The rivalry between the two biggest ride-hailing apps in China, Uber and Didi Chuxing, has come to an anti-climatic end. After years of frustration, Uber has waved the white flag, announcing yesterday that it is selling its Chinese operations to Didi.
The decision comes just after new government regulations were announced last week to legalize ride-hailing apps in China. These changes will go into effect on November 1st and were apparently the last straw for the American company’s struggling operations in China.
Prior to the merger, both companies have been desperately trying to gain the upper hand in the Chinese market by hiring and subsidizing drivers. Uber was getting the worst of it, losing around $1 billion a year — which CEO Travis Kalanick argued was “sustainable” — while having their offices periodically raided by Chinese police. Meanwhile, Didi seemed to be faring a bit better, receiving a $1 billion investment from Apple and collaborating with Lyft.
“Uber and Didi Chuxing are investing billions of dollars in China, and both companies have yet to turn a profit there,” Kalanick wrote in a leaked blog post first published by Bloomberg. In the rest of the post, he explains the reasoning and inspiration for the merger:
Lots of US companies are struggling in the Chinese market with domestic competition and regulations. Most notably, Apple has seen an unprecedented slip in its China sales this year, as the company tries to compete with cheaper local rivals such as Xiaomi and Huawei. Additionally, with the recent surge in patriotism following the South China Sea decision, some American fast food brands have faced boycotts and even fake Apple Stores have been surrounded by angry protesters. Yum Brands has been in talks this year to sell its Chinese operations to a Chinese consortium and it seems Uber has had a similar idea — if you can’t beat ’em, join ’em.
It is estimated that the merged companies (Didi and Uber China) will be worth $35 billion. According to the Wall Street Journal, Uber will account for a 20% stake in Didi. In addition, Didi will invest $1 billion in Uber (re-gifting that Apple money so soon?) Though there were reports on Chinese media that Didi denied the merger deal, the Chinese company officially confirmed the deal on Weibo yesterday afternoon and shed some more light on the details.
Uber will receive a 5.89% share of the combined entity, which translates to a 17.7% economic interest in Didi Chuxing. Additionally, Uber China’s previous investors, like Baidu and Alibaba, will receive a 2.3% economic interest in Didi Chuxing. Cheng Weijiang, Didi’s founder and CEO, will be on Uber’s Board of Directors, while Kalanick will take up a place on Didi’s board. Finally, the Chinese company disclosed that in the future, Uber China will operate as a separate brand under Didi’s supervision and management.
Didi had a two year head start in the Chinese ride-hailing market over its rival. While Uber has managed to expand operations to around 60 Chinese cities and claims 1 million rides a day, Didi is at 300 cities and 11 million rides daily, Quartz reports. Uber China has just 200 employees, while Didi has 400, according to the LA Times. Though Uber has certainly come a long way in a short time amid difficult circumstances — going from an app that locals mistook for “Youku” (the Chinese name is “Youbu”) to a major competitor in the market — ultimately it wasn’t enough.
Kalanick shared a email that he wrote to his Uber China team on Facebook:
On a global scale, Uber, which is valued at $62.5 billion, still has the greater prestige, but Didi seems to catching up, investing in other prominent ride-hailing apps across the globe, including Ola (in India), Grab Taxi (Southeast Asia) and Lyft. With this latest deal, it now holds stakes in all the world’s major ride-hailing companies, Quartz reports.
Now that the two powerhouse companies have merged, they will be able to spend less time competing and more time trying to turn a profit. Riders beware, could this mean that ultra-cheap rides are a thing of the past?
On another note, what unlikely partnership could emerge next? Will Apple and Xiaomi begin collaboration on the iMi?
By Sarah Lin