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: and Date: December 22, 2015 Topic: Digital economy and innovation

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.

Read article More on this topic
 

External Publication

How fast is this novel technology going to be a hit? Antecedents predicting follow-on inventions

In this paper, the authors identify novel technologies on a large-scale and map their re-use trajectories.

By: Michele Pezzoni, Reinhilde Veugelers and Fabiana Visentin Topic: Digital economy and innovation Date: December 22, 2021
Read article Download PDF More on this topic More by this author
 

Working Paper

mRNA vaccines: a lucky shot?

How can the background of mRNA technology development help us understand how public vaccine research and development policy can be improved to generate the full global social benefits from breakthrough novel vaccine technologies?

By: Reinhilde Veugelers Topic: Digital economy and innovation Date: December 13, 2021
Read article More by this author
 

Blog Post

Inclusive growth

An inclusive European Union must boost gig workers’ rights

A European initiative strengthening rights for gig workers is welcome. A digitised economy should also be inclusive.

By: Mario Mariniello Topic: Digital economy and innovation, Inclusive growth Date: December 7, 2021
Read article More on this topic
 

External Publication

How green are electric vehicles?

A policy paper dissecting existing life cycle assessments of electric vehicles and identifying potential future trends in the different stages of the vehicle life cycle, especially for batteries.

By: Simone Tagliapietra and Victor Vorsatz Topic: Green economy Date: October 26, 2021
Read article More on this topic
 

Opinion

Can climate change be tackled without ditching economic growth?

The ultimate answer to the question on whether climate change can be tackled without ditching economic growth depends on our willingness to step up climate action massively.

By: Klaas Lenaerts, Simone Tagliapietra and Guntram B. Wolff Topic: Green economy Date: September 27, 2021
Read article More on this topic More by this author
 

Opinion

Europe doesn’t need a ‘Mega-Fab’

Europe should defend its existing dominance in equipment manufacturing for semiconductors and invest in chip design instead of luring high-end fabrication to its shores.

By: Niclas Poitiers Topic: Global economy and trade Date: September 22, 2021
Read article More on this topic More by this author
 

Blog Post

Opening up digital platforms and reducing anticompetitive risks

The current convergence in measures to open up digital platforms leaves a door open to some form of international coordination.

By: Georgios Petropoulos Topic: Digital economy and innovation Date: September 22, 2021
Read article Download PDF More on this topic
 

Working Paper

Can climate change be tackled without ditching economic growth?

The notion of degrowth to reduce greenhouse gas emissions appears unrealistic; decoupling of emissions from growth is in principle possible but requires unprecedented efforts.

By: Klaas Lenaerts, Simone Tagliapietra and Guntram B. Wolff Topic: Green economy Date: September 16, 2021
Read article More on this topic
 

External Publication

Conditions are ideal for a new climate club

The technical and political conditions are ideal for the creation of a climate club to catalyse tougher climate action worldwide.

By: Simone Tagliapietra and Guntram B. Wolff Topic: Green economy Date: September 9, 2021
Read about event More on this topic
 

Past Event

Past Event

Academic lecture: International technology competition

Bruegel Annual Meetings, Day 3 - On the final day of the Annual Meetings, our Director Guntram Wolf sits with Keyu Jin to discuss international competition policy.

Speakers: Keyu Jin, J. Scott Marcus and Guntram B. Wolff Topic: Digital economy and innovation Location: Palais des Académies, Rue Ducale 1, Brussels Date: September 3, 2021
Read article Download PDF
 

Policy Contribution

European governance

A new direction for the European Union’s half-hearted semiconductor strategy

The EU needs a more targeted strategy to increase its presence in this strategic and thriving sector, building on its existing strengths, while accommodating its relatively low domestic needs.

By: Niclas Poitiers and Pauline Weil Topic: Digital economy and innovation, European governance, Macroeconomic policy Date: July 15, 2021
Read article Download PDF More on this topic
 

Policy Contribution

Commercialisation contracts: European support for low-carbon technology deployment

To cut the cost of decarbonisation significantly, the best solution would be to provide investors with a predictable carbon price that corresponds to the envisaged decarbonisation pathway.

By: Ben McWilliams and Georg Zachmann Topic: Green economy Date: July 1, 2021
Load more posts