Forget cash, Uber, or the government: Didi’s biggest threat in China may be supply
Emily Chang of BloombergTV did an interesting interview with Jean Liu, the president of the much talked about but little seen Didi Chuxing (recently rebranded from Didi Kuaidi.)
Chang has always stood out to me as a real journalist in a sea of mere broadcasters on financial networks. Still, I winced when she described Didi as Uber’s biggest competitor in China.
Just in China?
Didi is the largest ridesharing company in the world, and it’s the only company anywhere on the planet that is dominating against Uber. It’s the only one that comes anywhere close in valuation-- reportedly north of $28 billion in the current funding round. It’s the only one close in terms of fundraising-- north of $4 billion, not counting the round in progress, according to Crunchbase.
If Didi isn’t Uber’s largest competitor, who is? Lyft? Grab? Please.
US journalists have gotten slightly better at describing companies like Tencent, Baidu, Alibaba, Didi and others not merely as the “Facebook/Google/eBay/Uber of China” and acknowledging what’s unique about these companies in their own right. But the idea that a Chinese company is only a Valley company’s largest competition in China still betrays a US-centric mindset.
Didi and Uber might be the battle that changes that mindset, because China in particular is so perfectly designed for ridesharing with relatively low car ownership and insane congestion and dense urbanization in hundreds of cities.
To wit: Chang asked Liu how Didi thinks about global expansion, and Liu had to politely remind Chang just how absurd of a question that is. In 2015, Didi did 40% more rides than Uber has done in its entire life. It’s now the second largest commerce platform in China. It is in 400 cities. And it’s penetrated the market by… just 1.1%. Just upping that to 5.5% would be some 60 million rides per day. It’s currently doing about 10 million a day. For perspective, 10 million rides per day is eight times the entire ridesharing market in North America.
Didi would be insane to even think about the rest of the world, beyond the international coalition with Ola, Lyft, and Grab to help existing Didi customers when they travel abroad. (And of course invest in each of those companies as an option to expand more internationally in the future.)
Compare that to Uber. Now that it’s settled its class action lawsuit with drivers for a pretty reasonable $100 million, all its biggest threats are overseas. Why would Didi take those battles on when it has so much growth ahead of it in China?
There are only three things that could meaningfully hurt Didi’s trajectory and Liu addressed each of them. The easiest in this climate is cash. Liu says she ended the year with $3 billion in cash, and the company is almost done with its current round, reported to be another $1 billion.
The second is the Chinese government. As usual, Liu subtly explained why Didi-- not Uber-- would be a more palatable option, in addition to the obvious national security reasons we’ve detailed in the past.
“We need to utilize existing resources” = Translation: We facilitate carpooling, and make better use buses and taxis not just private cars like Uber.
“[We create] four million jobs opportunities on a monthly basis.” Those “job opportunities” may not be any more appealing than the “jobs” Uber creates here. Still, to the government new ways to employ people is always a good talking point. Much better than bragging you’ll replace them all with self-driving cars at the earliest chance.
Didi makes the environment better because of carpooling. = Ok, nice talking point. But let’s not pretend that’s actually making a dent.
Interesting insight, but this is all sort of a moot point. As long as Didi has a close relationship with the government, it won’t be banned. If Uber ever reaches anything close to meaningful market share it will.
The third and most vexing challenge to Didi’s future growth may actually just be supply: More people who need a ride from a huge office building at 5 pm as opposed to seats in busses, taxis, or cars that can take them there. Liu mentioned that the company is trying to address that through AI and machine learning, better predicting where there will be demand, when so that cars are already there waiting.
That alone won’t solve the problem. But it’s an interesting response given Uber’s response to the same problem was surge pricing.
Go here to watch the whole interview.