The two largest players in China’s O2O businesses are Meituan-Dianping, the king of China’s food delivery market with 600 million users, and Didi Chuxing, which dominates the country’s ride-hailing market with 450 million users. The two are rivals for a market of over one billion consumers, and the battle has just begun.
It all started with Meituan’s attempt to make inroads into the ride hailing market. This March, Meituan’s ride-hailing service officially landed in Shanghai, claiming to occupy 30% market share after a mere three days. Meanwhile, Didi tried to fight back by launching the testing of food-delivery services in southern China’s city of Wuxi on April 9. The company lured customers with over one-million-dollar subsidy per day, but its food-delivery orders plunged over 50% ten days later.
The battle raged further as the two apps began subsidizing drivers and consumers in order to rapidly seize more market share. This continued until April 5 when Shanghai Municipal authorities stepped in to fine each company and request them to halt subsidizing.
Data shows a stalemate with nearly 20% user overlap on the two apps of Meituan and Didi. On the customer decision-chain, Didi focuses on scenarios relating to traveling, while Meituan remains at the consumer end where it fulfills food and shopping needs. For all internet companies, barriers lie in user experience. Accordingly, the ultimate question is: Which app could become the major life-service brand for Chinese consumers?
Didi built defense
Insiders have pointed out that if Meituan limits its ride-hailing investment from a nation-wide expansion Didi would likely keep focusing on its core business while continuing to explore autonomous fleet services and others.
Previously, Didi conquered other players with its massive data accumulation from transportation routes, upon which it also developed an instant capability to make advanced operational decisions. This apparatus enabled Didi to accurately predict and adjust accordingly for order-dispatching, ride-matching, etc. Though Meituan temporarily exceeds Didi’s market share in some cities, it still faces considerable distance in catching up with Didi in the future.
In early November 2015, Didi attempted a USD 2-billion investment in Eleme, hoping to secure a bite of the food-delivery sector. This strategy was previously tested by Uber, which launched UberEATS in 2015 and contributed USD 1.1 billion of total income in Q4 of last year. However, different human capital costs in the U.S. and China make it difficult to judge whether this model could be successfully duplicated with Didi.
Didi surely has faced challenges, many of which have yet to be achieved today. It took less than six years to become China’s ride-hailing monopoly. Founder Cheng Wei stated clearly that the company hopes to become the world’s largest car-hailing platform within a decade.
However, Didi has a sizeable list of things in need of fixing. Since 2017, the company has been criticized for high commision fees, unreasonable order-dispatching, etc. In March, it withstood widespread criticism for its dynamic price adjustment. Moreover, choosing independence means losing support from either Alibaba or Tencent, both of whom expressed interest in taking up relevant industries.
Still, Didi’s biggest challenge is Meituan, which isn’t expected to go away easily.
In an internal email last December, Meituan CEO and founder Wang Xing revealed that the company’s new primary strategy is to focus on location-based services (LBS) so that Meituan can further develop and better realize its enterprise mission “to help everyone eat better and live better.” Hence, it is natural for Meituan to equip itself with its own ride-hailing arm.
Meituan is very keen on conducting tests in ride-hailing. It is still difficult to tell how much market share Meituan will require to overpass Didi in scale, doing so requires the efficiency of order-matching. Nonetheless, as long as Meituan can secure enough capital investment to suppress Didi’s matching-deals threshold, Meituan will likely develop a more complete scale model, which will naturally foster a better user experience.
So, who has a better chance of winning?
The answer may be neither side, but this could be a learning opportunity for both companies. Since both have overcome wars of massive subsidies, the most cost-efficient angle could be to meet existing needs and cultivate more enduring consumption habits among users.
(Top photo from baidu.com)