Indonesia's ride-hailing platforms need business model overhaul, not just lower commissions

The Indonesian online transportation industry is navigating a complex landscape following new regulations, with discussions shifting from mere commission rates to the fundamental sustainability of platform business models. While a proposed reduction in applicator commissions to 8 percent has sparked concerns, experts argue the core issue lies in the companies' long-standing reliance on aggressive growth strategies funded by substantial capital.

For over a decade, the sector operated under a "growth at all costs" mentality. Companies prioritized market dominance and user acquisition through heavy spending on promotions, discounts, and subsidies. Profitability was secondary to rapid expansion, leading to bloated cost structures that included significant marketing and user acquisition expenses. This strategy, often financed by investor capital, meant that discounts and subsidies were not derived from operational efficiency but from external funding.

Financial data from major players like GoTo illustrates this point starkly. Between 2018 and 2021, GoTo's sales and marketing expenses frequently dwarfed its revenue. In 2019, for example, marketing costs exceeded Rp14 trillion against a revenue of approximately Rp2.3 trillion. Even in 2021, with revenue nearing Rp4.6 trillion, marketing expenses remained around Rp9 trillion.

This pattern highlights that the "money burning" phenomenon, characterized by extensive promotions and subsidies, has been a primary driver of cost inflation. Consequently, industry experts advocate for a strategic shift towards greater cost efficiency in marketing and expansion efforts, rather than placing the burden solely on reducing driver earnings. The long-term health of the business, they contend, depends on adapting the business model to be more sustainable and less reliant on continuous, large-scale capital injections.