Is ride-sharing giant Uber giving up on its China dream?

Uber logo Image copyright AFP
Image caption Uber will keep operating under its own name

"The Chinese internet space is littered with the corpses of failed US internet firms," one industry source told me this morning, as reports of the Didi-Uber deal emerged. "Everybody's just tired of the bloodletting. Uber's investors probably just wanted out."

No surprise there. Losing a billion dollars a year - as Uber was doing in China - is nothing to sneeze at.

So if you can't beat them, join them - that may be what Uber's ultra ambitious chief executive Travis Kalanick was thinking. This deal may be Uber's best available option on the table.

As part of the deal, Uber's China business will retain its separate branding and US-based Uber Technologies will hold a stake of about 17.5% in the combined company.

The irony is hard to miss. The Chinese ride-hailing giant has spent the better part of the last few years in what many called an all out attack on Uber in its other markets.

Last year Didi invested $100m (£75m) in Lyft - Uber's main competition in the US. It also tied up with Ola in India and Grab in South East Asia in an effort to provide customers with a pan-Asian experience - but also conceivably to put the pressure on Uber which was trying to make inroads into China.

The deal is a huge loss of face for chief executive Travis Kalanick, who once famously said success in China meant being number one there.

A hopeless battle

But is this really a case of hanging up the boxing gloves - or is Uber getting more out of this than meets the eye?

It's hard not to think that the odds may have been unfairly stacked against Uber in China - after all, it was going against a formidable opponent in the form of Didi Chuxing.

"It's like a 100lb gorilla going against a 500lb gorilla," was how it was described to me. "No-one else but Didi had a chance in this battle."

That didn't stop Uber from fighting the good fight though - it went head to head with Didi: both sides used price wars, multiple promotions, threw bonuses at drivers, and subsidised users to the point where the only winners in this fight were the drivers and consumers.

Image copyright AFP
Image caption Uber was never a match for Didi Chuxing in China

But new Chinese rules on ride-sharing platforms, coming into effect later this year, will make it harder for firms to charge below market rates for a ride - which may well have provided the justification Uber needed for this deal to go through. Winning would have been next to impossible.

It isn't always easy for foreign companies to do well in China.

Critics of the way China's economy is structured would argue that Didi's backers - Tencent and Alibaba - are so well connected to the government that Uber didn't have a chance. It was clearly an uphill slog, but Uber was also backed by Chinese internet giant Baidu - not small fry by any account.

So why don't US internet firms do better in China?

Home turf

One argument, as you've heard, is the political one. It's the accusation that US businesses that have failed in China often like to level at the country, and in the case of the likes of Google and Facebook, it's accurate.

But it's not the only reason. Foreign companies often come to China thinking their way of doing business works everywhere else, so it will work in China too. Some don't take the time to understand the Chinese market and how consumers there think.

Didi had the obvious advantage in the Chinese market because of its size, how long it's been around and its expertise. The fact that its platform is integrated into the popular messaging service WeChat was also a major bonus. That means you can book a Didi cab or ride off WeChat - you can't do that with Uber.

Of course WeChat is owned by Tencent so it's all in the family, but that's a story for another day.

Uber put up a good fight, there's no doubt about it. And it may not all be bad news. Remember Yahoo? It walked away from the Chinese market, head in hands - but with a prize jewel in its fold: a stake in Alibaba. Today - it's the only part of the Yahoo business post the Verizon deal that is arguably worth anything.

If Uber's departure from the Chinese market means a sizeable stake in the biggest ride-sharing player in the world's second largest economy, which currently has a potential customer base of some 750 million people, and that's only going to grow - then that's not too shabby.

Recognising this was one fight he wasn't going to win may well turn out to be a sign of Mr Kalanick's maturity and business acumen in the future.

Perhaps Uber's Chinese dream is just beginning.

Related Topics

More on this story