticks. This reduces the difficulties and risks of the challenging endeavor of regional expansion.

Q: Is it accurate to say that fintech is the backbone of all super apps?

A: The reason fintech is an attractive proposition for developing a super app is because it accelerates the virality and stickiness of other services on the app. Enabling transactions between supply and demand directly on the app makes it easer to drive adoption for new suppliers and customers. Creating an in-app wallet or store-of-value unlocks stronger buy-in for customers as they can easily make repeat purchases or spend on more than one vertical in the app (or in the case of suppliers, they can manage sales and customer engagement).

Unless the super app itself is a fintech platform, financial services only become a viable proposition for super app contenders when the platform reaches a critical mass of demand and supply — GTV or MAU that brings enough topline for the platform to focus on building a fintech infrastructure in the app. Fintechs are built on data and transaction frequency, both of which require focus to acquire rapidly. Then there’s the matter of building the infrastructure to support in-app transactions or wallets.

Rather than fintech in general, it’s simply being able to store money (e-wallet) and transact on the app (payments) that serves as a backbone for super apps to ease their users into more paid products and services. Expansion into fintech as a vertical is another matter altogether, and depending on the financial service in particular, doesn’t necessarily serve as a backbone.

Read about why China tech majors are also relying on fintech as a go-to market >>>

Q: Do you think the development into a super app is more about gaining profit? For instance, Grab and Gojek which started out as ride-hailing apps understood that the model is not profitable, thus venturing into the fintech and food delivery sectors which promised better opportunities. If not, what is the goal of being a super app?

A: The goal of any tech company that aspires to be great is to achieve scale, profitability and endurance. Developing a super app is one trajectory with which to achieve these things. The super app trajectory offers scale, providing a variety of touchpoints to acquire new users and maximizing retention. It also offers profitability as the super app explores verticals to eventually strike gold. And finally it offers endurance as the variety of product and services allows the business to be flexible amidst crises and competition. But achieving these three depends on the route the business takes as it evolves into a super app. The trajectory is not immune to costly mistakes. 

Ultimately, developing a super app is all about creating optionality for the business. The idea is that the business can leverage a critical mass of returning users (both trusted suppliers and loyal customers) to build an ecosystem of product and services that ensures the business’s longevity. The question then is what kind of ecosystem does the business build to endure?

Read about our take on the Grab-Gojek super app race >>>

Q: Expanding into a superapp poses a lot of risks, for example Gojek just shut down its Golife line as apparently it is not profitable? In your opinion, what are the risks aspiring super apps should be aware of before expanding services?

Despite the optionality the super app growth trajectory offers, juggling optionality can be taxing. We see three main risks for super app expansion:

(1) Go-to market as a critical launchpad: The likes of Grab and Gojek found success because of their ridehailing go-to market. Regardless if the service turned out to be unprofitable, it opened the doors at the right time for them to acquire a massive user base. Super apps need to be able to set up a strong launchpad around which to build their ecosystem, even if it doesn’t turn out to be the moneymaker. Because this launchpad is the primary acquirer of users, it’s highly dependent on the market and consumer preferences.

(2) Local or focused competition: Expanding a super app regionally means facing competition that’s either going down the same super app path or focused on a specific service for that local market. While the latter may not be as well-capitalized as a rapidly growing super app, its boots-on-the-ground can prove to be difficult to uproot. Such is the case for Grab and Gojek in Indonesia where Gojek has solidified its base.

(3) Weight of expansion: As the company packs on more weight (ie employees, capital, data) to support super app expansion, it can either slow down or get carried in the wrong direction (ie entering the wrong vertical). The former means other super app contenders or even local/focused competition can step in. The latter means a costly misstep that may be harder to revert the larger the size of the company. While more resources are necessary to support super app growth, the platform can still retain a lean mindset and nimble way of operating.

Q: Will SEA’s aspiring super apps be as powerful as WeChat, Alipay, or Meituan Dianping in China? What factors will contribute to their success here?

A: The likes of WeChat, Alipay, and Meituan-Dianping wield enormous influence in China in due part to China’s size and relative homogeneity as a market. This isn’t the case for Southeast Asia, where the likes of Grab and Gojek will find it difficult to achieve WeChat-level ubiquity. That said, there are ways to work around Southeast Asia’s diverse landscape, and succeed in their super app growth trajectory:

(1) Ability to leverage acquisitions and integrations in regional expansion: Acquisitions and app integrations will play a key role in making regional expansion smoother for super app contenders.

(2) Ability to find (and secure) the profitable verticals: Once super apps find their path to profitability, it becomes a matter of securing these revenue streams to support the capitalization of the business. At least for Grab and Gojek, their competition has evolved from user acquisition (with ride hailing) to achieving profitability (financial services and food delivery).

(3) Ability to leverage data: Data is the lifeblood of the super app. It cost-effectively informs trajectory towards higher margin or higher frequency services and unlocks key services like financing. In order to succeed, super apps need to be able to set up a strong moat with the data they acquire from transactions.

Given the costs of regional expansion, the intense competition, and capitalization of potential acquisitions, it will take more time before SEA’s aspiring super apps exceed the performance of comparables in China. However, the hyper-vertical approach, especially among emerging players like Carro, may offer a faster, more cost-effective route to achieving market leadership and a regional presence for super apps.