Uber teams up with Didi Kuaidi in car hailing space in China

Uber vs Didi Kuaidi

 


Uber’s war with Didi Kuaidi in ride hailing service has reached back to Uber’s home turf as Didi Kuaidi has opened up a new front by backing up Lyft, Uber’s biggest rival in America. Uber’s battle with Didi Kuaidi in Chinese car hailing market has been discussed in detail in my previous blog Uber’s epic battle with Didi Kuaidi in Chinese ride hailing market. Earlier some month back Didi had rejected Uber’s offer to invest in Didi and also said to Uber’s CEO that ““You are earlier than us” globally but there will be a day when we will surpass you.”

Didi Kuaidi along with Alibaba, Tencent holding and billionaire Carl Icahn has recently invested in Lyft’s latest funding round valuing the company at $2.5 Billion. This investment will increase competitive threat for Uber vis a vis Didi Kuaidi as Uber will have to put its focus back on its home turf.  Uber is facing similar thread in Asian market wherein investor’s such as Soft Bank from Japan, Tiger Global have put their money in favour of local players and Didi has also invested in Grab Taxi.

Uber and Didi are involved in a very costly struggle in China and Didi’s investment in Lyft will put Uber’s situation bit worse in that Uber will have to put its focus back on USA rather than focusing on China, which as per Uber’s statements was Uber’s biggest prize.

Along with investment in Lyft, Didi Kuaidi has recently rebranded itself as “Didi Chuxing” and even changed its logo for the same reason.  This move is aimed to showcase itself not only as car hailing service provider but a serious player providing broader commuting services. Earlier Didi used name “kuaidi” which meant quickly while its new name “Chuxing” in Chinese means commute.  For this purpose, Didi has entered into services like taxi hailing, premium driver service, car pooling and bus sharing reinforces its goal of moving into broader commuting services.

The turn of these events had made Didi’s fight with Uber more interesting in car hailing space with both players bleeding due to intense competition. Uber had already pumped $ 2 Billion in China to catch up with Didi Chuxing which already had 2 years of head start in China. Finally long running battle between the two companies got over with Didi Chuxing acquiring and merging Uber China with itself, Didi Chuxing investing $ 1 Billion in Uber global and Uber China investors getting 20% stake in Didi Chuxing.  Quest for profitability was the main reason for leaving China as per Uber CEO Travis Kalanick. Economics and profitability won over Uber’s desire to solve transportation problem for one fifth of humanity. Hope consumers are going to be the ultimate victor in the final battle.

Uber’s epic battle with Didi Kuaidi in Chinese ride hailing market

Taxi hailing service in China: Uber and Didi Kuaidi

 

Uber has conquered the world in ride hailing service but it has to still conquer Chinese ride hailing market where it faces stiff competition from its rival Didi Kuaidi. We have already discussed in detail Uber’s car aggregation business and its attempt to set high standards in personal transportation market in my previous blog Uber in tough business of Car Aggregation. Uber has Baidu has its investor while Didi Kuaidi has Alibaba and Tencent as its investor and this make this battle more fierce. The main reason for such a battle is the presence of very large commuter market in China consisting twice the total US population and an anticipated influx of 100 million people in China’s middle class. Recent days have also seen incessant inflow of cash to these two start-ups reinforcing investors readiness to bet on world’s largest transport market and thus spend heavily for subsidising car rides to in gain market share.

