Bottom Line: Didi has bigger scale, superior management and a better international strategy – and they are beating Uber across the globe. Uber should merge up (or partner) and both companies can focus on their common problem, self-driving cars.
What a difference a year makes.
In mid-2016, Uber was the global champion of ride-sharing. They were dominant at home and expanding across virtually every geography. In contrast, Didi Chuxing was little known outside of China and was fighting Uber for its home market.
Today, Uber appears lost in internal problems and regulatory conflicts, is bleeding cash ($5B losses in 2017) and is retreating from international markets. In contrast, Didi has consolidated its home market and has surged outward geographically, taking foreign market after market, mostly by partnership. Didi CEO Cheng Wei is the Bill Gates of ride-sharing. He didn’t invent it but he outmaneuvered Uber and turned Didi into the dominant platform. (Not to slight President Jean Liu, who is also awesome of course).
Some Didi factoids from 2017:
- Did has over 400M registered riders. They have huge scale from their dominance of China, the world’s largest ride-sharing market.
- Didi just completed a new capital raise of $4B, bringing their war chest to something like $10-15B. And their private market “valuation” is now over $50B.
- Didi investee Grab is now dominant in SE Asia, with +90% of taxi hailing and +70% of private rides.
- Didi investee Ola is winning in India, with +650,000 drivers. Uber has +200,000 drivers.
- Didi investee Taxify is expanding in Africa and Europe – and is now licensed in London (where Uber was banned).
- Didi has just acquired Brazilian ride-sharing company 99. Brazil is Uber’s second largest market, with 500,000 drives.
- Didi is launching in Mexico in 2018, which means they are now partnering, buying and building internationally.
Some other Didi factoids, relative to Uber:
- Didi has no history of significant problems with governments.
- Didi has a long history of successful partnerships – with Softbank, Alibaba, Tencent, and ride-sharing companies like Grab, Lyft, Ola and 99.
- Didi has no history of significant management problems. Can you name one big mistake they have made in the past 3-4 years?
Basically, Didi is winning almost everywhere. And mostly at the expense of Uber’s global ambitions.
My prediction is that we are going to see increasing pressure on Uber to merge or partner with an increasingly dominant Didi. My argument for this is six points:
Point 1: Didi is winning almost everywhere.
Per my previous points, Didi is winning. There are lots of reasons for this, but here are three to consider.
- Didi had a better strategy at home and abroad. They merged up fast at home and got a monopoly position. They didn’t have to do this. They could have kept fighting with Kuaidi and Uber. But they decided to merge and focus their time and capital elsewhere.
- They went international – but they did not go direct into foreign markets with a standardized product from home. Instead, they identified local champions with localized services and local management. And they gave them capital, Chinese consumers, best practices, and technical support (sometimes). Ride-sharing is mostly a local business and this was a smart approach.
- They used a team approach. They partnered with Softbank, which greatly amplified their capital. They are in partnership with Alibaba, Tencent, and others. When you are looking at Didi, you are basically looking at China’s top digital companies.
Point 2: Didi is going to completely dwarf Uber in scale – and probably value.
Didi is already around 75% of all ride shares globally, by virtue of their dominance of China. They have massive scale in terms of activity (20M? rides per day). As they continue to add the rest of the world’s geographies, this operational scale is going to increase even more.
And the value of all this activity is also going to increase and increase. Similar to e-commerce, entertainment, auto and other industries, China is going to be the largest ride-sharing market world by spending (not just volume). Didi will likely soon surpass Uber in terms of revenue and valuation. Just look at Tencent, JD and Alibaba’s numbers for comparison. Note the “valuation” of Didi and its partners now surpasses Uber at around $80B.
Point 3: Didi has better management – and emphasizes cooperation not conflict.
Didi’s management are seasoned deal-makers. Jean Liu is a former Goldman Sachs M&A banker. And her fellow managers at Tencent and Alibaba make a new investment approximately every 10 days. This is the A Team of digital China.
DIdi has also shown a cooperative approach to partners and governments. They do not approach as a disruptor. Don’t underestimate the importance of this approach in countries where government is active in industry. Note this is most everywhere outside of the USA.
Point 4: Fighting usually costs more than merging or partnering.
Didi’s rise presents Uber with a question: Do you want this company as your partner or your enemy? And this is an enemy that will dwarf you in size and probably resources. And this is an enemy that is coming to North America soon.
Fighting is expensive. And using capital this way is a problem because the ride-sharing leaders are going to be disrupted themselves. Which leads to my next point.
Point 5: Didi and Uber both face a disruptive threat in autonomous vehicles – and a new set of daunting competitors, including Google and Tesla.
The economic and competitive power of ride-sharing follows from the two-sided network that connects drivers with riders. They have other services like taxi-hailing but it is the two-sided network that is the big engine of the platform. It is why ride-sharing collapsed to 1-2 players so quickly in each geography.
And, unfortunately, autonomous cars are self-driving. They don’t need drivers. So a significant portion of ride-sharing’s competitive power is going to get disrupted, if not wiped out.
Certainly, ride sharing is going to continue as a popular service. And Didi is actively developing their ride-sharing business.
- They are adding security features for drivers and riders
- They are working on AI to optimize their network and improve efficiency.
- They are even working with auto OEMs to develop sharing-specific cars.
All of this is good, but losing say 50% of the core driver-rider platform is a big deal. Their biggest challenge after international expansion is to get into autonomous vehicles.
And self-driving vehicles also mean that Didi and Uber will have to go head-to-head with Google, Tesla, Baidu, GM, Toyota, BYD, and others. There are a lot of very big and very well-funded companies entering this space from automotive, technology and other sectors.
Point 6: Softbank CEO Masayoshi Son will probably push a merger.
If Cheng Wei is the Bill Gates of ride-sharing, then Masayoshi Son is its godfather. Softbank owns stakes in Didi, Ola, Grab, 99 and others (basically the entire anti-Uber alliance). And they recently purchased 15% of Uber.
I expect Softbank to start pressuring these companies to stop spending money fighting, merge up (or partner) and focus on other threats, like autonomous vehicles. A first move in this would be a discussion about Didi buying a minority ownership of Uber.
One question I like to ask when looking at companies is “does this company control its destiny?” In the case of Didi, that is clearly the case.
So this may all come down to what Cheng Wei and Jean Liu want. Is the priority expansion into every geography? Is their focus more on technology advancements? Or is their ambition to take on Uber in its home market?
We’ll see. It’s going to be fascinating to watch.
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