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.

Uber in tough business of Car Aggregation

 

With the advent of technology and most importantly mobile apps, human interaction with his environment has undergone a massive change. Recently, the internet and mobile phones have opened up opportunities for disruptive services that provide on-demand individual transportation. Mobile apps, with a slew of disruptive technologies, have made far reaching impact on the way we shop, travel, watch movie, communicate with other etc. In the same vein, Uber has made similar impact on the way we travel and transport by opening up opportunities for disruptive services that provide on-demand individual transportation.

Uber is an mobile app which connects passengers with drivers for hire. Uber receives receive ride requests from the riders from their mobile and then sends these ride requests to the drivers. But, unlike other taxi services, Uber provides its drivers use their own car and follow their own work schedule and at the same time allow its riders make a request for a ride, transfer this request to Uber drivers in the area and finally provide Uber riders an opportunity for convenient, hassle free and reliable transportation service at a very less expensive price points. Thus, Uber works as a platform that connects these two end of transportation transaction together.  In the end, both user and drivers win as the users are able to get cheap and easy transportation and the drivers are able to get uninterrupted opportunity to serve its rider, much to chagrin to other taxi service providers.

Uber was founded by Travis Kalanick and Garett Camp in 2009 and started it’s service in 2010 in San Francisco.  It is based out in San Francisco, California and has offices in 53 countries and 200 cities as on December 2014.

Uber: History

The original idea of Uber came up in Paris in December 2008 by Kalanick Travis and Garrett Camp while they had gone to paris to attend a conference. Some of the major events while Uber went global are as follows:

  • Uber did its first test run in New York in January 2010
  • Uber launched its operation in San Francisco in May 31, 2010
  • Uber launched its operation in New York City by May 2011
  • Paris was first city outside USA where Uber started its operation in Dec 2011
  • Uber is present in 54 countries as of February 2015-02-12 and around 264 cities

Uber Value Chain

Uber is a market place that connects passengers with drivers for car hailing services.  Uber does not own its own cars and does not employ drivers.  There are mainly 3 elements in the Uber’s value chain as shown below:

Uber plays the role of market maker and matches a driver looking for a customer looking for ride service. Uber has created a technology platform consisting of its app and this app is optimized for everything that Uber does.Uber provided very unique offering to each element of its its value chain in the following way:

Description
Drivers
·    Democratised passenger ride service industry
·    Anyone who is having a car in any of Uber’s cover’s city can become Uber driver
·    Uber provides an iPhone to all of its drivers so as to track location of passengers when they request for a ride.
·    Feed back of drivers and passengers both
Passengers
·  Passengers can install Uber app to their phones and they use the app whenever they need a ride.
·    Track the car as the car approaches
·    Thus, this value chain needs a willing passenger who is willing to pay for the services offered by the drivers.
·    The unique offering provided to passengers are:
  • One tap to ride
  • Reliable pickups
  • Payment System – lack of any monetary transaction between drivers and passengers makes rides more comfortable
  • One tap to ride
  • Low Price
  • Differentiated Price for differentiated service
  • Ease of service delivery – ride availability at the click of button makes the the ride very convenient to passengers
  • Increased Safety due to driver screening
  • Availability of range of service
  • Always availability of ride service
Dynamic Pricing and Payments
·    Price is set based on distance, type of car and time of the day
·    Dynamic Pricing – Uber uses dynamic pricing to encourage more taxis into taxi service industry. With dynamic pricing, when supply gets tight, prices rise.  Thus, drivers in busy area and get paid more. This also diverts drivers to where they are needed most.
·    Cashless and convenient
·    Clear pricing
·    Split the fare
·    Uber sets the price for the ride
·    Premium price set during peak demand periods
·    Customers directly pay to Uber for the rides and Uber in turn pays to the drivers
·    Safe and secure transactions for the passengers
Splitting the proceeds
·    Uber takes a 20% commission on each ride transaction from the cab driver.
·    In some cities it has reduced the percentage due to competition
·    Drivers earn more than what they earn without Uber even without sharing of proceed as Uber increases the number of rides possible and reduces the waiting time
Technology
·    Pleasant UX on web and phone
Uber Pool
Uber has recently launched “Uber Pool” that allows a single driver to pick up two passengers at the same time who are headed in same direction.

