Battle of the taxi apps heats up in Southeast Asia

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GrabTaxi secured $90 million in funding over the past 12 months, powering ahead as the battle among Southeast Asia's taxi apps continues.

The Malaysian taxi-app provider announced its third and largest round of funding last week for $65 million, led by U.S. investment firm Tiger Global, following tranches of $15 million and $10 million earlier this year.

Taxi-app providers are racing to gain a foothold in this burgeoning market, as more consumers book taxis using smartphone apps.

"GrabTaxi has some legs," Shiv Putcha, associate director with IDC's Asia/Pacific Consumer Mobility and Social Consumer Research team told CNBC. GrabTaxi is present in 16 Asian cities.

"The additional funding will definitely boost their prospects in the short term. They will want to increase the number of cities they are present in and maybe they'll add another country or two as well," he added.

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Battle of the apps

There are many players in Southeast Asia's taxi-app market. Some target licensed drivers, while others connect customers to private cars, so not all apps compete directly.

Aside from GrabTaxi, other apps include EasyTaxi - from German tech incubator Rocket Internet - also available in 16 cities across Asia, Indonesia's Blue Bird and Vietnam's PingTaxi.

Investment will be paramount for these local players if they want to compete with the sector's big boys, IDC's Putcha told CNBC.

GrabTaxi: We're about speed and security
GrabTaxi: We're about speed and security   

"[U.S.-based] Uber has come into Asia and because they are much better funded than any of these guys, they are very aggressive. This is why funding is crucial, [the local players] have to launch in new cities and you can't do that organically. It's such a new market the first mover advantage is very important," said Putcha.

However, competition should be positive for the taxi app market, he said, as Asian consumers are still learning about the benefits of this technology.

"Of course not all of them will survive in the long term but in the short term there's a lot of room for growth for all of them," he added.

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Bumps in the road

Like many disruptive technologies, taxi-apps face a number of hurdles as their popularity surges, analysts told CNBC.

One of the most pressing issues is opposition from traditional taxi drivers who worry about the impact on their business. Traditional cabbies in London and other European cities have held strikes this year in response.

Regulation is also an issue, authorities have threatened to ban Uber in Jakarta and Kuala Lumpur, for example, finding fault with the use of private vehicles that are non-compliant with the strict regulations licensed drivers face.

Attempting to corner the lower income market in Southeast Asia could also prove tough, EuroMonitor International's Daphne Kasriel-Alexander, a consumer trends consultant, told CNBC.

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"The fact remains that regular taxi rides remain costly for lower income consumers. Therefore, easier access may not translate into significantly more taxi rides," she added.

Meanwhile, IDC's Putcha highlighted the disparity in local payment regulations across Southeast Asia as a potential challenge for taxi apps: "These are the kind of things that change market to market and in many cases they face a lot of market resistance."

However, one huge driver for this market could be its potential to threaten private vehicle ownership, EuroMonitor's Kasriel-Alexander said: "Certainly, efficient taxi apps may encourage fewer consumers to drive cars which will mean a reduction in negative environmental impacts in the region and relieve traffic congestion in cities such as Bangkok."