It has been about a year since Uber China agreed to be merged into Didi Chuxing. It was taken by many as a surrender, with which I disagree. But looking back, I think there are now clear lessons for Silicon Valley from the whole experience of Uber in China.
Lesson 1: First mover advantage really matters in China – just like in Silicon Valley.
First mover advantage still frequently determines who wins. Being first is very important, especially when the business is based on network economics (i.e., Uber, Facebook, Google, AirBnb, WhatsApp). Although you could argue this is more about good timing overally. You can just as easily fail by being too early as by being too late.
Uber entered China fairly late. By the time they began to ramp up in late 2014, Didi and Kuaidi were already offering taxi hailing in hundreds of cities. They already had tens of thousands of drivers and millions of riders. And that kind of early mover advantage seriously impacts costs and waiting times for rides. It can be almost impossible to overcome.
I actually think Uber did surprisingly well given such a late entry. Back in early 2015, virtually nobody thought Uber had a chance in China. And yet they dramatically ramped up their efforts (and spending) and fought their way to a solid second place. That’s impressive.
But they were never really able to overcome Didi Chuxing’s first mover advantage.
Lesson 2: The mobile ecosystem of China is the most aggressive and innovative in the world.
This is not 2005-2010, when Chinese Internet companies were pale imitations of Western companies. China’s Internet companies today are very fast and sophisticated. And the mobile market, in particular, is both advanced and massive (+600M users). Offered mobile services and apps are generally more advanced than those found in the West. Today, it is Whatsapp that is a pale imitation of Chinese WeChat.
And the business ecosystem in which these companies are funded and launched is also well-developed. China now has a big population of serial entrepreneurs and seasoned venture capitalists. Everyone talks about the Uber-Didi money war but look at the rapid-fire pace of Didi’s operations and new service launches (car test driving, WeChat tie-ins, O2O offerings, etc.). In just four years, Didi Chuxing grew from nothing to 4,000 employees operating in over 300 cities (compared with Uber’s 200 China employees).
China’s mobile companies are aggressive, fast and very well-run. Didi consistently outran Uber in operations and fundraising.
Lesson 3: Be prepared for “last man standing”.
Foreigners keep getting beaten in China by this tactic. In “last man standing”, companies raise tons of money and then build massive capacity (factories, steel mills, driver populations, etc.). The result is that you get a big oversupply and everyone starts losing money. It becomes a contest for who can and is willing to bleed the most cash. This can go on for years – and sometimes decades.
Eventually, the “last man standing” is the one left when all the others have run out of cash or willpower. The company left standing then gets the market. You can see this scenario in lots of Chinese industries, such as manufacturing, solar and even online travel. Note: Expedia finally gave up on China after losing money for 10 years in a “last man standing” situation.
This is the situation Uber was facing in China. They had largely won, holding a solid second place market position. But they were still bleeding $1B per year against Didi. And this situation could have gone on for years and years and years.
“Last man standing” is common and tends to work well against foreigners, as they frequently give up and go back to their home markets. Chinese companies, in contrast, usually have no place to retreat to. This situation is also more difficult for companies funded by venture capital whereas strategic players tend to be able to bleed longer. It’s something Silicon Valley should seriously consider when thinking about China. Are you ready to play “last man standing”. It’s common and pretty brutal.
Overall, I think Uber did very well in China. They definitely surprised everyone by going from a written off China company to a solid second-place in the market. And CEO Travis Kalanick’s determination definitely surprised Didi and everyone else in China.
And the result was Uber went from a lost cause in early 2015 to a 20% owner of the dominant company in the world’s largest on-demand transportation market. That’s a good outcome, impressive and a big profit on invested time and money ($2B cash for $7B of equity).
Ultimately, Uber is an example of a solid win in China as a foreign internet company.
Thanks for reading, jeff
I write, speak and consult about digital strategy and transformation.
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