Daily Management Review

Uber in China Outrun by Apple Backing Didi and Massive Funding of the Chinese Company


08/04/2016




Uber's decision to agree a halt to a costly two-year battle with its rival in China was significantly influenced and accelerated by Apple Inc's $1 billion investment in car-hailing app Didi Chuxing in May.
 
Discounted rides and doles for drivers, passengers and market share in the world's second-biggest economy used billions of dollars that both Didi Chuxing Technology Co and Uber Technologies Inc had raised in funding and spent heavily.
 
Didi Chuxing has been backed by three of the world's largest technology giants and was extremely cash-rich and Uber finally ceded this week that it could not match the power of money. In return for a nearly one-fifth stake in a bigger Didi, Uber agreed to give up its independence.
 
Uber was forced to surrender, as for the first time its strategy of outspending its chief competitor faltered since Didi had managed to raise far more money than Uber China. It would be difficult to beat Didi just through funding, Uber realized, due to Apple's support for the Chinese firm.
 
"The Apple investment is one of the factors that influenced the decision. Both sides raised enormous amounts of capital. They were probably thinking this was going to escalate to nuclear warfare, which raised the question: do we really want to assure mutual destruction?" according to a person close to the companies who was quoted in the media.
 
Didi’s valuation reached $28 billion which made it the world's third highest-valued venture-backed start-up following the unveiling of a $7.3 billion funding round in June from investors including Apple, China Life Insurance Co Ltd, Ant Financial and other new shareholders.
 
Didi says it has $10.5 billion in available funds with backing from Chinese Internet giants Alibaba Group Holding and Tencent Holdings.
 
With a need to match Didi's fundraising so it could also match its rival's spending, Uber CEO Travis Kalanick set out a year ago to woo investors. In the end, Uber China’s valuation touched about $8 billion as the company managed to raise more than $1.5 billion from China Life, state-owned banks, search giant Baidu Inc and others. Funds from Uber Technologies in the U.S. were also included in the funds.
 
Uber used its profits in the United States, Canada and about 100 cities to subsidize its China operations. Last year Uber China made less than $60 million in net profit, Didi says.
 
Its rapid growth in China would help it overtake Didi by 2017, Uber was hoping as recently as June this year. Kalanick said in a March interview that he was committed to the country for the long term and rebuffed talk that Uber was considering a sale of its China business.
 
"Apple's investment in Didi likely spurred Uber to think harder about doing some kind of deal here. Uber and Apple have been partners in other markets, so for Apple to side with Didi must have been something of a red flag that things weren't going to go Uber's way," said Jan Dawson, an Uber analyst at Jackdaw Research.
 
Uber provides its drivers with iPhones and its passengers can pay with Apple Pay and this is the relation that the two enjoy. But according to some investors, a deeper partnership with Apple is being sought by Uber. Tung said, opportunities may open up for such a partnership now that Uber is aligned with Didi.
 
(Source:www.reuters.com) 






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