Internet & Tech

A fine romance?

Internet giants in taxi truce, but the ‘war of the wallet’ goes on

A man walks past taxis parked on the road during a strike in Hangzhou

Rather then queue, taxi drivers now prefer taking bookings on phone apps

When the bosses of China’s top two taxi apps decided to merge this month, they picked February 14 to announce the news.

Cheng Wei, Didi Dache’s boss, hammed up the Valentine’s Day union with his former rival Kuaidi Dache, adding heartfelt thanks to two of their shareholders – internet giants Alibaba and Tencent – for putting aside their differences to make it happen. “We and Kuaidi Dache are finally together and so are Tencent and Alibaba because of the merger,” he wrote in a staff memo. “A lot of people will proclaim that they believe in love again.”

The duo’s competitors weren’t quite so starry-eyed, though, as the new combination seems set to monopolise the market.

Market research firm Analysys International has suggested that there were 172 million taxi-hailing account holders at the end of last year, with Kuaidi accounting for 56.5% of the total and Didi taking 43.3%.

Yidao Yongche, another ride-hailing app that concentrates on higher-end chauffeur-services, soon filed an anti-monopoly complaint, although the case looks unlikely to proceed. Merger candidates face review by the Ministry of Commerce if their combined turnover exceeds Rmb2 billion ($320 million) or if either of the two partners books turnover of Rmb400 million or more. And despite their status as the dominant taxi apps, neither Kuaidi nor Didi has been making enough money to trigger an investigation.

“The proposed merger is not subject to anti-monopoly merger review under the anti-monopoly law because neither of the two companies has reached the stipulated revenue thresholds,” they insisted in a joint statement.

Both firms promised to release further details about the merger in the days following the Chinese New Year break. But the initial suggestions are that major restructuring isn’t on the agenda, with each business continuing to run its own brand independently.

Clearly, the partners will want to talk about pricing strategies, having spent most of the last two years undercutting one another with financial incentives both for taxi drivers and their passengers.

The costs of this price war have been crushing: in the first six months of last year, Kuaidi’s subsidies were Rmb1 billion, Xinhua says, while Didi’s amounted to an even greater Rmb1.4 billion.

Kuaidi’s chief executive Lu Chuanwei has been open in hoping that the merger will lead to higher fees. “The fierce competition between Kuaidi and Didi is not sustainable. The merger is the result of strong desires from all the investors of both companies,” Lu acknowledged after the plan was announced.

Even so, the likelihood is that this is going to be a phony friendship at best, because of the rival agendas of two of the main shareholders.

That’s the view of those who regard the ‘taxi war’ as a proxy for the deeper struggle between Alibaba and Tencent – in this case to get users for their rival mobile payment apps, or mobile ‘wallets’.

As hundreds of millions of Chinese grow accustomed to paying for things with cash accounts linked to their smartphones, Alibaba and Tencent are locked in a fierce struggle to persuade them to integrate their banking details with their rival products.

People travelling in taxis booked with Kuaidi use the Alipay Wallet app, for instance, while Tencent has linked Didi to its mobile payment service on WeChat.

Alibaba is the market leader in online payment after launching Alipay more than a decade ago to smooth the sale of goods on its gigantic marketplace Taobao. That has helped it become the runaway leader in payments with smartphones too, where Alipay Wallet last year had 82.6% of the market, according to iResearch.

Tencent’s share via Weixin Wallet was much lower at 10% but it is banking on the huge popularity of WeChat, its dominant messaging and social media app, to close the gap.

Tencent is betting that it can exploit the app’s ‘stickiness’ – WeChat is used hundreds of millions of times a day – to undermine Alibaba’s ascendancy.

And sure enough, the rivalry with Alibaba was running red-hot again last week as the two slugged it out over the distribution of virtual hong bao, the red packets of cash (also known as lai see in Hong Kong) customarily handed out over the Lunar New Year holiday.

This confrontation was seasonal in nature, but the strategic principle was similar to the taxi-hailing war of the last two years, with Alibaba and Tencent competing for customers with lotteries and online games in which winners received cash giveaways.

Last year Tencent ambushed its larger rival with a hong bao campaign that was said to have doubled its market share in mobile payments in a matter of hours.

This month Alibaba was more prepared, announcing before the holiday period that it would be giving away more than Rmb600 million in seasonal prizes too.

Tencent responded by banning usage of Alipay from its WeChat platform and encouraging smartphone users to use its own payment app to give each other digital hong bao.

It also ran an $80 million promotional effort of its own during CCTV’s Spring Festival Gala – an annual variety show on the state-run television station. This saw the disbursement of 120 million red envelopes backed by corporate sponsors.

Every hour from 8pm until midnight, WeChat users were given the signal to shake their phones for a chance to win cash. Over the course of the night, they shook them 11 billion times, Tencent said. Securities Times estimates that this ingenious marketing ploy saw 200 million people link their bank cards to their WeChat accounts. It points out it took Alipay eight years to achieve what Tencent did in five hours.

Noting how the digital gifting risked becoming a national obsession, a commentary in Xinhua even urged its readers not to ignore their families in the frenzy to grab the red packets.

“Picture a son who has travelled a thousand kilometres home only to be glued to his mobile phone screen the whole time, while his parents, who have longed to see him, are ignored,” the piece lamented.

“No wonder some people say digital red packets are destroying the Spring Festival. These red packets may be eye-catching, but they cannot replace the warm smiling faces of your family,” it added.

(Next week WiC will be looking in more detail at the rivalry between Tencent and Alibaba in a special Focus edition.)

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.