In this race, Didi Kuadi seems to racing ahead of Uber due to several factors like Didi’s presence in 80 cities compared to Uber’s presence in 16 cities, Uber’s fund raising of $1.2 Billion for the Chinese market along with Didi Kuadi’s latest $3 Billion fundraising (mainly from Tencent, Alibaba, Temasek Holdings, Coatue Management, Pingan Ventures, Capital International Private Equity Funds’ (CIPEF), China Investment Corporation).  Further Didi is much larger organization with 4000 employees (excluding drivers) compared to only 200 employees of Uber in China. Also, Didi Kuaidi has a near monopoly in China’s car hailing market with a total 80% market share in China’s car hailing market.
Expansion in China was not very smooth for Uber as Uber has there have been some news of Uber’s office being raided by Chinese police. Further, there was some news of Uber’s drivers getting arrested for illegal use of vehicles. Uber is also facing difficulty over their blockage on WeChat, China’s hugely popular mobile messaging platform and run by Tencent. Uber’s accounts on WeChat have all been shut off including its official account and search results in WeChat have started hiding Uber results from users.
Uber has taken many steps to catch up with its rival. Uber has created a totally separate entity named UberChina for its expansion in China. This may help Uber with respect to local Chinese government as creation of local entity will provide a sense of being local and Chinese to the ride hailing service. Uber has also got investment form Baidu and this collaboration with Chinese search and mapping giant will help in more accurate mapping and increased range of services. Further, this collaboration will help Uber in achieving a major goal in terms of building an excellent local partner.
Further, Uber’s recent $1.2 Billion fundraise is expected to continue with some additional funds yet to be raised in days to come. Also, Uber is planning to enter 100 more cities over the next year, doubling a goal set 3 months ago. Uber is also planning to launch major promotional campaign and get more and more drivers into its ambit by offering large bonuses to drivers.


But, Uber is still behind its Chinese competitor in car hailing space and it will be interesting to see if Uber is able to succeed in Chinese market as Chinese government has always a tendency to prefer local players over foreign internet players as has been seen in cases like Google and Baidu, Weibo and Twitter, Alibaba and Amazon. In all of these cases Chinese companies have won over foreign companies. In case of Uber, time will tell if Uber is able to conquer the battle called China.

Uberisation of Grocery Delivery: Instacart a 2 Billion Grocery Delivery app

 
Past few years have seen rise of On-Demand economy ( also called as Sharing Economy or Collaborative Economy or Gig economy) in all segments of life due to increased availability of sources of communication and very low transaction cost associated with On-demand economy. On-Demand economy tries to bring consumers and providers of goods and services to same platform and use highly scalable technologies and platforms to fulfil consumer’s demand by immediate provisioning of goods and services. These companies have achieved massive success by providing information at the finger tip of the consumer and providing instant gratification for the consumer’s need.
 
On Demand economy has found its presence in each and every part of human’s life ranging from Transportation (Uber, Lyft, Sidecar, Blablacar, Hailo), Housing (Airbnb, Homeaway, Wimdu), Clothing (Vinted, Tradesy, Twice), Parking, Home Goods and Food. I have discussed in my previous blog working of On Demand Economy in transportation with Uber as an example in my previous blog Uber in tough business of Car Aggregation. A graphic design of these on demand services along with finding in these companies can be seen in the chart below:

On Demand Services influencing people's life

 

Instacart is one of these On-Demand economy based service that has achieved massive success by disrupting the way people purchase groceries. Instacart is an On-Demand same day grocery delivery service that delivers groceries in as little time as 1 hour or 2 hour. Instacart utilises technology to meet consumer demand by immediate provisioning of goods and services.  Instacart connects consumers from personnel shoppers in consumer’s area who pick up and deliver groceries from users favorite stores saving consumers time. 
 
This article explores business model of Instacart and tries to find out the reasons for immense success that Instacart has achieved in a very short span of time. Instacart was funded by Y Combinator in 2012 and has also received 220 million Series C funding valuing company at $ 2 billion. Instacart is located in San Francisco, and well-funded by some of the greatest investors in the world, like Sequoia Capital, Khosla Ventures, Andreesen Horowitz, SV Angel, and Y Combinator. 
Timeline for Instacart

 

 
Problem being solved by Instacart
 
Instcart provides solution to people around the world to shop for their groceries. Instacart solves same day on-demand grocery delivery problem wherein it fulfils a customer’s order in one or two hours after he places an order. A user can order his groceries and have these delivered to his door step in one or two hours using his phone or web. 
 
