Oh no you Didi...
“The assets under management and market cap of our key shareholders exceeds $2 trillion in aggregate, and they are all here to witness our partnership with Lyft.”
Oh, it’s on. It’s so on.
For months, Pando has been predicting a tighter, more formal working relationship between Uber’s rivals around the world, not least because of the huge overlap in investors, common goals, and more or less agreements to focus on home markets. Yesterday, we saw the first big announcement of exactly that: A joint press conference between Lyft and dominant Chinese ridesharing company Didi Kuaidi.
The press conference was ostensibly about a joint technology project that would allow a fictional American business man named “Peter” traveling to China to fire up Lyft and get around via Didi’s service when he arrives. Likewise Chinese visitors to the US. Didi’s president Jean Liu even suggested that one day Didi would be able to find American visitors a driver who speaks English.
For anyone who has ever traveled in China and can’t afford a private driver, that’s pretty cool. Eight million people travel between US and China every year. And it could easily be a template for other countries to work with either Lyft, Didi or both. Didi has already invested in GrabTaxi in Singapore and if Didi isn’t in the new round of Ola in India, I’d be stunned.
But none of that is what yesterday’s announcement was really about.
Really, it was a masterstroke of choreographed marketing. It was the first time much of the US business press has encountered Didi (The New York Times was out of the loop enough its reporter referred to the new partners -- with such incredibly aligned interests that one had already invested in the other -- as “strange bedfellows”). It was also the first time Lyft has thrown a punch at its rival, or come close to chest thumping about its own service, or in any way tried to capitalize on Uber’s many missteps and challenges.
For months, investors have been telling me that Lyft has an upgraded management team and new intensity with board additions like Rakuten and Carl Icahn. But this is the first time I’ve seen evidence of any of that. It’s certainly a contrast to Lyft’s gutless “Hey! We have an app too!” billboard campaign.
An hour before the press conference at DreamForce, Uber CEO Travis Kalanick-- for your consideration: The least self-aware person on Earth -- tried to brush off his spotty reputation by saying “actions speak louder than words.” (The recent Fast Company profile was… what? his third? fourth? wordy attempt at an image reboot…)
Luckily for Kalanick, in Silicon Valley valuations speak louder than actions. Every time Uber does something disturbing-- overpromising on the thoroughness of background checks, victim shaming riders who claim to be assaulted, encouraging passengers to treat female drivers like prostitutes, tracking user data in such creepy ways it prompts a Senate inquiry, or threatening journalists -- an Uber investor gets wheeled out to shrug and say the equivalent of “Yes, Travis Kalanick is aggressive, but he’s had to be to build such a great company!” And then Uber’s PR machine leaks “internal numbers” to Business Insider -- or gets magazine writers at Vanity Fair and Fast Company to write thousands of flattering words-- to smooth it all over.
In truth neither words nor actions have elevated Kalanick where he is today: It’s that astounding $50 billion valuation and an addictive service that users can’t go without, momentarily disgusted as they might find themselves with the company’s ethos and tactics.
But here’s the thing: Valuations have to keep growing. And Uber raised that last round on a promise of global domination. Already with just 11% of the Chinese market, Kalanick has said China is poised to be its largest market by year end. It’s spending $2.5 billion out of a total $7 billion ever raised to date trying to buy marketshare in India and China alone. And in China, it’s inconceivable that Uber wins for a variety of financial, geopolitical, and market reasons we’ve detailed at length. The company has never refuted any of our reporting on this.
Uber doesn’t really mind when you criticize its actions or refute its words. But it gets really, really concerned when something might hurt that all-important valuation. And that’s why Didi-- not Lyft-- has been the only company to scare the shit out of Uber.
After a two-month struggle to raise a $1 billion round for Uber China, that finally culminated in Uber Global having to put in as much as $500 million as a show of faith in the business, it’s starting to dawn on Uber just how foolhardy this whole plan is. Famously libertarian Kalanick did a recent appearance at Baidu-- the sole local Chinese institution in that round-- where he spoke in traditional Communist party talking points about “harmony” and “stability.” And in that Fast Company profile, he dropped the silly swagger that Uber is “crushing it” in China to acknowledge that Uber was a severe underdog in the market.
