Blog Post

The rise of the sharing economy in Indonesia

The sharing economy allows individuals to access goods and services coordinated by online communities such as Uber and Airbnb. The emergence of sharing platforms in Indonesia is having an observable impact, but what are the technical hurdles faced by sharing economy firms?

By: Date: December 22, 2015 Innovation & Competition Policy Tags & Topics

Indonesian consumers are benefiting from new ‘sharing economy’ platforms such as Uber and Airbnb, but barriers remain to collaborative firms.

Since 2013, Indonesia has seen the birth of home-grown sharing platforms such as Go-Jek, a startup that provides a platform for motorbike ride sharing in Indonesia, as well as the introduction of foreign sharing platforms such as GrabCar, Uber and Airbnb. The digital sharing economy trend led by the aforementioned platforms are followed by smaller local players who see gaps in the existing available services, such as Ojek Syar’i which provides provides an online booking service for Muslim female motorbike drivers in Indonesia.

Sharing economy services are viewed positively by Indonesians. 87% of Indonesians are likely to use products or services from others in a share community, compared to 66% of the global population, according to a survey conducted by Nielsen in 2014.

Globally, the sharing economy has grown faster than Facebook, Google, and Yahoo combined. Today, revenue from the sharing economy is still small compared to  traditional rental sectors. However, the collaborative economy is growing rapidly and in 2025, it is projected that the revenue of sharing economy will be $335 billion, equal to that of the traditional economy.

The projection is not surprising. The sharing economy offers a number of advantages: lower prices, stronger communities, a greater number of players in the market, and greater access to services that were once regarded as a luxury (Ranchordás 2015).

It allows consumers to fully utilise excess or idle resources, and to access resources without necessarily purchasing or owning them.

Competition with the traditional economy

The sharing economy is changing consumption patterns all over the world (Zervas et al 2015), rather than increasing economic activity.

This is also the case in Indonesia.  Hotel owners and motorbike taxi drivers have been hit hard by new sharing platforms like Airbnb, and (two-wheeler) ride sharing apps like Go-jek and GrabBike.

The UberX fare is generally cheaper than regular taxis during normal hours, but the longer the distance being travelled, the bigger the fare difference between regular taxis and UberX becomes.It’s too early to know the impact of ride-sharing apps on traditional taxis, as they were initially banned by local government. However, we can look at differences in fare and capacity to analyze how ride-sharing applications may affect competition in the industry.

The chart below illustrates the fare comparison between regular taxis Blue Bird and Express, UberX, and UberX with 2x surge, assuming the vehicles experience the same traffic congestion. During peak hours, Uber fares are multiplied between 1x (normal hour) to 3.5x, depending on demand (Credit Suisse, 2015), as represented by UberX with 2x surge.

Assuming no stops occur during travel, regular taxis will generally be cheaper than UberX with 2x surge. This implies that in terms of price, there is a room for traditional taxi providers to compete, especially during peak hours.

Figure 1 Regular Taxi, UberX, Go-Jek Fare Comparison, in Rupiah

CM 22 12 15

Source: Own calculation based on data from Blue Bird, Express, and Uber websites.

Notes: Non-promotion rate. Jakarta vehicle speed is 12-14 km/h; the riding period in the calculation assumes 13km/h speed, no stop, and no multiplier (for Uber).

Uber currently has only has 1000 drivers operating in three cities in Indonesia, meaning that their reach is relatively small, compared to Blue Bird, which has 23000 fleets in 14 cities, and Express, which has 10000 fleets distributed across seven cities in Indonesia.  Uber cars probably only make up 2-4% of the industry’s total fleet (Credit Suisse, 2015).

According to this price and capacity comparison, sharing platforms in Indonesia are not anti-competitive. Traditional taxi providers are able to compete in terms of price, and ride-sharing platforms still have much lower capacity.

In Jakarta the ratio of taxis to people is still very low at 1.4 taxis per 1000 people, especially in comparison with other cities in Asia. This implies that there is room for additional fleets in the city.

Figure 2 Taxi Penetration, per 1000 people

CM 22 12 15 2

Source: Euromonitor (2012) in Credit Suisse (2015)

Increased competition from the sharing economy has had positive results in Indonesia. The two major taxi companies in Indonesia, Express and BlueBird, have created their own mobile applications which allow users to order a taxi, see the estimated fare and track the driver’s real time position. Arguably this gives regular taxis the edge in terms of reservation method, because they also have  call centres for non internet users.