Instacart has partnered with various local stores like Whole Foods, PetcoNow, Kroger, Costco, Breads Bakery, Mollie Stone, Gelson’s, Smart & Final, Super King, Fresh & Easy and Ralphs!, H Mart, Natural Grocer. A user can choose and mix items from variety of these local stores into one order. Currently Instacart delivers in SF Bay Area, San Jose, NYC, Brooklyn, Washington DC, Philly, Boston, Chicago, Austin, Seattle and Los Angeles. 
 
Instacart solves above Order Fulfilment problem (fulfilling orders from local stores) by solving complex optimization problem like vehicle routing algorithm. Further, Instacart uses machine learning to map individual stores, track how long a shopper will take to pick from an item from a store and drive and predict delivery time taking into account weather, traffic pattern, location and other factors like sporting events. This creates an experience for its customers that is nothing short of magical leading to increased user acquisition and user retention for Instacart.
 
Market and Competition
 
US grocery market size is $1 trillion consisting of $700 Billion grocery business and $300 Billion convenience spending market. Further, US grocery industry is very fragmented and it has many players operating in it with very few barriers to entry.  Margin in the industry is very low leading to fierce competition between the players and firms try to increase market share and revenue by offering lower and lower prices. Further, e-commerce has also emerged as an important shopping channel along with other channels like Hypermarkets (like Walmart,Kroger, Safeway, Supervalu), Supermarkets (Aldi, Stater Bros and Superior Grocers), Discount Stores and Convenience Stores etc. 
Instacart is working to bring this fragmented market together by providing consumer an opportunity to order their grocery from some of these stores. It faces competition from other online one day delivery players like Amazon, ebay, taskRabbit, Google Express. It is currently present in 17 cities and contracts around 4000 personnel shopper.
 
Revenue Model
 
Instacart follows sharing economy based model like the model followed by Uber. Earlier, Instacart used to earn revenue through delivery fees and product markup. Instacart charges $3.99 per delivery  for three hour delivery and $14.99 per delivery for one hour delivery. Instacart also earns some money by marking up the prices of grocery items (by one estimate 20%) wherein it charges customers more for individual groceries than their in-store price. Further, shoppers can also earn between $15 and $30 an hour depending on how quickly they deliver the food (using their own cars).
 
Recently, Instacart has made one shift in its revenue model, wherein it allows some grocery store partners to price their own goods on Instacart. In return, these grocery stores pay Instacart a fee to service their locations. It explains why for some grocers the products cost the same on Instacart as they do in store, but for others the price is more or some times less.
 
Operational Model
 
Instacart follows “managed crowdsourcing” model wherein a user orders something on Instacart through an app and Instacart crowdsources labor to serve user’s order in one hour or three hours after an order is made. Instacart is also working to expand its delivery schedules to for later today, for the next day etc. The crowdsourced labor consists of trained shoppers equipped with an Instacart shopper app. This app is extremely intelligent with information like location of shoppers in the store, exact knowledge of the location of items in different shops and other information like department, isle and shelf location of these items. Based on these information, shoppers are routed in the store as well as outside. Further, these app provides minutest update on any order to the consumers. This leads to very large efficiency in overall fulfilment of orders.
 
Instacart is a very lean organisation and this brings efficiency in its operational model. Instacart does not hold any inventory and it does not own any warehouse or fleet of trucks for its operation. This shields Instacart from the risk of variable grocery prices as the it does not keep inventory with itself. It partners with grocery stores and charge grocery stores a fee instead of charging consumers by charging markups on product price. This makes grocery stores more amenable to improving Instacart’s efficiency like offering Instacart company’s its own personal checkout line. 
 
Instacart is also looking to outsourcing its deliveries to third parties providers like postmates, Lyft, Sidecar but at the same time it is not planning to completely outsource its delivery process but keep the last mile portion of delivery business with itself.  In this mechanism, Instacart will maintain control of the end-to-end consumer experience through apps developed for shoppers and delivery people. All delivery directions will still be provided through the app, whether delivery will happen through in-house delivery person or someone contracted through a third-party.