Highlights

1. The listing of Go-To on IDX could be a tipping point for a stock market boom in Indonesia.
2. Relatively easier access to cash on the public markets could fuel more M&A exits in Indonesia through Go-To (potentially their own CVC?) 
3. Go-To as a technology group has even greater potential to create an industry on top of its ecosystem with a more attractive value proposition for SMEs that times well with the rise of D2C brands and long-tail businesses in commerce.
4. Go-To’s services stack and trajectory as a super app opens up more opportunities to redefine fintech as embedded finance, repackaging offerings to include financial products. 

Earlier in mid-May of 2021, Gojek and Tokopedia announced that they have merged to form Indonesia’s largest privately-owned technology group, after several months of going through the motions and a few years of speculation around whether these two entities would merge, with Grab in the mix. And so this scenario for the growth trajectory of these two companies coming to fruition comes as no surprise to the ecosystem. But at the same time, the merger opens up a lot of opportunities in a startup ecosystem that is entering a new stage of growth. 

Three important first-order, near-term effects have already been covered in the initial analysis of media coverage, which we summarize briefly below: 

Showcase for what Indonesia tech startups can achieve. Go-To strengthens validation for the exit possibilities of startups in the region, and the case will be even stronger if Go-To makes a successful foray into the public markets with a potential double listing in New York and Jakarta. In addition to Sea and Grab, these companies will be a proof-of-concept for investors, especially for late-stage funds, to double down on ferrying startups in the region to exit. For Go-To, in particular, the company represents a wave of Indonesian tech poster children (along with Bukalapak and Traveloka potentially) becoming national champions.   

The merger IS the moat. Go-To is a strategic response to the rising competition in Indonesia posed by the likes of Grab and Sea, not just in ecommerce but financial services as well. The merger does not only create space in the market for these two players, but potentially opens up new avenues for growth that were previously impractical or impossible. For example, there’s the often mentioned flywheel for funneling greater selection of services and merchants on their platforms through the aggregated data obtained through existing services. The successful merger is not additive but multiplicative or even exponential in its returns. So while the merger is in itself a consolidation of two unicorns, it also has created a moat for the tech group to hold off the consolidative advances of competitors in the country. 

The successful merger is not additive but multiplicative or even exponential in its returns.

Keeping the merger nimble and flexible. And speaking of a successful merger, keeping the lines separate between the two businesses and only focusing on important synergies allows the merger to quickly benefit from the collaboration without the M&A itself slowing down the growth of the businesses. In some cases, a merger or acquisition can have long-term negative effects on the business if integration is not properly executed. 

In this piece, we explore the implications of this merger even further, as Go-To irons out the finer details of the merger, regulatory bodies scrutinize the union, and the group makes its case in the public markets, be it through IPO or SPAC listing. 

Gravity wells from private to public markets

In 2019, hot on the heels of private megarounds raised by the super app contenders (Sea not yet entirely in that frame) and other tech unicorns, we wrote about the physics of unicorns in the private markets — the deeper the cash of a company, the more magnetic it becomes for the development of other companies, creating a gravity well for funding. An extreme case would be a founder setting up companies precisely to get acquired by a unicorn down the line. It also influences the verticals where venture money goes. 

As Go-To heads to the public markets, specifically in Jakarta, we will see how the IDX and public investors in the country will accommodate the entry of the technology group, considering its marked differences as a company from the more traditional conglomerates. There are three potential impacts of Go-To listing in Jakarta as well as in New York:

1. Having a tech group with services used by the masses listed on IDX could draw in more retail investors, in the same way that the generation of Alibaba, Tencent, and JD going public in the mid-2010s boosted public markets in China (even if these companies listed in the US). Ajaib co-founder and CPO Yada Piyajomkwan mentions this in our podcast with her.  
2. IDX could accommodate more tech companies that do not necessarily meet all the financial requirements that traditional companies have had to meet to list. 
3. The public markets being a structurally cheaper access to cash, this could fuel more strategic acquisitions and drive more M&A exits in the country. It will not be surprising if BeGo-To comes up with the cash to set up their own CVC to rival Sea Ventures. 

Essentially, the tech group going to the public markets will extend its gravity well beyond investors and companies in the venture or startup space. 

Ecosystem-as-a-service

In the same way that Amazon has created an entirely new industry on top of its marketplace, with companies looking to serve the needs of Amazon businesses from Amazon’s native Amazon Web Services or FBA aggregators, or that Tencent’s WeChat created an industry of businesses finding distribution through the messaging app, Go-To’s expansion as a platform also represents an opportunity for businesses to not only be formed within the ecosystem but also be supported by third-party services developed precisely for Go-To merchants and partner brands. 

This is essentially the part where the ecosystem or reservoir itself, as we write in the book Navigating ASEANnovation, becomes a product. This idea of ecosystem-as-a-service squares with the rise of long-tail sellers and D2C brands in the region looking for the best partners and platforms to help their businesses grow. That said, Go-To (Tokopedia specifically) still has a long way to go in terms of capturing SMEs in Indonesia, even at the pace it is going now, but the opportunity is certainly there. 

While this could have been done by either Gojek (last-mile logistics) or Tokopedia (merchant marketplace) on their own, the tech group now has a larger stack of services to offer SMEs (last-mile logistics, commerce, and financial services), that they could potentially top up even further with future acquisitions. 

Embedded finance

Another exciting medium to long-term implication of the Go-To merger is what the ecosystem means for fintech. In 2020 we saw the digital banking rush with Sea and Grab coming out on top in Singapore’s license race, and we also wrote about the whole re-bundling trend and formation of fully digital banks, but at the same time we’re also seeing fintechs that are pushing beyond the very concept of a bank as a touchpoint for consumers. 

With Go-To’s stack of services and superapp trajectory, there’s a case to be made for financial services not just being a separate product, but is woven directly into the various use cases and touchpoints for consumers in their ecosystem. Consumers could potentially gain same-time access to financial products associated with the purchases or transactions they make on either Gojek or Tokopedia. This definitely goes beyond payments and money transfer. There could be applications for insurance or financing tied into the products and services offered by partner brands on their platforms, which also makes it even more attractive for SMEs to go digital or O2O through Go-To’s ecosystem (tying back to the previous point). 

The merger has forced clearer lines to be drawn between the fintech players in Indonesia, with Grab potentially taking majority of OVO and continuing to push for that merger with DANA, Go-To having GoPay, and Sea with ShopeePay. That said, with Go-To’s arguably fuller stack of services (not just for consumers but also SMEs and drivers), the case for driving embedded finance and expanding their financial services use cases is stronger.

Beyond the value proposition

While the Go-To merger makes a strong value proposition in the market, with the potential implications discussed previously, whether or not this will come to fruition depends on a lot more than the business models of Gojek and Tokopedia or the general trends shaping their growth. Leadership and company culture are also key internal factors that will influence the success of the merger long-term. There’s also regulatory interests, which while likely not so much of a concern considering Indonesia’s own aspirations to raise their own national tech champions, will continue to be a talking point with every new expansion initiative the technology group takes.