So the timing of Didi coming onto Uber’s home turf-- where it’s mostly still ably controlled the international business press message around ridesharing-- was not coincidental. After all, other than to send a message -- to Uber, investors, and the press-- there was no real reason this announcement had to happen now. Didi invested in Lyft back in its May round, and the joint product announcement the event was ostensibly about won’t come out until the end of the year.
An hour after Kalanick-- who has been svengali at manipulating the press and telling his story since the earliest days-- somehow unironically said: "Getting out there, getting in front of it and telling our story is something we are still trying to learn to do." Didi finally did exactly that for the first time in the US.
Here were the important things John Zimmer and Jean Liu said that were lost on a lot of the press who haven’t been closely watching this battle-royale. Note they never once uttered the word “Uber” but the entire event was all about Uber nonetheless.
Zimmer went first and opened his talks by saying he was going to give some background on Lyft for the Chinese media in the room. That was an effective move for two reasons: It telegraphed respect for the Chinese market, which Silicon Valley companies can’t do enough, and it gave Zimmer a chance to recast itself as a growing leader, not a sad second fiddle.
Zimmer noted that Lyft was first to offer peer-to-peer ridesharing, the first to pass cooperative legislation in the US, and the first to do share ride technology with LyftLine. He said eight out of ten drivers prefer Lyft to “our competitors” (that is, Uber). He talked about the “mutual respect” between drivers and riders and said “drivers are happy and so they feel great about taking care of customers.” (Translation: We don’t have anywhere near the accusations of assault, rapes and violence of Ubers, nor do taxi drivers heckle us on national TV.)
Zimmer said that Lyft was actually taking market share in America-- not simply growing along with the market. He cited research that customers use Lyft more frequently than riders use “competitor’s” services. And talked up the growth in New York specifically.
But that was just all for the benefit of the Chinese reporters in the room…
After demoing the app that doesn’t exist yet between the two companies, Zimmer disclosed that secret investment in Lyft’s series E was $100 million and said this was “just the start of a broad partnership between our companies” including more financial and product components.
Translation: This event really isn’t about this app that will be awesome for eight million people if it works whenever it actually gets built. It’s a gauntlet thrown, and an attempt to reframe the narrative in Uber’s home turf.
Then Didi president Jean Liu took the stage. (Of course the #2 exec at Uber’s only real rival is a woman. Hollywood couldn’t have scripted this better…)
She started by gushing about all the investors and top business press from China and America in the room. She name checked Tencent, Alibaba, and Beijing Automotive Group. The latter is the Didi investor who I noted before is a Chinese government agency. Zimmer had given his own shout out to the Coatue brothers -- Thomas and Philippe Laffont -- and Carl Icahn, who was sitting in the front row.
How often do you see all the largest investors go to a press conference about an unlaunched app for eight million people? This along with the quote above that Didi’s investors assets under management and market cap totals $2 trillion is a direct hit at Uber’s core strength: Raising seemingly infinite amounts of money at escalating valuations. Didi is the first ridesharing competitor anywhere in the world that can out fundraise Uber.
And that’s important because Uber has only gained its 11% in China because it is spending north of $1 billion on subsidies. Didi is sending a clear message that-- unlike Lyft-- it can play that game way longer than Uber.
She described the move as “a new trend for country champions to work together”-- kinda like when Yahoo invested in Alibaba, rather than trying to compete in China itself. A move that would wind up being one of the smartest of that era of the Valley: It allowed a major US Internet company to profit handsomely off the growth of the Chinese market while not getting mired into trying to own that market itself. (Reminder: Alibaba is one of Didi’s main backers, and also an investor in Lyft.)
Then she described ridesharing as “a very unique business” where not just “top notch” technology was required but “local expertise” and an ability to fit “into the local ecosystem including the regulatory regime.”
