Testing the Myth of Ride-Hailing App Collapse Following New Presidential Regulation
The deteriorating welfare of drivers may actually pose a greater business risk. Prolonged conflict, mass demonstrations, declining service quality, and negative public sentiment can disrupt company stability. In the long term, such situations are also undesirable for investors as they create business uncertainty.
The discourse regarding reducing app operator commissions to 8% following the implementation of Presidential Regulation Number 2/2024 on the Protection of Online Transportation Workers in early May is often viewed as a threat to the sustainability of digital platform businesses. This concern arises from the assumption that technology companies can only survive if they secure large commissions from drivers.
However, the issue is not that simple. The business model of digital platforms can fundamentally continue to operate even if commissions are reduced, provided that companies are willing to change growth strategies that have historically relied too heavily on capital burning and massive subsidies.
For over a decade, the digital transportation industry has grown with a ‘growth at all costs’ logic. Companies competed to burn money through promos, discounts, cashback, and fare subsidies to capture market share and increase valuations. During that phase, profit was not the primary priority; the goal was market dominance and rapid user growth.
As a result, the cost structure of digital companies ballooned, not only due to operations but also because of highly aggressive promotional and user acquisition costs. In various periods, marketing expenses were among the largest expenditure items for tech companies. Food discounts, travel vouchers, free shipping, and delivery fare subsidies for years were essentially financed through investor capital.
Financial data from platform companies also shows that there has actually been significant room for efficiency. Between 2018 and 2021, GoTo’s sales and marketing expenses were many times larger than its revenue. In 2019, for example, the company’s revenue was approximately Rp2.3 trillion, yet sales and marketing costs reached over Rp14 trillion. In 2021, even as revenue rose to nearly Rp4.6 trillion, marketing costs remained around Rp9 trillion.
These figures demonstrate that the ‘cash-burning’ strategy through promos, subsidies, and user acquisition has been the primary source of cost inflation for digital companies for years. Therefore, business model adjustments should be directed towards efficiency in promotional costs and aggressive expansion, rather than solely squeezing driver partner income.
The ‘cash-burning’ phenomenon is clearly visible in GoTo’s journey. In 2022, the company still recorded a massive loss of Rp40.4 trillion, pressured by high marketing and subsidy costs of Rp14 trillion. However, in the last two years, the company has begun to show performance improvements after implementing aggressive cost efficiencies. GoTo even managed to book a positive adjusted EBITDA after previously recording continuous operational losses. This shows that cost efficiency still allows companies to survive without having to rely on massive subsidies.
Therefore, when the government attempts to increase the drivers’ share of income to 92% and leaves 8% for the app operators, the move should be appreciated as an effort to strengthen the economic position of partners. This policy indicates that the state is beginning to view drivers not merely as ‘flexible partners,’ but as an essential part of a digital ecosystem that deserves a fairer revenue split.
Certainly, from the perspective of app operators, the reduction in commissions will narrow the short-term revenue margin. The platform industry is currently entering a phase of pursuing profitability after years of living on investor capital injections. However, this condition should serve as a momentum to encourage a transformation towards a healthier, more efficient, and more realistic business model. Platforms cannot continue to survive on the logic of unlimited subsidies.