Improvements in public transport

Traffic jams and accessing public transport have been longstanding issues in Jakarta. The proportion of consumers using public transport declined from 35.5% in 2002 to 12.9% in 2010 (JUTPI in Sumaedi et al, 2014), due to underdeveloped, difficult to access, inefficient, and dangerous transport networks.

Commuters are increasingly buying their own cars, which, without road network development, worsens traffic problems.

The local government in Jakarta is planning numerous reforms in public transport, including building the Jakarta Mass Railway Transport (MRT). The first corridor of MRT, however, will only operate in 2018. This is where ride-sharing application steps in.

To increase the efficiency of the current main public transportation in Jakarta and meet short term demand, local government has set up a ride-sharing online application, Go-Jek, to create a passenger information system, which allows users to order motorbike taxis from and to  bus shelters, and to track  buses  in real time; these features are important considering that bus shelters are not always within short walking distance and that buses do not have a predictable schedule.

Consumer-side technical barriers

Most sharing economy ventures operate as smart phone applications, but  in 2013 only 23% of Indonesians had smartphones, fewer than in some other developing Asian countries.

Nevertheless, due to its large population, it is estimated that Indonesia will have 92 million smart phone users by 2019, 47% of mobile phone users. Although at the moment access to online sharing economies remains a barrier for businesses, smartphone use is growing rapidly.

Figure 3 Smart Phone Penetration

CM 22 12 15 3

Source: Nielsen (2013)

Another technical issue is payment method, which has set apart the Silicon Valley-based and Asian-based sharing platforms. Silicon Valley-based sharing platforms, such as Airbnb and Uber, use credit card as their main method of payment, while Asian counterparts, such as GrabCar, GrabBike, and Go-Jek, mainly use cash. Blue Bird, the biggest taxi company in Indonesia, provides both options.

Credit card use in Indonesia (2011) is comparatively low, at 5%; Cash (51%) and debit card (29%) remain the most favorable payment methods.   Consumers across Southeast Asia still prefer to use cash, which means that US-based companies wanting to increase their market share in Indonesia and Southeast Asia will have to consider implementing cash as payment option in order to tap the wider market.

Figure 4 Payment vehicle preferences, Southeast Asia, 2013

CM 22 12 15 4

Source: Nielsen Global Survey of Saving and Investment Strategies (2014)

Conclusion

The growth of the sharing economy is a global phenomenon. Looking specifically at one of the emerging markets, Indonesia, this article observes the impact of sharing economy on traditional economy industry and the technical barriers faced. Looking at tariff and capacity difference. it is observed that the emergence of ride-sharing platforms, in particular, is not anti-competitive compared to its traditional economy counterparts. Its benefits are extended to the improvement of public transportation. Meanwhile, technical barriers, such as smart phone and credit card penetration, prevent sharing platforms engaging a wider market in Indonesia.

References

Owyang, J., Tran, C., & Silva, C. (2013, June 4). The collaborative economy. Retrieved from www.slideshare.net/Altimeter/the-collaborative-economy

Ranchordás, S. (2015). Does sharing mean caring? Regulating innovation in the sharing economy. Minnesota Journal of Law, Science, & Technology, 16(1), 413-375. Retrieved from http://hdl.handle.net/11299/172061

Sumaedi, S., Bakti, I., Astrini, N., Rakhmawati, T., Widianti, T., & Yarmen, M. (2014). Public transport passengers’ behavioural intentions: Paratransit in Jabodetabek-Indonesia. Singapore: Springer.

USA Department of Commerce. (2015). Doing Business in Indonesia: 2015 Country Commercial Guide for US Companies. Retrieved from http://www.export.gov/indonesia/build/groups/public/@eg_id/documents/webcontent/eg_id_089369.pdf

Zervas, G., Proserpio, D., & Byers, J. W. (2015). The rise of the sharing economy: Estimating the impact of AirBnB on the hotel industry. Retrieved from http://people.bu.edu/zg/publications/airbnb.pdf

 


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint. Anyone is free to republish and/or quote this post without prior consent. Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post.

