INTERNET: Uber, Didi Kuaidi End 2015 With Big Milestones

By on

Bottom line: Uber’s 2016 China expansion plan looks aggressive but typical for the company, while Didi Kuaidi should invest its big cash pot on expansion and becoming profitable rather than unrelated services like O2O take-out dining.

Uber, Didi race towards 2016 with big investments

Private car service leaders Uber and Didi Kuaidi are both in the headlines as we race towards the end of 2015, a year that will go down as a watershed for this fast-rising sector both in China and globally. The first news comes from Uber, which is detailing an aggressive expansion plan for 2016 as China surpasses the US to become its largest global market. The second headline has Didi Kuaidi confirming a major new investment in online take-out dining site Ele.me, just days after separate reports said that e-commerce giant Alibaba (NYSE: BABA) also wants to invest in the company.

This year has certainly been a watershed for both Uber and Didi Kuadi in China, reflecting the rapid rise of their private car services that use location-based (LBS) GPS technology to challenge traditional taxi operators. Uber has said repeatedly that China is its top priority outside its home US market. Reflecting that position, Uber took the unusual step of spinning off its China unit into a separate company earlier this year, and also said it would spend $1 billion in 2015 to build up its service in the market.

That campaign has yielded strong results, with company representative Liu Zhen being cited saying China is on track to pass the US as Uber’s largest market by year-end. (Chinese article) The reports also cite Liu saying Uber plans to enter 100 Chinese cities by the end of next year. He said the company will move aggressively into parts of China that are currently unserved by other major players, and will focus on cities with populations of 3 million or more.

The move would mark a major expansion for Uber, which currently serves around 20 Chinese cities and controls about a third of the market for private car services. I have quite a bit of respect for Uber’s perseverance, since China has been quite difficult for the company due to the big influence of local cab companies in many cities. Uber has also faced resistance due to Beijing’s traditional bias against big foreign companies.

In this case the central government seems to realize the importance of this emerging area and Uber’s leading position, and therefore is trying to create a level playing field for everyone. That should work to Uber’s advantage in 2016, though its expansion plans do seem a bit aggressive and could meet stronger resistance in the smaller cities where traditional taxi companies have closer relationships with local governments.

Didi’s Ele.me Appetite

Next there’s the Ele.me, which has confirmed earlier reports that it received a major new investment from Didi, one of China’s 2 largest private car services companies that merged earlier this year to form the current Didi Kuaidi. (Chinese article) There’s no word on the size of the investment, but I expect it was in the $500 million range, since Ele.me was reportedly looking for that kind of big money 2 months ago. (previous post)

Confirmation of this funding comes as other reports this week said Ele.me is in talks to sell about a third of itself to Alibaba for up to $1.5 billion. (previous post) Such a deal would give Ele.me a war chest of around $2 billion in new cash, which it sorely needs to counter recent challenges from well-funded rivals Baidu (Nasdaq: BIDU) and the recently formed Meituan-Dianping, which is backed by Internet giant Tencent (HKEx: 700).

From Didi Kuaidi’s perspective, this new investment in Ele.me looks a little strange as it’s not really very related to its core car services business. Such unrelated investments aren’t too uncommon in China, especially by big cash-rich names like Alibaba and Baidu. But for a money-losing company like Didi Kuaidi, I might suggest that it invest its billions of dollars in new cash to bolster its core business and become profitable, rather than dabbling in outside areas like take-out dining.

Related posts:

(Visited 199 times, 1 visits today)