Uber operates in 68 countries, but none may be more important to the $62 billion company than China.
Travis Kalanick, the 39-year-old CEO of the world’s most valuable private company, has made it clear that expanding his ride-hailing business in the country is a priority — and as a result, Uber is investing heavily for its expansion in China.
“You’re not going to find a country with 80-plus cities over five million people anywhere else,” Kalanick told The Wall Street Journal earlier this year. “The vastness of the opportunities really isn’t matched in any other market.”
Around 30% of Uber's trips are now in China, almost as much as the U.S., says @travisk. Biggest city: Chengdu #WSJDLive
— Doug MacMillan (@dmac1) October 21, 2015
But there is a formidable competitor that Uber faces in China — one that some refer to as its “mortal enemy.”
That would be Didi Kuaidi, one of the fastest-growing technology companies in China that helps connect taxis and private cars with those needing a ride, among an array of other transportation-related innovations it is developing for a massive customer base.
On GeekWire’s recent trip to China, we visited Didi Kuaidi’s headquarters in Beijing, where the $15 billion company is nestled among other big corporations in one of the city’s high-tech areas.
After touring the building, which had plenty of young workers and green plants embedded between desks, we sat down with Zhang Bo, founding CTO of Didi, and discussed a number of topics: how Didi is competing with Uber, why the company invested $100 million in Lyft, and what it was like merging with Kuaidi this past February after founding Didi just three years prior.
The last topic is an interesting case study into mergers, particularly since Didi and Kuaidi were previously direct competitors in the ride-hailing industry, launched less than five years ago, and have investment from top Chinese tech giants: Tencent (Didi) and Alibaba (Kuaidi).
Part of the incentive to team up was certainly caused by Uber, which is not yet operating in nearly as many cities, but is nonetheless expanding its private ride-hailing business rapidly throughout China. The two companies ultimately decided it was best to partner versus trying to take each other down as foreign competitors entered the market.
As a result of the merger, Didi Kuaidi — which has since rebranded to “Didi Chuxing” — now has a 99 percent market share of the taxi-hailing industry in China and more than an 80 percent share of the private-car market where it now competes with Uber, according to third-party data. It operates in 360 cities, has 10 million drivers on its platform, and completes seven million rides per day — Uber, meanwhile, says it does around 1 million rides per day in China.
But while Didi Kuaidi — which raised $3 billion in September and just inked a global partnership with Lyft, GrabTaxi, and Ola — may be the prominent taxi hailing and peer-to-peer transportation provider in China, Uber is quickly gaining market share with plans to expand beyond its 20 Chinese cities today to 100 by next year. The nascent-yet-fierce competition has played out in public, with Tencent blocking Uber from its extremely popular messaging platform, WeChat, which customers can use to hail a Didi Kuaidi driver and pay for a ride.
Zhang, who previously worked at Chinese tech giant Baidu before co-founding Didi with Cheng Wei — Baidu, Alibaba, Tencent are the most powerful tech companies in China known as “BAT” — said that his company will stay ahead of Uber for a rather simple reason: It knows the nuances of the Chinese market better than its foreign competitor.
“Our technology is tailored to this particular market,” he said via an interpreter. “That gives us an advantage over our competitors.”
For example, Didi ran some tests in Tianjin earlier this year to see how drivers would respond when being forced to accept a ride versus having the option to pick and choose among various requests. When they forced drivers to accept rides, 40 percent of them left the platform. So, the company responded with a structure that only forces full-time drivers to accept certain rides — in turn, they have an opportunity to make more money than part-time drivers, who have the flexibility of turning down ride requests.
“We know the behavior of Chinese passengers and drivers,” Bo noted.
The fact that Didi Kuaidi works together with more than 1.3 million taxi drivers is another difference from Uber, whose relationship with the taxi industry in the U.S. is less than cordial.
“We think we are more sensitive to local needs,” Bo explained. “We are very local and we are very Chinese. It’s not about going into markets and slashing others. It’s about working with local champions. This is why we think we are different.”
Given its huge customer base, Didi Kuaidi also has a massive amount of data it analyzes. Bo said the company processes about 250 million routing requests and 50 terabytes of data each day.
“The sheer data we process everyday is very different than any of our international peers, with the exception of GrabTaxi,” Bo said. “We handle more mapping data than any mapping software in this country.”
Understanding the intricacies of the Chinese ride-hailing industry has helped Didi Kuaidi develop new verticals like a private bus service or enterprise solutions. There’s also Hitch, a true “ride-sharing” product that matches drivers and passengers going on similar routes who split fuel and toll costs. Bo himself is a driver on Hitch, which the company describes as a not-for-profit peer-to-peer service that attracted 4.6 million drivers in the first two months of operation.
“I drive people every day from my home area,” Bo said. “A lot of people send me resumes the next day.”
As far as the merger with Kuaidi, which happened on Valentine’s Day this year, Bo said that the deal has helped each company spend less time fighting against each other and reduced the number of subsidies it was giving out to drivers and riders. It also gives the combined company more time and flexibility to work on new products like Hitch.
Internally, Bo said it’s been smooth sailing, with a majority of the top executives from each company staying put after the merger.
“We found that we are actually each other’s mirror image,” he noted. “There wasn’t much of a culture clash.”
Looking ahead, Didi Kuaidi is finding growth opportunities around the globe, as evident by the $100 million it invested in Uber’s main U.S. competitor, Lyft, which is set to raise another $1 billion on a $4.5 billion valuation. Didi Kuaidi, which just named Yahoo co-founder Jerry Yang as a senior advisor, also led a $350 million round in GrabTaxi this summer and was part of a $500 million round that Ola raised last month.
Bo called Lyft the “pioneer of ride-sharing technology” with an app that is “very elegant, from a geek’s point of view.” He noted potential features like a Chinese customer visiting the U.S. and being able to hail a Lyft ride from their Didi app.
“We are still focused on our home market, but when we sit down together with Lyft and see how our powerful data-driven algorithms can combine with their product, it’s really exciting,” he said.
But most of the company’s resources remain dedicated to its home country, where Didi Kuaidi says it serves 250 million of 800 million urban customers — a majority of whom do not own cars and rely on other means of transportation.
“Ride-sharing in China is less of a cool thing,” Bo said, “and more like a necessity.”