The two of them must have casually mentioned China’s “regulatory regime” a dozen times during the event, as if navigating it is the same as Uber and Lyft’s battles in, say, Las Vegas. In reality, everyone who has watched Google, Twitter, and Facebook’s experiences in China knows the “regulatory regime” is code for “China will just shut you down, Uber.” Particularly because, unlike those other companies, Uber is trying to map and control cities’ transportation grids, has a history of inciting its drivers into political activism… and its China expansion is being coordinated by a former special assistant to the US Secretary of Defense.
The two of them also took turns amplifying one another’s message. Liu acknowledged how “ambitious but at the same time… humble, kind and genuine” Lyft’s founders were and how in the six months she’d known them she’d seen them gain marketshare in the US. She even threw in an anecdote about taking a Lyft driven by a woman who noted that her girlfriends “only drive for Lyft.” (The lone nod at Uber and Travis “the boober guy” Kalanick’s long history of sexist actions and words.)
Zimmer meantime acknowledged he’d been to China and indeed there are “an incredible amount of people” there. More helpfully he said the following when asked if he’d considered going into the market alone:
“When you have a market leader with 99% share of taxis and 80% share of private cars, and basically that’s the only company that understands the local culture and regulatory environment, this is the winning strategy. It was an easy choice for us.”
Translation: Why would a US company even think it could win in China?
During her remarks, Liu also took a turn “educating” folks in the room about Didi, which was smart, because most of the business press who have written about Didi (including me) have mostly focused on the competitive dynamic with Uber, not the company itself.
She described how the market is different with the usual jaw dropping demographic stats: Chinese cities add some 20 million people per year-- the equivalent of two and a half New Yorks-- and the average speed a car travels at is less than four miles a hour. In all there are more than 800 million urban Chinese and less than 20% of them own cars.
That isn’t likely to change because there’s simply no more room on the road for cars: Major cities have strict caps on issuing license plates as a result. Out of one hundred applications per year, only four are getting a license plate in Beijing and Shanghai, she said.
While Zimmer said he wants to make car ownership “optional” in the US, Liu described a country where car ownership simply isn’t an option. The message: These are two similar, but different problems a single approach (oh, hey again, Uber!) can’t solve.
She described how Didi’s app is designed uniquely to solve that problem: It has a bus service, a taxi service, a corporate transportation service, private drivers, a peer to peer service and a new service called “Hitch” aimed at professionals who want to share their car with other professionals during a commute. They charge between $1 and $30 per ride depending on the option you pick.
There were also some jaw dropping stats on the scale of Didi’s business: In just three months since launching Hitch, it is doing 700,000 trips a day. She says their servers processed 12 million requests on a recent day, arranging seven million Didi rides-- three million taxi rides, three million private rides and the rest Hitch and buses. Compare that to Uber’s boast of doing 1 million rides a day-- total-- in China.
The growth has outstripped even Didi’s projections. Liu said in October of last year, they were doing 30,000 private car trips per day. While fundraising, they projected that could be as high as 300,000 a day in a year’s time, and some investors pushed back, finding that unbelievable growth in just a year. Today it’s 3 million a day. “It’s ten times our projection,” she said.
And then there was the kicker:
“We do believe that transportation should be transformed with technology however we think that transportation should be done in a more collaborative, peaceful, and constructive way in regards to millions of people’s livelihoods. Our mission is to increase the average pay of taxi drivers, and achieve collaborative reform from within and avoid abrupt termination.”
She continue to say that approach is why Didi is confident it can find “common ground with regulators and stakeholders.”
Lyft’s comments about respecting drivers is just some nice brand positioning. But for Didi it is a clear message that it isn’t about disrupting, ripping and replacing, or in anyway firing or dislodging taxi drivers or moving to an era of self driving cars because “drivers are expensive!” That message is key to not getting shut down in China. Because if the fear that a US company with deep ties to the state department controlling urban infrastructure isn’t enough to get Uber shut down (and it almost certainly is), there’s that message: Uber will kill jobs in China; Didi will not. And there’s no way Uber can climb back from its position on “disruption,” destroying the “asshole called taxi” and a full-throated celebration of the impending robot-car revolution.