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.

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Chinese Mobile Market and App Store Landscape

China mobile market is world’s largest global mobile market followed by United States in terms of global mobile shipment. Chinese mobile market is led by 632 million Internet users and 527 million mobile internet users as on June 2014. Further, China has very large Internet penetration with Internet penetration increasing from 45.8% in December 2013 to 46.9% in June 2014.

The main reason for this growth of Chinese smartphone market is favorable government policies such as providing conducive network facilities for Internet access, active support from operators and mobile phone manufacturers and increased role of Internet applications in social life such as taxi rides, payments, shopping, logistics or even finance. Internet penetration in China has also increased from 45.8% in December 2013 to 46.9% in June 2014.

Size of Internet Users in China and Internet Population

 

Mobile phones in China: Main driving force of Internet revolution

Further, mobile phones in China has come up as the main driving force of internet revolution in China. China added 26.99 million mobile Internet users in 6 months from December 2013 to June 2014 making total 527 million mobile Internet users by the end of June 2014. Mobile phone has come up as most dominant means of Internet access with 83.4% mobile phone users accessing Internet using mobile phone.

Size of Mobile Internet users in China and its proportion to overall Internet users

 

Increase in size of mobile Internet users can be attributed to popularisation of 3G with 386 million 3G mobile telephone users by November 2013 and wireless networks and falling prices of smart phones. Mobile phone application services like instant messaging tools and life-related applications have also influenced the growth of mobile phone in China.

Chinese smart phone market

China has very high smartphone penetration rate among its mobile phone users with smartphone penetration rate amongst its mobile phone users expected to increase to 49% in 2017 as per Statista report and as shown in the image below:

Smartphone penetration rate in China

 

This data is similar in line with Smartphone APAC market forecast 2014 -18 report by eMarketer, which forecasts smartphone penetration to increase to 48.6% in 2017.
Smartphone User penetration forcaste (2012-2018) in APAC region

 

Although this data conflicts with some other report which predicted 700 million smartphone devices in at the end of 2013 itself.
Trend for Active smartphone Device in China

 

Despite these small variations in the number of smartphone users in China, smart phone market in China is undoubtedly very huge and the growth of smartphone users is phenomenal in China. The smart phone sale has increased from 118 million in 2011 to 348 million in first 11 months of 2013 and 100 million in first quarter of 2014. Further, it has to be noted that large number of China’s feature phone users are upgrading to entry level Android smartphones and Chinese smart phone can be expected to increase further in near future.

China Mobile OS market

Android is the most dominant operating system in Chinese mobile landscape with android users increasing from 66.5% in Q3, 2102 to 81.1% in Q3, 2013, with Android’s share increasing by 14% in one-year period (Source:Kantar).

 
Mobile OS market share in China (Q3 2012)
Mobile OS market share in China (Q3 2013)
 
China is the biggest market for Android users but at the same time, large proportions of Chinese android devices are heavily customised version of Android based on AOSP (Android Open Source Platform) and do not carry standard Google services as Play Store.

Chinese App Store Landscape

Google Play is not the most prominent app store in China due to the falling out between Google and the Chinese political establishments. Although, Chinese handsets prominently use android based operating system, but most of these handsets use local alternative play store services, instead of Google plays tore services.

China app distribution channels

China has hundreds of Android app stores, some devoted to specific kinds of apps or users, some hawk knock-off or hacked apps but mainly 20 of all these app stores are major players in the overall ecosystem. The examples include:

  • Large Independent Stores – AppChina, Anzhi, Gfan, Hiapk, Liqucn,Wandoujia, eoemarket, and 91Market
  • Internet portals with an app store – Baidu, QQ, 360, and 163
  • Handset Manufacturer – own app store integrated in devices – Xiaomi, Huawei, Lenovo, and Meizu
  • Telecom operators with own app store – ChinaMobile, ChinaUnicom, and ChinaUnicom

If some one wants to sell his apps in China then targeting Google Play app store is a waiste of time and money. Instead, he must target the most popular ones in order to have some chances of success in Chinese fragmented app market place. The main Chinese app stores that an app developer should consider for publishing their apps are:

  1. 360 market: zhushou.360.cn
  2. 91 hiapk: apk.hiapk.com
  3. Anzhi: www.anzhi.com
  4. Xiaomi: app.xiaomi.com
  5. D.cn: http://www.d.cn
  6. Gfan: apk.gfan.com
  7. Baidu market: developer.baidu.com
  8. Tencent myapp: android.myapp.com
  9. Wandoujia: www.wandoujia.com
  10. AppChina: www.appchina.com
In Q2 2014, the number of China app distribution exceeded 25.5 billion with Baidu  league at top with a market share of 41.7%. Tencent’s market share increased to 20.1%, by 3.5% from Q1 2014. The China Mobile app distribution channel market share as on Q2, 2014 can be seen as follow:
Market Share: China Mobile App Distribution Channels

