“I don’t see the upside for Didi,” Uber CEO Travis Kalanick said bluntly at a WSJ conference event in California Tuesday night.
This is in response to last month, when Didi Kuaidi (literally “Honk Honk Fast Cab”, better known as Didi), Uber’s archenemy in China, joined forces with Lyft, the San Francisco-based ride-hailing service’s largest rival at home, injecting 100 million USD into a partnership.
The move seems to have baffled Kalanick. After all, the U.S. is a solid stronghold for Uber, and is valued at 50 billion USD. It seems to him, Didi may as well be on a wild goose chase if it expects to shake up Uber’s absolute dominance in America by presenting only a fraction of what Uber is worth.
Of course there is an upside for Didi, and no matter how much Kalanick hates to admit it, deep down he knows. No sane business goes about throwing money around without expecting any returns. Didi’s westward expansion has both symbolic and practical significance. The following few points illustrate some of the potential benefits that might accrue from Didi’s western experiment.
1) Scare tactics.
Although Didi is leader in a distant home, occupying roughly 80% of the Chinese ride-sharing market, Uber does not seem intimidated. It has kept on raising massive amounts of funds in the price war with Didi, and has even spun off its China business into a separate entity to sharpen its edge. Didi’s ambush in Uber’s backyard will at least send a blatant message: we are not afraid and ready for Round Two. Didi likely hopes it will send shivers down Uber’s spine and force it to divert its energy and attention from the Chinese market.
2) A show put up for investors.
There has been much discussion on the Internet about the frothy market and the overvaluation and glut of “unicorns”. Most observers of the Chinese tech scene warn of a looming “winter”, when investors will finally sober up and stop feeding the cash-guzzlers. Even the three Internet kingdoms – Baidu, Alibaba and Tencent, or BAT, are tightening their belts. Didi’s overseas expansion plans demonstrate to current and prospective investors that it does have a clear strategy – even a global one – beyond simply “bribing” users and drivers with heavy subsidies.
3) An enlarging of the user base, for both Lyft and Didi.
The buddy-buddy relationship between Didi and Lyft is about more than just money. Under the partnership, Didi users who hail rides in the U.S. will actually be served by Lyft drivers. Likewise, U.S. travelers to China who request cars through Lyft will be directed to Didi drivers within the app. Users of either app can pay in their own home currencies. Lyft’s American customers will be up for grabs by Didi when they set foot in China, and vice versa, although judging from current tourism statistics, Didi will introduce more Chinese outbound tourists to Lyft than the other way around.
4) Gaining favor from the Chinese people and authorities.
Patriotism is a hand Chinese companies love to play when faced with foreign competition. It works magic in front of an audience that believes its country has been the victim of foreign aggression from as early as the Opium War of 1840. Foreign companies doing business in China are at times portrayed in China as neo-colonial.
“We can not allow companies to enter the Chinese market and make money while stabbing our country in the back,” China’s Internet Czar Lu Wei commented on the matter of Facebook being banned in China. Chinese smartphone maker Xiaomi, a beneficiary of Chinese nationalism, just recently hit back at critics of its questionable screens by saying, “Shame on detractors of Chinese-made phones! You don’t belong to this era.” Huawei’s espionage charges abroad are regularly cited by conspiracy theorists as anti-Chinese propaganda.
In this frame of view, Didi’s prevailing over Uber at home, is commonly read as success in withstanding foreign invasion. If Didi struts with pride into the U.S., like what it is doing right now, efforts will be amplified and may signify a reversed invasion. It will then very likely gain additional support from the Chinese and benefit from preferential policies.
One recent example of the kind of preferential treatment that might be repeated includes Didi’s private car service having been green-lit by the Shanghai city government, while Uber’s remains in limbo.