Meituan-Dianping is ambitious to roil the ride-hailing market. But will it succeed?
In August 2016, Uber China merged with Didi Chuxing. The move gave Didi Chuxing a dominant position in China’s ride-hailing market.
However, Meituan-Dianping began to provide car-hailing service in Nanjing on 14 February 2017. Ten months later, it extended its services across six Chinese cities. The app launched in Beijing, Shanghai, Chengdu, Hangzhou, Fuzhou and Xiamen.
This move signals Meituan-Dianping‘s intention to challenge Didi Chuxing. To entice new customers, Meituan-Dianping gave new customers vouchers worth around US$5. It also allowed the first 50,000 drivers to keep all their earnings for the first three months. Drivers for Didi Chuxing have to hand over 20% of their monthly earnings.
Simultaneously, Didi Chuxing launched a business offensively in the Meituan-Dianping heartland. On 28 February 2018, Didi launched a new ride-hailing service in Nanjing. Didi Youxiang will rival Meituan-Dianping.
On 21 December 2017, Didi Chuxing announced it received an additional US$4 billion in funding. Didi claimed it would use the fund for overseas expansion and artificial intelligence. However, it has become clear that Didi sought investment to challenge Meituan-Dianping. Didi is also secretly preparing to enter the food delivery market. This will challenge the core business of Meituan-Dianping.
Will there be a new round of “subsidies war” in the Chinese ride-hailing market?
Didi Chuxing spent billions building its customer base in the Chinese ride-hailing market. Between 2014 and 2016, Didi gave customers generous subsidies to get them on board. For example, for a 1-kilometre ride, the Didi ride-hailing fee was about RMB5 (US$0.8) during this period. But now the price for the same distance has increased to RMB15 (US$2.4).
In 2016, Didi acquired Uber China, securing a near-monopoly over the industry. It stopped the subsidies gradually, and its prices began to soar.
Didi’s driver subsidies have also decreased. Many drivers are quitting Didi. Didi charges its driver’s a 20% commission fee. Meituan-Dianping charges its drivers just 5%. Meituan-Dianping also offers its drivers extra rewards. Didi has responded. It reintroduced subsidies for drivers in some cities. The increased competition may trigger a subsidy war. This will benefit both drivers and customers alike.
Meituan-Dianping will face challenges as newcomers
Meituan-Dianping and Didi are both backed by Tencent. Tencent tried to stop Meituan-Dianping from entering the ride-hailing market. It offered to invest US$2 billion in Meituan-Dianping on the condition that Meituan quit the ride-hailing business. But Meituan did not compromise, and Tencent cut half of the funding.
Didi is already taking action to prevent Meituan-Dianping from expanding. A source said that Didi is planning to invest US$2 billon in Eleme. Eleme is Meituan-Dianping’s biggest rival in the food delivery market. Didi will attempt to give Meituan-Dianping’s rivals a boost in other industries. This will draw Meituan-Dianping into a battle on multiple fronts.
Regulation is also a concern for Meituan-Dianping’s ride-hailing business. Meituan-Dianping needs to obtain ride-hailing licenses in each city. Without them, it cannot enter the local market. Meituan-Dianping had to delay the Beijing and Shanghai launches. It could not get its ride-hailing licenses in time.
However, there is no substitute for service quality. The users will decide the victor of this protracted war.