Ride Hailings Apps Enter in Competition with Ojek: Indonesia’s Response to the Impact of Disruptive Innovation

Abstract

The Indonesian government has long been struggling with transportation. It has been conceded that Indonesia is lagging behind its neighbor ASEAN member states in providing modern mass transportation. Nevertheless, the demand for affordable, available and safe transportation is huge in a country with more than 250 million people. In response to this demand, drivers of motorcycles have gradually stepped up efforts to fill the gap. Being small and flexible, motorcycles proved to be the ultimate mode of transportation compared to cars, buses, or taxis. Motorcycle drivers started to provide, in an informal way, transport to the public. Often these drivers were unemployed people owning a motorcycle that was largely unused during daytime. As this kind of opportunity offered a source of income, this kind of offering transport became a reliable business opportunity for unemployed people. Informally offering transport to consumers is commonly referred to as Ojek. Ojek, however, is being challenged. Smartphone technology made it possible to start organizing the transportation provided by Ojek online. The advantage of moving Ojek online: increased consumer choice, security, tariff clarity, etc. One of the forerunners in this field is Go-Jek. As Go-Jek gradually increased its services, to include for example courier, food order, house cleaning and even massage services, the ability to attract consumers to the ride hailing app improved. The fast growing expansion of Go-Jek and the entry of companies offering similar online services has impacted Ojek, the conventional motorcycle transportation. The demand for their business declined. Moreover, the conventional taxi services also felt the negative impact of the ride hailing apps. Both identified ride hailing apps as a menace that can destroy the well-established practice of Ojek and the business of conventional taxi companies. This chapter details the friction, caused by disruptive innovation in the telecommunication sector, between Ojek and the drivers using ride hailing apps. This friction has several dimensions. Socially, the Ojek face economic hardship and even unemployment. This is partly due to Internet illiteracy, but also the lack of financial means to afford smartphones needed to make the shift from Ojek to an online one. Policy wise, the government has taken an ambiguous stance towards Ojek. While holding that Ojek does not fit within the category of public transport, the government has taken steps to regulate the use of ride hailing apps used by the conventional taxi business and so discriminate against the motorcycles offering transport. Businesswise, the companies offering ride hailing apps are able to cross-finance between different services and therefore offer promotions on their transportation services that are exclusionary towards Ojek and conventional taxi companies.