In 2015, the Uber China vs. Didi fight was mostly about raising capital and subsidizing rides. It was a money war – and a race to get to critical volume in drivers and riders. There was also a lot of discussion about the regulatory greyness in private rides in China.
In 2016, both of these issues have been continuing. And the race for critical volume is increasingly shifting to second and third tier cities.
However, a new factor has emerged that is changing the fight between Uber China and Didi.
Operational depth and speed is becoming much more important.
Keep in mind, we are just at the beginning of Chinese transportation apps. The services are going to increase and change dramatically going forward. These will be very different businesses in 2-3 years.
And unlike sharing companies like Airbnb, transportation apps have a big operational component. The majority of staff are not doing tech at HQ. They are in local cities doing marketing and coordinating drivers and logistics. So much of this change is going to happen on the operational side.
And we can already see operational depth in Chinese transportation apps becoming more and more important. The competition will increasingly be about offered services and tie-ins, not just on prices and wait times.
For example, Didi has recently started a “drive-to-own” program. Under this drivers can get new cars, that they will eventually own based on their accumulation ride volume. The new program is between Didi and China Merchants Bank – and is somewhat a response to driver anger over decreasing subsidies. So it is a good example of the shift from competition based on subsidies to operations.
And all of this is actually a big problem for Uber China. Because while Didi has +4,000 employees in China, Uber has somewhere around 200. I wrote about this operational aspect previously (here). But the big difference in operational scale is a problem.
Going forward, I expect Didi to increasingly put new pressure on Uber in terms of breadth of services and tie-ins (like drive-to-own). Another recent example is that Didi is now offering customers test drives for new cars. They have already received 1.4M requests in response. Expect lots more of these types of announcements – and especially tie-ins with Chinese e-commerce.
A Long-Shot Prediction for 2016: Didi Will Begin to Try to Kill Off Uber China
There is an interesting point in new markets when the competitors run out of new customers to acquire (customers who are not using the service yet). They then start trying to take customers from each other. And taking your well-funded competitors riders (and drivers) while protecting your own requires much bigger money.
So will Didi begin to use its +80% marketshare to try to take Uber’s riders and drivers? Will they try to kill them off? And does their marketshare advantage give them an ability to do that (it’s not as clear when your superior marketshare is not generating superior cash)?
Didi has not done this yet. But I think once they run out of second and third tier cities to expand to, they could turn their guns on Uber China. This is my long-shot prediction for 2016.
And if this happens, it will mean two things:
- The money war will get a lot more expensive. It will be about who is bigger, who has more capital and who is willing to lose the most money.
- It will probably seriously hamper Uber’s ability to expand in China. It’s a lot harder to go after 50 new cities when your core marketshare in Beijing and Shanghai is under attack. And while Uber China can match Didi in capital, I’m not sure they have the manpower in China to fight a war on two fronts.
This prediction is ultimately about whether these two giants are going to choose to co-exist or fight it out in China. For example, Coke and Pepsi co-exist and avoid price wars (although they have had price wars in the past). My prediction is that the Chinese internet space is particularly ruthless. I don’t expect any sort of happy co-existence.
Thanks for reading. There’s more on this at The One Number That Matters for Uber China.