The story appears on

Page C4

August 8, 2016

GET this page in PDF

Free for subscribers

View shopping cart

Related News

Home » Business » Benchmark

Sharing the ride: Didi picks up Uber’s China unit

DIDI Chuxing’s announcement that it would acquire the China arm of Uber, creating a US$35 billion ride-hailing giant, reminds us how the simple concepts of the “sharing economy” can easily explode into big business — the very thing that grassroots resource-pooling was meant to circumvent.

Ride-hailing pairs drivers willing to use their cars as ad-hoc taxis to earn a bit of money on the side with passengers eager to cut the cost of inner-city travel. Discounted rides, conveniently arranged via mobile phone apps, were a big hit with consumers. So popular, in fact, that the big money moved in.

Didi’s announcement last week came only 18 months after it acquired smaller local rival Kuaidi and only two months after it secured US$7.3 billion in a fourth round of funding that included the likes of Apple and Alibaba affiliate Ant Financial.

San Francisco-based Uber began operations in China 2013, taking on a formidable domestic rival in Didi, which had more than three-quarters of the ride-sharing market in China. The odds were long. For one thing, Uber relied too much at first on Google maps, which don’t function well in China, until its tie-up with Baidu in late 2014. The app also took longer to launch than its Chinese counterparts in order to decide the location of the closest vehicle available for a rider.

With heavy subsidies to drivers and discounts to riders as the main tools of competition, both Didi and Uber were forced to seek outside financing from institutional investors eager to sniff out the next “unicorn,” or private startup likely to expand into valuation of US$1 billion or more.

The two companies had at least four common investors: BlackRock, Hillhouse Capital, Tiger Global and China Life Insurance Co.

Globally, Uber received US$11.5 billion in 14 rounds of equity and debt financing, with big names such as Kleiner Perkins Caufield & Byers and Google Venture behind it.

While money no longer seems a stumbling block for the big ride-hailing services, core issues remain unresolved.

The quality of rides, for example. Didi and other ride-hailing apps can’t easily scrutinize the actual situation of the vehicles on hire. Sometimes the claims of vehicle owners are not what’s advertised on the apps. There have been reports worldwide of criminal acts arising from the rides.

Drivers sometimes change their license plates, leaving riders bewildered about which is the genuine vehicle contacted on a ride-hailing app. Drivers sometimes show up in cars not bearing local plates, which limits their access to parts of central Shanghai during certain hours of the day. Drivers sometimes don’t show up at all.

Subsidies paid to drivers and discounts offered to consumer loom large in the success of ride-hailing. I seriously doubt if anyone would be keen to use these services if the fares rose. Currently, they are about a fourth less than a comparable fare in a standard taxi.

I took an Uber ride in Shanghai just one day after the deal was announced. It cost me 13 yuan (US$1.9). Jian, as the driver identified himself, was in his mid-20s. He expressed no concern about news of the Didi-Uber deal. “I don’t worry at all,” he told me. “If Didi or Uber stop giving subsidies to drivers, I’ll simply switch to a different app.”

Under the deal announced last week, Uber investors will hold a combined 20 percent stake in the combined company and Didi didn’t disclose the stake it would hold in Uber. The deal ups the valuation of Didi to US$35 billion.

Analysys International has estimated that the online ride-hailing market will grow to 81.4 billion yuan, but annual growth is expected to slow to about 16 percent from 51 percent this year.

It’s hard to discern the exact market share of each company across China. Uber may have temporarily overtaken its bigger rival in one or two smaller cities, but overall Didi is still dominant. In terms of geographical expansion, Uber operates in 60 Chinese cities, with over 40 million rides per week. Didi covers 400 cities, with 112 million rides a week.

One report covering the first quarter had Didi with 85.6 percent penetration rate among frequent ride-hailing service users in the first quarter, followed by Uber’s 15.4 percent and Shenzhou Zuche’s 10.7 percent. Other smaller players were in the single digits.

The capital market is not short of brave entrepreneurs. Late last year, private car service Yidao Yongche, which received US$700 million in funding from LeTV, said more than 750,000 users had an aggregate account balance of 965 million yuan, while Yidao was subsidizing another 965 million yuan. That meant riders get a 50 percent each time they hail a ride.

A day after the Didi-Uber merger, Yidao Yongche Chief Executive Zhou Hang said his firm will continue to invest in more technology capability, aiming to improve rider services and challenge Didi’s dominance.

According to an announcement last month from China’s Ministry of Transport that legalizes ride-sharing and ride-hailing applications, local authorities will have the final say on granting business licenses to ride-hailing vehicles and drivers. It is still not clear whether local transport authorities may decide to limit the number of eligible ride-hailing vehicles.

Just another hurdle on the horizon?




 

Copyright © 1999- Shanghai Daily. All rights reserved.Preferably viewed with Internet Explorer 8 or newer browsers.

沪公网安备 31010602000204号

Email this to your friend