View comments
Read article Download PDF More on this topic

Blueprint

cover4

An anatomy of inclusive growth in Europe

This Blueprint offers an in-depth analysis of inequalities of income and wealth in the EU, as well as their causes and consequences. How evenly are the benefits of growth distributed in our economies, and what does this mean for fairness and social mobility? How could and should policymakers react?

By: Zsolt Darvas and Guntram B. Wolff Topic: European Macroeconomics & Governance Date: October 27, 2016
Read article More by this author

Blog Post

Giuseppe Porcaro

The industrial internet will transform policymaking

The ‘internet of things’ will bring major changes in many areas of life, including the political arena. What will be the new communication tools, strategies and narratives for policymakers?

By: Giuseppe Porcaro Topic: Innovation & Competition Policy Date: September 28, 2016
Read article More on this topic

Blog Post

IMG_20151009_103117 (3)
IMG_20151119_103626

German Facebook probe links data protection and competition policy

On March 2, 2016, the German Federal Cartel Office opened an antitrust investigation into Facebook’s contract clauses on data use, in what appears to be the first antitrust case in Europe based on a breach of data protection rules. We discuss the link between data protection rules and competition policy, which is still underexplored.

By: Nuria Boot and Georgios Petropoulos Topic: Innovation & Competition Policy Date: March 14, 2016
Read article More on this topic More by this author

Blog Post

IMG_20151119_103626

Uber and the economic impact of sharing economy platforms

Consumers enjoy the cheaper taxi services provided by Uber, but the company has proven divisive among taxi drivers. Regulators should allow Uber to operate, but under stricter regulations, to ensure that consumers reap the benefits, and drivers operate on a level playing field.

By: Georgios Petropoulos Topic: Innovation & Competition Policy Date: February 22, 2016
Read about event More on this topic

Past Event

Past Event

The Sharing/Collaborative Economy

The collaborative economy is transforming business and society, but what are the implications for traditional industries and the potential role of regulation?

Speakers: Guillermo Beltrà, Juliette Langlais, Adina Claici, Mark MacGann, Georgios Petropoulos, Karen E. Wilson, Fabienne Weibel and Thiébaut Weber Topic: Innovation & Competition Policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: February 10, 2016
Read article More on this topic More by this author

Opinion

Mario Mariniello

Digital Single Market: setting the stage

The European Commission's just-released Digital Single Market strategy paper is good news. However, the paper does not spell out how the proposals will be implemented, and thus is of little help in forecasting what will happen next.

By: Mario Mariniello Topic: Innovation & Competition Policy Date: May 8, 2015
Read article More on this topic More by this author

Blog Post

Jérémie Cohen-Setton

The economics of P2P lending

Lending Club has captured the attention this week as it became listed on Thursday on the NY Stock Exchange and its share spiked nearly 70% in trading debut. While the growth of marketplace lenders has been exponential over the past few years, questions remain as to whether P2P lenders will manage to move beyond the niche of middle-class credit card borrowers and will be able shoulder the next recession.

By: Jérémie Cohen-Setton Topic: Global Economics & Governance Date: December 15, 2014
Read article More on this topic More by this author

Blog Post

diogo_machado

Uber Economics: There is no such thing as bad publicity

The following graph shows the individual index of Google searches for "Uber" and the index of searches for "Taxi", both in Germany. Uber is benefiting from the opposition of taxi drivers and attempts to suppress it.

By: Diogo Machado Topic: Innovation & Competition Policy Date: October 29, 2014
Read article More on this topic More by this author

Blog Post

Sergiy Golovin

The economics of Uber

Uber, the innovative ridesharing service, has recently generated a lot of anger from the taxi industry because it enabled market entry for many private drivers. In this fight taxis are indeed disadvantaged by strict industry regulation and need for licenses. Dealing with this issue is a major task for regulators. Another challenge for regulators is to create efficient regulation that takes into account the features of “sharing” economy.

By: Sergiy Golovin Topic: Innovation & Competition Policy Date: September 30, 2014
Read article More on this topic More by this author

Blog Post

Jérémie Cohen-Setton

Blogs review: The sharing economy hype

As sharing economy companies become valued in the billions, grand claims are being made for the future of these new providers. But the question remains open as to whether the success of these companies, which often relies on lower standard of regulatory oversight and taxes, are a net plus for the economy as a whole.

By: Jérémie Cohen-Setton Topic: Innovation & Competition Policy Date: June 11, 2014