By Claire Heffron
Uber has left the world’s second-largest economy after selling its China business to local rival Didi Chuxing. The combined new company is worth $35 billion and brings an end to the ruthless battle between the two apps.
The deal will see Didi, which has more than $7 billion in cash on hand after widespread fundraising, invest $1 billion into Uber China’s operations. In exchange, Uber will take a 20% stake in the newly merged entity.
Uber has lagged behind the popular local rival for many years, holding just one-fifth of the market. Critics of Uber’s record in the country say the American firm arrived late to the market and used inaccurate Google maps for too long. Didi, meanwhile, was built around the Chinese Baidu maps. This offered far better accuracy when a customer ordered a car and all of the service’s functions were integrated into one app. As a result Didi was eight times as popular as Uber.
Another of Uber’s problems, though not of its own doing, was that it offered a credit-card-based payment process even though such cards are not widely used. Many Chinese customers would prefer to pay using WeChat, but the mobile messaging and payment app shares an investor with Didi, meaning Uber was blocked from this avenue of growth.
Meanwhile, Didi proved a defter innovator than Uber and its other rivals expected. It used the advantage of its early presence in the market to launch its operating platform on a large scale, explains Jeffrey Towson of Peking University Guanghua. They also considered local concerns, beginning with taxi-hailing and not offering chauffeur-driven cars, steps which helped them win over bad-tempered taxi drivers and local legislators.
And the race between the two firms was an extremely expensive one. Within two years, Uber had lost $2 billion in China; though Didi is thought to have lost a lot more. An investor close to both companies claims that Uber China alone lost $250m in the past month.
To look deeper on why this happened, many Chinese start-up experts say Uber was not been beaten or chased away. Instead, it chose to leave for its own interest.
For normal residents, there is little difference between the services provided by Uber and Didi and price is the significant factor. As a former Beijinger, every time I needed to call a taxi, I would check the price of the two apps and choose the inexpensive one. Apparently I was not alone. This meant the two businesses were constantly involved in a bitter price war.
Another vital aspect in the post-mortem of Uber China is that both companies were eager to go public. Didi will do so by 2018 with more than six large-scale financing offers. Uber had a similar plan. However, as long as both companies were making losses they would struggle to meet the requirements of the Stock Exchange. It made sense to cease fire.
“The biggest existential risk to Uber over the past two months was that in China they were losing money in a way that possibly put the rest of their worldwide operations at risk,” said, an economics professor at New York University. “In the short term it may be seen as a loss, but in the imminent years it’s definitely a good move. Now they can put their efforts on the rest of the world,” he adds.
With their journey in China over, Uber can now look to other countries where it is competing for market share. However, Didi is backing a new round of funding in the Southeast Asian ride-sharing service Grab, putting even more pressure on its ride-sharing rival.
This cash injection could exceed $600 million and push the total amount of funds available to Grab past $1 billion. Meanwhile, Grab is looking to raise a separate $400 million in their own funding rounds in the weeks to come.
This development suggests the development of an,“anti-Uber alliance”, where the largest non-Uber ride-hailing companies across the globe collaborate to push the multinational out of their local market. As Liu Qing, the president of Didi says “you could not make friends by negotiation, you could only make friends by fighting.” Didi’s investment in Grab shows it will continue to clash with Uber in Southeast Asia, and possibly beyond.