Bottom line: A new global car services alliance led by Didi Kuaidi and Lyft won’t pose a serious threat to Uber, though the company could face ongoing challenges in China from Did stakeholders like Tencent.
Uber’s road into China hasn’t been an easy one, and 2 new developments reflect the growing challenges it will face from incumbent players and their backers in what’s likely to become the world’s biggest market for hired car services. The bigger of those 2 news items has Uber’s chief China rival Didi Kuaidi forming a global alliance to counter the rapid rise of the US giant.
The latter news has local social networking (SNS) leader Tencent (HKEx: 700) locking Uber out of its hugely popular WeChat instant messaging platform for at least the second time this year. The reports cite Uber’s malicious sales practices as the reason for WeChat’s decision, and it’s true that the company is known for its aggressive tactics to win business. But it’s also noteworthy that Tencent is a major stakeholder in Didi Kuaidi, and no one would be surprised if WeChat’s move was at least partly aimed at protecting that investment.
This year will be remembered as a watershed for China’s hired car services market, which has been deeply shaken by both Uber and Didi Kuaidi. Uber has previously said it would spend $1 billion this year to build up its service in China, and recently announced plans that will see it expand from its current service area of about 20 Chinese cities to around 100 by the end of next year. (previous post)
Didi Kuaidi certainly hasn’t sat back quietly as Uber expanded, and the company’s formation early this year through the merger of China’s 2 biggest taxi app operators was even a direct response to Uber’s aggressive move into market. Following that merger, Didi Kuaidi has invested in a number of competitors in other markets, including Ola in India, GrabTaxi in Southeast Asia and in US-based Lyft.
Now Didi Kuaidi is looking to leverage those investments with its announcement of a new alliance with those 3 partners, which will theoretically take it into 3 major new markets. (English article; Chinese article) Didi and Lyft previously announced in September they would integrate their 2 platforms, and presumably that link-up will now be extended to the Southeast Asia markets covered by GrabTaxi and Ola’s India home turf next year.
Covering Half the World
The reports point out that the markets covered by the 4 partners account for more than half of the world’s population. There’s not much more detail, though they do also point out that tourists traveling between the 4 markets could be a potential source of new business for the alliance.
I’m personally a bit skeptical that the alliance will pose any serious new threat, since the entrepreneurial heads at all 4 partners are likely to have very strong opinions on how to do things. It’s already difficult to roll out major new initiatives with just 2 partners, and the presence of 4 such strong-willed partners in this instance is almost certain to make this alliance little more than a paper tiger without any claws.
Next there’s the Tencent news, which says that WeChat has blocked all public accounts associated with Uber, and that Uber confirmed the blockage. (Chinese article) WeChat has responded by saying that it was conducting year-end maintenance on its public accounts system when it discovered that some accounts were using malicious sales practices. It punished offenders by blocking their accounts to varying degrees.
The latest reports point out that Uber has clashed for much of the year with WeChat, which boasts a huge user base of 600 million and is hugely popular not only for social networking but also a growing volume of third-party services like Uber. In this case it’s hard to say if WeChat was justified in blocking Uber, which is indeed famous for its aggressive business practices that include frequent promotions and heavy subsidies for users of its service.
But I have yet to hear any reports of similar blockage of WeChat accounts from Didi Kuaidi, which is equally aggressive and may become even more so with its new global alliance. At the end of the day no one should be surprised if Tencent is quietly favoring Didi Kuaidi due to its investment in the company, and Uber is likely to face ongoing disruptive actions from WeChat that could hurt its business over the longer term. But Tencent will also need to be careful, or risk attracting attention from government regulators who track unfair market competition.
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