Opinion: GrabCycle is a shrewd move for Grab

Robin is a TIA Star Contributor and publishes exclusive, high-value content that serves the Asian tech community. Read more from TIA Star Contributors here.

When Grab invested in oBike last year, two immediate possibilities came into play:

1. Bike-sharing is a natural extension of Grab’s core business
2. OBike is a platform for them to roll out GrabPay

Let’s address them chronologically.

While a bike-sharing move seems logical, it is not rational

For simplicity, let us assume that US$500 is the lifetime cost of each bike —from procurement, tech installation, maintenance, taxes, to divisible overhead. If Grab wants to release 15,000 bikes (total of US$7.5 million), they can do it. With the company’s current brand trust and share of voice in Singapore, it’s not hard to predict that they can win a good market share in a relatively short time.

Even if we assign an additional 20 percent of this amount as annual general and administrative as well as sales and marketing costs (total of US$1.5 million) with zero deposits, it still seems like a very reasonable amount—considering Grab’s valuation—to launch this product.

(Note: Much has been said about the power of deposit reinvestments by bike-sharing operators. We will leave that out for the sake of this discussion on business models.)

Instead, Grab invested in oBike—and for good reason.

OBike has one of the most extensive fleets in Singapore, with the least amount of funding as compared to Ofo and Mobike. However, the financials within a pure-play bike-sharing model is still questionable.

Let’s break this down further:

While there are numerous assumptions in the chart, a key point to note is how profitability comes near the end of the assets’ useful life.

There is another game to be played : GrabPay

Did Grab learn from Didi Chuxing?

Still, GrabCycle is a shrewd move