Main feature of Chinese android market place

  1. Fragmented Android App Market Place
    There are 200 and more Android mobile stores in China and each focusses on a specific niche, demographics or geographic region. It is difficult to put app on all or most of app store is not an option as each store has its own QA, approval process as well as billing system. Ideally, one should focus on top 20 app stores or mainly top 5 stores. In order to distinguish between downloads from the various stores, a different APK file is needed to be created with a different ID for each store to be used. Further, submission process also differs across each app stores and this also needs to be taken care of before uploading apps to different app store.
  2. Fast moving Chinese app market
    Chinese app market move very fast and thus developer should track performance of his app along with the app store where he publishes his app
  3. Vastly different revenue splits
    QQ for instance takes up to 70% of an app’s revenue, while China Unicom takes 30%
  4. Gaming apps are best monetised apps in China and at the same time other apps like educational apps and basic utilities (especially those which enable sharing of audio, video, and images) also attract substantial downloads.
  5. Cross platform messaging app WeChat (called Weixin in China) is extremely popular along with other chatting/communication apps

What to look into account when publishing in China

  1. Decision regarding the app stores to be targeted
    Each app store is China has different focus and thus any decision with respect to publishing app should be based on the niche area that each app store targets. For example, Tencent myapp has very strong social focus and AppChina majorly focus towards gaming apps. Further, each app store has its own rules and regulation and based on ability to comply with rules and regulations, one should target any app store for publishing one’s app.
  2. Localisation
    Chinese people are very sensitive for their language and thus all marketing materials such as app name, app description, app interface should be translated into Chinese in order to succeed in Chinese market. Thus, help of local linguist should be taken to localise the app by translating the app content and editing images so as to make them culturally appropriate. Putting app in English language is never going to succeed in China. Further, the screenshots put in the app store should be in Chinese and should address local preferences.
  3. Social Media Integration/Go local –
    If the signup, login or sharing in an app uses Facebook or Twitter then app does not work in China. Thus, Social Integration with social networks like Sina Weibo, YouKu, WeChat, Renren and China’s other top social networks to increase the chances it will find the audience.
  4. Collaboration with 3rd party company with a local presence
    Many Western developers – work with a 3rd party company with a local Chinese partner like iDreamSky, Yodo1, and AppFlood and focus their distribution efforts only on China’s very largest app stores. If somebody is serious in getting his app into the Chinese market, he should start working with some local Chinese partner.
  5. Cloud service backend support Issues
    Cloud storage services such as Dropbox or Box.net are very slow or inaccessible from China. Only Microsoft Skydrive is relatively stable at the moment. There is frequent connectivity issues if cloud servers are located outside China. The solution is to use cloud service provider with presence in China.
  6. Mobile Network Speed
    Mobile network in China are slower than the mobile network existing in developed countries like USA, Japan, Korea etc. App developers need to optimise their apps according to China’s much slower network speed.
  7. Payment System
    Mobile in app purchases in China happens directly through mobile carrier, such as China Telecom, China Unicom and China Mobile. But, this requires complex integration of one’s app into their payment system, which requires support from an experienced local partner company.
  8. Track app downloads from the various channels
    Due to multiplicity of app stores in China, app downloads have to be tracked from multiple app stores in order to gain the idea about the app store which generate highest number of downloads so as to aproportion time and investment based on download efficiency of download channel.
  9. Local economics of promotion and discovery
    Many stores have options of pay per download (PPD) packages or payment for being featured in the store for a certain time, which is in contrast to Google Play store which requires for other criteria like number of downloads etc for being featured.
  10. Monetisation through third party integrations
    Third party integration like video ad integration also helps in boosting revenue and engage users.
  11. Document’s required
    In order to check the credibility of the developer, Chinese Android stores asks following:

    • Business license, Chinese ID or Passport (sometimes)
    • Additional APK signature – Some of the Android stores require you to sign an APK file they send out with the same key as your own App.
  12. Exploration of alternative business models
    Chinese people are generally averse to pay to download apps and thus there are very less paid apps in China. Instead, Chinese are somewhat ready to pay for in app purchases or advertising and thus any app monetisation strategy should revolve around in app purchase and ad monetisation instead of revenue from paid apps.
  13. Huge Resources required to manage all QA and certification processes for each app store
  14. Each store has its own guidelines and procedures as well as its own government tax and banking issue
  15. Tencent, Baidu (recently acquired 91.com for 2 Billion $) and Alibaba drive app store market and app developers whose app competes with these player should be cautious. These giants dominate that have already an established audience and ignore many unproven categories
  16. Piracy issue
    China has lot of piracy issues and there are lot of chances that there will be a copy cat app for any successful app. Thus, one should partner with a local partner who is well aware of China’s app store ecosystem so that these partners can ensure that all piracy issues are taken care of. Lastly, there are some chances that the local partner can also appropriate an app if the app idea is good one.
  17. Tax hit and monetisation issues – if there is no local partner present

 

Silver lining beyond these pain points

  1. Apps make substantial money in China
  2. More consumers are increasingly willing to pay for premium content in high quality apps
  3. Monetisation of apps starts only days after their apps are on the market

However, apps make substantial money in China and more and more consumers are ready to pay for premium contents for quality apps and thus, there is strong reason to push past the pain points and start publishing as soon as possible. The pain points are real, but so is the massive potential.