This allows customers to ride share and thus leads to more than a single rider per trip to each drivers.  Thus, Uber pool helps in achieving higher level of efficiency and deliver lower prices to the consumers. Uber pool is already being run in markets like San Francisco, New York, and Paris.  The concept of Uber pool can be summarised in the image as shown below:

Uber Revenue
Uber has been growing exponentially since its founding in 2009.  As per Uber’s CEO, Uber is doubling its size every six months.  A recently leaked Internal dock of Uber reveals staggering growth revenue and growth metrics for Uber.
Taking an average revenue of 20 million per week, the overall yearly receipt translates into 1.1 Billion yearly gross receipt and 220 million yearly gross revenue taking into account a 20% commission on a ride.
Uber generates significant portion of its revenue form the most mature markets. NYC, DC, San Francisco, Chicago and Los Angeles are Uber’s top market . Uber earned about $11.7 million in Washington D.C., $26 million revenue in NYC, $12.7 million revenue in Chicago and $17.7 million revenue in San Francisco as shown in chart below:

Uber’s Gross revenue in few of its top market in December 2013



Further, these 5 markets contributed to around 83 million gross revenue in December 2013 which translates into 1 Billion yearly gross revenue. London is Uber’s one of the largest market outside USA but it is still very small compared to some of the Uber’s market in USA.
Uber’s gross revenue in its top 5 market in December 2013

Further, Uber is expected to generate 1.5-2 Billion in 2014 which is not much as it had already generated a gross revenue of $ 1 Billion USD in 2013 and Uber had large growth and expansion plan targeted for 2014.
In a recent conference the company CEO gave some very great statistic about Uber:
  • Uber’s rides in New York are growing 4X per year
  • Uber’s rides in San Francisco are growing 3X per year
  • Uber’s’ rides in London are growing 5-6X per year

