Why Uber survives and thrives in China (Part 1)
The art of war — at the right time, in the right place, with the right people
On a winter day in 2013, I stood in the wind and waved to every taxi driving passed me. Even with a vacant sign, none of the them stopped for me. That’s because they were heading to pick up passengers, who had requested ride with Didi Dache. Without any luck, I launched Didi from my WeChat app and tried to request a ride. I stared at my phone for three minutes, and I saw the app notified 200+ drivers nearby, but no one responded. Yeah, because I needed to enter my destination, and smart drivers wouldn’t pick my 10RMB ($1.5) order. It’s just not a good deal.
But what I didn’t know was that China’s car-hailing market was about to go through a huge transformation, and that all began with Uber placing several limousines in Central Business Districts in Beijing, Shanghai and Guangzhou in 2013. The taxi market that we were familiar with would never come back.
In this series of why Uber survives and thrives in China, I’m going to explore different stages of the heating car-hailing battle, discuss how Uber compete with local rivals, how they navigate through policies and regulations, how they attract customers and get them hooked, and what we can learn from Uber’s impressive performance as a localized company.
Part 1: The art of war — at the right time, in the right place, with the right people
Part 2: Head-on competition with local rivals — a 2-year long battle that transformed China’s car-hailing business
Part 3: Growth hacking — magic of localization and crossover marketing
China, a huge yet different market
Before we dive in, let’s get an overview of China’s car-hailing market.
In 2014, for every 1000 people, there are 113 cars in China, while the number reached 809 in United States in 2011. Even with efficient public transport systems, there is an extremely high demand in business/leisure rides. From this perspective, China’s car rental/hailing market is significant and full of potential. Uber saw the big pie, and it came for it.
China is so different from other places. Just as Uber’s founder and CEO Travis Kalanick says about Uber’s expansion in China —
“It’s just different than everywhere else… And, so, you can’t take your pattern or your model for other places and take that to China. You just can’t. You have to do it different.”
Besides complicated policies, Uber was faced with strong competitors Didi Dache and Kuaidi Dache (which later merged into one company). In Feb 2014, Uber announced its launch in China. At the same time, Didi and Kuaidi were busy competing for taxi-booking market share. They lavished billions of RMB as subsidies for drivers and passengers. Didi and Kuaidi were able to afford burning cash, because of Tencent and Alibaba behind each of them.
In spite of a competitive market place, Uber impressed everyone by increasing its car-hailing market share from 1% to 35% within eight months. Actually, China has become Uber’s second largest market to the US, while its growing speed has already outpaced U.S. But what is more fascinating to me is that Uber actively started several business wars in China. I’ll talk about this in part 2.
Time, Place and People, these three factors have been studied over thousand of years. According to a famous Chinese philosopher Mencius (372–289 BC), to win a battle, you need to be “at the right time, in the right place, and with the right people.”
Similar to battlefield, success in commercial field also requires a good combination of them, and Uber just nailed it.
RIGHT TIME
Uber entered market when competitors were exhausted
As I mentioned earlier, Uber announced its official launch in China on February 13, 2014. That’s when Didi Dache and Kuaidi Dache just began their “burning cash” craze to achieve scale of economies in taxi-booking market. Resource showed that only after 77 days, Didi Dache has lavished RMB 14 billion ($2 billion) on incentives for drivers and passengers, which boosted its user base from 22 million to 1 billion and number of orders per day from 350 thousand to 5.21 million.
The endless subsidies drew to an end after six months. By the end of June, Taxi-hailing market has been formed, with Kuaidi taking up 53.57%, Didi taking up 45.56% , and leaving only 0.87% to all other companies.
Uber started a battle in a new field of “private car service”
Though Uber launched in February, it stayed cautious for the first few months by providing UberBLACK services only. Finally in June 2014, Uber started its serious expansion in China by launching its economic option UberX. At that time,
- “Burning cash” battle had already educated people of mobile payment, which was once uncommon to Chinese people.
- Taxi-hailing market was saturated, and the two riders were exhausted after fierce competition.
- Private car service market was still empty.
- Drawback of taxi-hailing was getting obvious. Driver got the right to pick profitable order. This resulted in many passengers unable to grab a cab during rush hour or having a less profitable route.
So what pain points did Uber’s private car service solved? A friend of mine in Beijing helped me to interview eight Uber riders — All of them are between 23–28 yrs old, own college degree or above, and work in either Beijing or Shenzhen.
