The fierce competition between Baidu, Alibaba and Tencent has been compared to the battles between the Three Kingdoms of Wu, Shu and Wei, in which each sought to dominate China after the collapse of the Han Dynasty. The modern version of the struggle is for control of China’s mobile internet sector. In mid-December, Baidu opened a new front in the war when it signed an agreement with US venture-capital darling Uber.
The San Francisco-based transportation and taxi service has enjoyed the kind of growth trajectory sometimes associated with China’s internet giants. But like so many before it, Uber’s rapid growth elsewhere in the world has not been matched by similar success in China. That’s largely because it has run up against local rivals: Tencent-backed Didi Dache (‘honk honk, call me a taxi’) and Alibaba-backed Kuaidi Dache (‘swift taxi’).
Baidu’s tie-up with Uber aims to rectify this. Citing China National Radio, Bloomberg said that Baidu paid $600 million for a 1.5% stake, although other sources have said the final figure is unclear. The Baidu investment follows a $1.2 billion fundraising round in December, which assigned Uber a valuation of $40 billion. This represents a huge increase from the $18 billion Uber was said to be worth at the time of its last $1.2 billion of fundraising in June 2014, which attracted Google Ventures.
As a result of Baidu’s investment, Uber gets access to the world’s second largest search engine and more importantly to Baidu Maps, the Chinese equivalent of Google Maps. This has 240 million active users a month and will now add Uber’s “request a ride” button. The company will also try to take advantage of Baidu’s 91 Wireless, which is said to be China’s leading app distribution platform.
For Baidu, the Uber agreement should enable it to move further into location-based mobile services and may also help its own international expansion, particularly in Latin America.
Uber first established itself in China during the summer of 2013 and initially targeted Shanghai-based expats who were familiar with the brand and able to afford its premium prices. At the end of 2014, Uber was operating across nine Chinese cities including Beijing, Shanghai, Tianjin, Wuhan and Chengdu. It runs three services, Uber Black, Uber X and a non-profit service called People’s Uber, which matches customers with private car owners offering lifts in return for basic petrol and toll costs. The company has never released figures for its daily bookings, but they are believed to be far smaller than Didi Dache and Kuaidi Dache.
All three companies feel there is a huge market opportunity. Consequently the location-based start-ups have attracted some of the largest amounts of private equity funding in the tech sector. Didi Dache recently completed its fourth funding round and has raised $817 million since it was established in 2012.
Its most recent $700 million Series D funding was completed in early December, with Singaporean state investment arm Temasek purchasing a stake.
Tencent also participated in the series D funding as it did with Series B and C.
Didi Dache says it currently has 100 million registered users and one million drivers operating across 300 cities. In the three months following its integration with Tencent’s social messaging service WeChat, daily bookings rose from 350,000 to 5.2 million per day.
It also says it plans to list in the United States within the next five years.
Kuaidi Dache was established in Hangzhou in 2012 and has raised $825 million through three rounds of funding. In November 2013 it raised $100 million from Alibaba and New Horizon, a private equity firm co-founded by the son of former premier Wen Jiabao.
It says it has 100 million registered users who book six million rides a day across 300 cities using Alibaba’s Alipay as their payment mechanism. Last summer, Kuaidi Dache also launched a luxury limo service, which it hopes to roll out across Europe and the US.
Initial competition has been fierce, with discounting campaigns and special promotions for clients. Earlier this autumn, for example, Uber offered to buy and deliver the new iPhone 6 to customers in China.
However, shortly after signing its deal with Baidu, Uber got some unwelcome news from officials in China’s capital city.
The Financial Times reported this week that “apps such as Uber are facing a new year crackdown against ‘illegal’ taxi drivers in Beijing, making the city the latest in a long line of trouble spots for the San Francisco-based start-up”. It cited a statement it received from Beijing’s traffic enforcement unit on Wednesday that the use of unlicenced taxis by internet apps “violated a ban on illegal taxis”. Such drivers – i.e. those that accept passengers but do not have a taxi licence – are now subject to fines of Rmb20,000 ($3,221).
Beijing Youth Daily has said that it is “the first time Beijing has publicly affirmed that private cars operating via taxi apps is considered an act of illegal operation”, while the Financial Times says that the campaign appears to have been set in motion after lobbying by established taxi groups.
The FT added that “Didi and Kuaidi also run taxi-hailing apps that work exclusively with licenced taxis, which would not be affected”. These are used to book cabs, and unlike Uber are popular with licenced taxi drivers in China because they earn an extra booking fee in addition to the fare.
As elsewhere in the world, taxi drivers have made plain their distaste for Uber’s business model. Thousands of taxi drivers in Shenyang went on strike last week to protest against unlicensed vehicles using car-hailing apps, the Global Times has reported. The eastern port of Qingdao has also launched a crackdown this week, China National Radio said, while Nanjing’s Passenger Traffic Management Office issued its first fine to a driver operating a ‘private car service’ last month.
While the new regulations look to be most focused on curtailing Uber, one part of Kuaidi’s business could also be impacted. Its Kuaidi One limo service allows its clients to book a car with a driver. Does this constitute an unlicenced taxi service? Kuaidi denies this, stating to the FT: “Our services are based on cooperation with legitimate car-rental companies and labour services companies. Kuaidi One is oriented towards the upper-end market, and complements the regular taxi services.”
Meanwhile at the signing ceremony held with Baidu’s Robin Li, Uber’s CEO Travis Kalanick said that he remains extremely optimistic about his company’s prospects in China.
“Although it is winter in Beijing, we are entering the spring for our business in China. Our efforts in China are unique and more unique than anywhere else. You have to do things differently to succeed in China,” he said. Li agreed, presenting him with a 3D-printed bike.
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