Funding Rounds
Uber has been apple eye of investors and investors belief in the company seems to be unshakeable. Recently, Uber has raised a whopping $ 1.6 Billion dollar from Goldman Sachs in form of convertible debt amid backdrop of 600 million strategic investment secured from Baidu and $ 1.2 Billion investment in Series E funding. As per a Bloomberg news, the latest Goldman Sachs bond is a six-year bond to be converted  into equity at a 20 percent to 30 percent discount to Uber’s valuation at the time of an initial public offering.
Type of Investment
Amount in USD
Investor
Date
Debt Financing
1.6 Billion
Goldman Sachs
Jan 21, 2015
Venture
600 Million
Baidu
Dec 12, 2014
Series E
1.2 Billion
Dec 4, 2014
Series D
1.2 Billion
Menlo Ventures, Google Ventures
Kleiner Perkins Caufield & Byers
Summit Partners, BlackRock
Wellington Management
Fidelity Investments
June 6, 2014
Series C
258 Million
Benchmark, TPG Growth, Google Ventures
Aug 23, 2013
Series B
37 Million
Bobby Yazdani, Summit Action Fund
Troy Carter, Jeff Bezos
Menlo Ventures, CrunchFund
Goldman Sachs, Benchmark
Dec 7, 2011
Series A
11 Million
Scott Banister, Innovation Endeavors
Alfred Lin, Benchmark
Lowercase Capital, First Round
Feb 14, 2011
Angel
1.3 Million
Josh Spear, Oren Michels
Shawn Fanning, Naval Ravikant
Mike Walsh, Jason Calacanis, Scott Banister, Alfred Lin, Babak Nivi, Cyan Banister
Founder Collective(Seed Stage Fund)
Lowercase Capital, Mitchell Kapor
David Cohen, First Round
Oct 15, 2010
Seed
200 K
Travis Kalanick , Garett Camp
Aug 1, 2009
Total
4.9 Billion
Thus, the company has received a stupendous total of USD 4.9 Billion funding in 8 rounds from 38 investors valuing the company at staggering $40 Billion.
Uber: Competition
Uber in USA
Uber mainly competes with Lyft, Side car, taxi magic and Carma in US market.
Company
Funding Total(in USD)
CEO
Started
Uber
4.9 Billion
Travis Kalanick
March 1, 2009
Lyft
332.5 Million
Logan Green
January 1, 2012
Side Car
8.2 Million
Sunil Paul
June 4, 2014
Taxi magic(now Curb)
10.7 Million
Thomas DePasquale
Feb 20, 2007
Carma
10.1 Million
Richard Bryce
March 1, 2007
Uber in India
Car rentals is a $6-9 billion opportunity in India with 90% of the market currently being unorganised. Further, car rental sector is forecasted to grow 17%-20% annually. Currently there are mainly 4 players in Indian market, namely, Uber, Taxi for Sure, Ola, Meru but due to the unorganised nature of the taxi market in India, there is enough room for multiple players to organise the market.
Uber’s officially launched in India in October 2013 in Bangalore and since then its entry has changed the game of the taxi business in India.  Uber’s growth in India, a key market for Uber, has been very fast even though its Indian competitors Ola and TaxiForSure are also growing as fast as Uber though they had some initial lead in this space.
Mobile first approach in taxi market
India has 155 million mobile Internet user base and this base is growing very fast. Further, transactions on mobile have started surpassing web web in some Indian e-commerce companies. Uber gets most of its order through mobile and  Ola also gets over 40% of its booking through mobile. Thus, Mobile has become the most important place where all of these players are concentrating the most.  All the players are having mobile first approach to booking cabs and thus they have been constantly adopting state of art mobile technology to make their presence felt in the market.
India is an important market for Uber as:
  1.  Increasing demand for mobility in India
  2. India is second largest market for Uber outside USA
  3. India is second most populous country in the world
  4. Taxi market in India is at nascent stage and thus there is great opportunities for the operators
  5. Liberal regulation in India than China and European countries  and thus providing mre flexibility to Uber
  6. Growth of urban population and emergence of new million plus cities
  7. Absence of organised taxi service, rising income level will lead to increase in demand for taxi service
A brief comparison of Uber, Ola, Taxi for Sure and Meru can be seen as follow:
Uber
Ola
Meru
TFS
Started
2013(India Operation)
December 2010
April 2007
June, 2011
Funding
4.9 Billion
276.8 Million
Not Available
44 Million
Funding Rounds
9
5
Not Available
4
Recent Funding
1.6 Billion debt financing from Goldman Sachs
210 Million series D funding from Soft Bank on October 25, 2014
Not Available
30 Million series C from Helion Venture, Accel India, Accel partner and Bessemer Venture on August 20, 2014
Founder
Travis Kalanick, Garret Camp
Bhavish Agarwal, Ankit Bhati
Neeraj Gupta
Raghunandan G, Aprameya Radhakrishnan
Employee
33
1200
1200
1000
Services
Fleet
11
60000
10000
NA
Cities covering
11
67
12
14
Customer care
Yes
Yes
Yes
No
Mobile
Windows, Android, iOS
Windows, Android, iOS
Windows, Android, iOS
Windows, Android, iOS
Segment Served
Segment Covered
City Taxi,
City Taxi,
Outstations, Local rental
City Taxi,
Outstations, Local rental
Play Store Ranking
163
16
196
261
Uber new security measure in wake of legal controversy in India
·    Panick button for rider safety in Indian user base – SOS button at the top right of the app’s screen trigger a call to local authorities. Available in Android phones in India
·    Payment through paytm
·    Background check going beyond government verification
·    Stricter rating system of the drivers
·    Send status feature – replaces previous Share my ETA feature. This feature  sends your trip details, namely,  driver’s name, vehicle license number and current location of the taxi, to five preassigned contacts, at your discretion. The pre selected contacts receive an Uber url that provides live tracking of passenger’s status as they commute. The passenger does not incur cost of SMS sent to him. Available in Android phones in India
·    Uber will have to abide by Radio Cab Licensing Rules in India which requires that cabs should be GPS-fitted and drivers’ antecedents be thoroughly checked.
Mergers and Acquisition mode in Car rental sector in India
India car rental sector is seeing lot of M&A activities in last couple of months and its is time for consolidation for taxi service business in India. Ola cab has recently acquired Taxi for Sure for $200 mn and Uber is also looking to buy  Meru cab in order to boost its market share.
Uber in China
Uber has previously received $600 Million funding from Baidu Inc, Chinese Internet giant which will provide Baidu presence in China’s car based transportation market which was earlier dominated by players like Tencent Holdings Ltd.’s Didi Dache Taxi(which has recently raised US$ 700 million), Alibaba Group Holding Ltd.’s Kuaidi One and Yongche.com. Uber will benefit from the huge trove of data that Baidu collects from its various products like mobile search, mobile maps and its mobile store, 91 wireless.  Baidu map app reaches more than 200 million active users and thus Uber can get existing trends in travel in China. At the same time, the partnership with Baidu will help Uber manage regulatory and legal hurdles in China, which otherwise Uber has been facing in many parts of the world. Uber is very bullish in Asian market and has also kept around USD $ 1 Billion for its expansion in Asia Pacific region.
Conclusion
Uber has set very high standard of industry changing innovation to the personal transportation market. It has disrupted the traditional transportation business across the globe. Uber is currently valued an astounding $40 Billion valuation and present in 53 countries and 200 cities and also brings significant economic, entrepreneurial and environmental benefit with itself. But Uber has always found itself at loggerhead with many cities around the world. Uber, instead of getting  red carpet welcome due to its advantageous impact on society at large, has been banned in many cities around the world. Uber success will surely depend on the way Uber is able to find ways to do business within regulations specified by the law of land prevalent in a country where it operates. Further, Uber also needs to find out new business opportunities like logistics, etc apart from regular taxi transportation service in which it is working currently.