Didi Chuxing Targets Uber and the World for Ridesharing Business

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china
world
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(Bick Bhangoo) #1

If you thought Uber was the leading global rideshare business, then you were wrong in assuming so. Didi Chuxing, China's giant rideshares, and gig economy is now the world leader and has no intention of slowing down. It was only six years ago in 2012 that Didi, then called Didi Dache started to court taxi drivers for their services. Didi sellers would literally go to taxi ranks and taxi drivers and offer them incentives to download the app and use it. It took a few months of hard work, but it paid off. Today, Didi serves 450 million registered users with over 21million drivers and 25 million rides a day. In comparison, there are only 2.6 million taxis. If you are in China on a visit, you will find it hard to catch a taxi, the quickest and best way will be to download the Didi app and order a ride.

Didi has also overtaken Uber in estimated value since Uber's recent SoftBank investment rated them at $48 billion, and Didi is estimated at $56 billion value. While these companies do receive boisterous evaluations, in reality, they do not make a profit, and as Didi stated to the press, their income is very low, and in Didi's case, there are profits, but very low. Both companies have raised some serious cash during the past six years, with Uber managing to maintain its private investors lead by a slight margin. The main reason that Uber needed so much money from such an early stage was to fuel Travis Kalanick's thirst for world domination. Didi had a big enough market to contend with at first and basically made sure it was a monopoly at home before it took a step outside.

Didi has been in a race against Uber ever since Uber stepped into China. According to Goldman Sachs, the global rideshare market is expected to expand to $285 billion by 2030. However, the global rideshare market is not a real competition, its more like an infighting cartel. Didi and Uber as well as the other major players all have one big daddy investor that has its hands in all the pots; Japan's SoftBank. Uber's Kalanick is on Didi's board after Didi bought out Uber's Chinese operations for 17.7% of Didi stock. Softbank has directors on Didi, Uber, Grab and Ola. Now add to this mix the fact that Didi has invested in Lyft, Taxify, Careem, Grab and Ola. What this means is that there are no secrets, everyone knows what everyone is doing when they will do it and how they will do it. So, it comes as no surprise when Didi starts to invest in Mexico and Brazil, while Uber invests in India but leaves South East Asia. Africa and the Middle East are still under debate, and Europe is settling into a regulatory conundrum. Here is the Didi world map:

Just like Uber, Didi has invested heavily in autonomous vehicle technology (AV), and it opened an AV research center in Silicon Valley at the end of 2017. It also has a deal with Chinese automakers BAIC to help with AV car design. Uber just recently got out of a court spat with Waymo around the theft of AV technology. Uber is about to sign a similar deal with Grab, where it will trade in its operations for a percentage of Grab's stock. This is all in line with SoftBank's global rideshare vision, where the world is split up into sectors, and a different operator controls each sector, only competing with local entities.

Another side of the race is in raising money (not just from investors) Uber is now seeking a $1 billion loan, while Didi has a lot of liquidity, it has about $12 billion in cash for further acquisitions. This is a great advantage when the road to expansion is through buying out local rideshare leaders rather than set up new presence. This was the case for Didi in Brazil, when it bought out Brazilian 99, giving Didi the stepping stone into South America. Its next step is to consolidate a deal in Mexico, effectively blocking Uber from expanding seamlessly southward. Uber has a presence in Mexico, but Didi is enticing Uber executives away with lucrative remuneration packages.

Mergers and Acquisitions (M&A) is a very important part of globalization. In fact, it is the only way to succeed in a globally competitive market. Didi must conserve cash, buy local presence and influence expansion through local knowledge. Rather than learn new cultures and new ways to operate, Didi will convert investments into M&A's. One interesting partnership is the Lyft deal until recently Lyft riders could also request a ride through the Didi app. Although this has stopped, the collaboration between both companies is being reviewed in deeper detail, which could lead to an interesting merger or collaboration deal. Lyft has been seeking expansion, and a way to increase its US presence, perhaps with Didi backing it, the next step could take it into the major leagues. (Not that Lyft is small, it holds approx. 30% of the US rideshare market).

Didi has also invested in taxi service apps, and it entered into a joint venture with SoftBank in Japan, where rideshare is illegal. Taxi's use a taxi app in the same way rideshare uses their app. And Didi together with SoftBank have invested in Tokyo Taxi, Japan's leading taxi service. Didi has also invested in Honk Kong's taxi app.

While Didi is a major player, the major player, it is still subject to the laws of competition, and local Chinese company Meituan-Dianping (MD) has decided to leave the confines of its food and beverage delivery services and enter the rideshare business. This will immediately affect Didi's percentage of control at home. MD is backed by Chinese Tencent, which is also an investor in Didi. Tencent invested $4 billion in MD, and as of October 2017, the company is valued at $30 billion. MD had enough time to learn the market by watching Didi, and it intends to steal Didi's drivers by offering fewer fees to drivers, effectively making driving for MD more worthwhile. MD's first incentive-based drive is to offer the first 50,000 drivers that sign up to use its platform three months of total income. No fee's taken. I expect that MD will succeed since drivers will feel no obligation to limit themselves to only one company, much like drivers that work for Lyft and Uber. There are apps that help switch between driving apps and also speed up queuing factors.

Both drivers and passengers in China will enjoy the competition since monopolies tend to stagnate and that is what is happening in China, where incentives and bonuses are disappearing. Perhaps the competition at home will urge Didi to continue developing a better business model since the current ones employed by all rideshare companies do not truly provide a profitable future and definitely do not warrant the companies estimated market values.


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(Andrew Martin) #2

Doesn’t anyone see the absurdity of what is happening in the world of rideshare gigs? Softbank sits in every major company, all the companies seem to share in each others board, so this is a cartel in the full sense of the word and its meaning. Taxi’s have no chance against this global steamroller. They will work together to eradicate any competition, and then when the world is settled into their rideshare reality, they will spring upon us the AV. This will force the world into a new transportation reality, where automakers and rideshare work hand in hand to change the way we drive. Basically, 50 years from now, there will be no more drivers. They will be relegated to driving in special cordoned lanes, so that they do not interfere with the computerized traffic system.


(Steve Mann) #3

Didi, Uber, who cares, all these businesses get rich through our hard work. I couldn’t care less who pays me, so long as I get paid on time and in full. Competition is great for improving performance, I also hope it will be great to improve the lot of the driver.