From the graph above, we can see that the main reason for them to start using Uber is its low price. Also, friend referral and free first ride attracted some of them. Uber successfully differentiated from Didi or Kuaidi by processing ride requests with algorithm. Also, polite drivers made its quality of services stand out from taxi-hailing apps.
Just imagine what the situation would have been if Uber started its expansion earlier than June. Will it be able to compete with Didi and Kuaidi by offering a lower price or a better/different service? I believe that would be another story.
RIGHT PLACE
Where ride is needed, where Uber is in deed
When deciding where to launch, Uber always select cities with heavy traffic and imbalanced supply-demand. Take Beijing as an example. It’s the second Chinese city that Uber entered, and the 100th in globe. There are approximately 60,000 taxis in Beijing, more than 6,000,000 private cars, and 11, 500,000 populations. What happens is that no matter if you are taking a taxi or driving on your own, EVERYONE GET STUCK in the traffic. But think about this — all these miserable traveling people could be potential Uber drivers or riders.
On supply end, there are lots of private cars. Living in big cities, such as Shanghai, Beijing, and Shenzhen, people would love to earn extra money by being a decent part-time driver. On demand end, more and more people turned to Uber because of unable to get a taxi. Uber’s mechanism of assigning ride to drivers solved the problem perfectly.
RIGHT PEOPLE
Seek local investment and partnership
Local supports enable Uber to expand stronger and faster in both supply and demand ends. It also ensures things are going towards a promising direction. Uber has received almost $2 billion in funding from Chinese investors, which include travel companies, real estate, insurance, banking, and so forth. From the list, it’s easy to tell Uber’s ambition in expanding in both online and offline worlds.
Let’s look at some of Uber’s local partners. Baidu is the only tech giant that was left out in taxi-hailing battle. Uber partners with it in Dec ember 2014. Under terms of this partnership, Baidu would invest in Uber and enable users of Baidu Map and Mobile Baidu, Baidu’s flagship mobile search app, to connect easily with Uber driver-partners. Uber will leverage Baidu’s strengths in mobile search, mobile mapping and app distribution.
Think of planning a trip of transit with Google Maps, it always shows Uber’s price at the bottom of my routes. Baidu Maps is as popular in China as Google in the States. As Kalanick said “millions of people open Baidu Maps everyday to look at where they’re going next, we can take them there.”
In March 2015, Uber signs strategic cooperation agreement with Yongda Auto. This meant Yongda became Uber’s first car dealer partner in China. Both parties will share resources and joint hands to construct the business mode of “Automobile + Finance + Internet”.
In April 2015, Uber announced their strategic partnership with China Telecom, the world’s largest wireline telecommunications, CDMA mobile network, and broadband Internet services provider. The partnership will bring Uber a package of solutions in telecommunication and advertising resources online and offline.
Build rapport with government and get inspired from regulations
Uber China did a great job in navigating through policies and regulations. In fact, Uber got inspired from regulations, and created killer services in China.
To improve air quality and relieve traffic pressure, Beijing Commission of Transport released first-ever regulation on carpooling in Jan 2014. It encouraged non-profit carpooling and reasonable cost split. Inspired by the new regulation, Uber rolled out People’s Uber, a non-profit ride-sharing service in Beijing.
Peoples’ Uber turned out to be a huge success. After first launch in August 2014, the app download number kept climbing as it launched in more cities. Before Uber rolled out its next killer service in July 2015, its download ranking has already boosted from 500+ to top 20 in China’s iTunes App Store.
Another example of collaboration is that, in September 2015, Uber signed strategic cooperation agreement with National Center of ITS Engineering & Technology, ITSC. They will collaborated on promoting research projects on “Internet + Transportation”, encouraging transformations of local industries, and deepening communication about intelligent transportation.
Part 1 is an overview of Uber’s strategies in China from a perspective of time, place, and partnership.
Did you enjoy it?
In part 2, we’ll walk through brilliant and tense competitions between Uber and Didi Kuaidi with this timeline.
I hope this series would be helpful for Uber and Uber Design in creating and tailoring product/service for Chinese market. From my perspective, the car-hailing competition in China has many positive meanings. On one hand, it contributes to better traffic, cleaner air, and a faster-moving city. On the other hand, the competition promotes companies to improve user experience, develop better algorithm, and think about the bigger picture. That’s where innovations begin.
