China Musings #8: How Didi took over Uber China

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This is first post in a two-part series about Didi. The first post will look back at Didi’s past and how they won against Uber China. The second part will look at Didi's current "War of the Century" against Meituan.

To most, ride-hailing company Didi is known as “the Uber of China,” a description that conveys the notion of Didi being a mere copycat of Uber. Yet the first time I felt that there was real innovation coming out of China, was the day I got to visit both companies back-to-back.

This was two years ago, and I remember starting the day feeling disdainful towards Didi, “the copycat,” yet sympathetic towards Uber China, “the original.” By the end of the day, my emotions had completely flip-flopped: I was deeply impressed by how Didi was building a ride-hailing experience with the Chinese user in mind, but doubtful about how Uber was trying to take a proven US product and push it into the Chinese market.

As so often, any company’s ability to succeed internationally largely depends on the degree to which they empathize with the needs of the local users. Take Beijing for a example, with 22M citizens it’s among the world’s ten most congested cities (8 Chinese cities in the top 20). From 2002 to 2017, in just 15 years, the number of cars quadrupled (!) from 1.5M to 6M, leading to a wide range of regulations (limited supply of vehicle licenses, exorbitant prices, long wait times, certain days you are not allowed to drive, etc.).

During their war with Uber China, Didi had launched a total of six or seven different services, ranging from carpooling and car rental to inter-city buses – all services that were addressing the actual transportation needs of the Chinese beyond just ride-sharing and thus giving them a perceived and actual edge. Even Didi’s name was empathetic towards the commuting pain that locals felt: in Mandarin it means “beep beep,” like a honking car (note: it also means “little brother”).

Now the truth is that there were other factors at play like for example that Didi was a homegrown company. For Uber, burning $2B in China was a big deal, yet for Didi (and for their investors TenCent and Alibaba), spending $2B to win at home was nothing. For Uber, China was a big opportunity, for Didi it was life or death.

In the end, Didi beat Uber China, and acquired their China business in exchange for $1B and a stake of 17.7%. Since then, Didi has grown to 400M registered users and 4M drivers, and delivers 25M rides a day in 400+ Chinese cities – roughly TWICE as many as Uber and all the other global sharing apps COMBINED. The acquisition further cemented Didi as the planet’s most valuable startup (for now), with a $56B valuation, speeding past Uber, whose most recent round saw its worth fall to just $48B.

Despite Uber’s stake in Didi, the two companies are in a fierce battle on global stage. Didi’s recent acquisition of 99 Taxis in Latin America was a provocation of Uber whose two largest markets are Mexico City and São Paulo. While still loss-making in China, Didi is poised to enter this battle with about $20B raised (more money than any VC-backed startup ever) and cash reserves of $12B.

A personal anecdote: our meeting with Uber China started with their off-the-shelf “from bits to atoms” PR story, and then ended with a picture of four women in miniskirts advertising open roles on their team. What actually did arouse us (non-sexually) was seeing CEO Travis continuously run back and forth hectically. About 18 months later, during my interview with Ofo, its co-founder asked me how Ofo can be successful outside of China, to which I responded with a lot of the aforementioned empathy points while also trashing Uber China. Clearly I had not done my homework, because he was actually an ex-Uber China employee and considered the “rising star” of the organization. He still hired me and we both found out later that he was actually supposed to host us at Uber China that day, but that Travis was in town and had pulled him into meetings.

China Musings #7: Dealing with Pollution

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The first time I experienced the infamous Beijing pollution was during a 2-day layover on my way to North Korea. As we were were leaving Beijing, I remember asking a classmate who had previously lived in Beijing: “if you knew today that those four years of living here were going to shorten your life expectancy by 6 months, would you still do it?” The question led to a lively discussion as we were headed to the airport, yet we never really reached a conclusion.

Little did I know that two years later I would find myself asking the very same question as I go in and out of Beijing. While the overall situation in China has become better (NYT: Four Years After Declaring War on Pollution, China Is Winning – https://nyti.ms/2GhlOll), Beijing still far from being a welcoming and easy place to live – environmentally speaking.

The picture is from two weeks ago during a sandstorm when AQI levels hit 1,200 – which is ranked hazardous (the “green zone” is anything under 50). Eye infected, lungs filled with dust, and just generally feeling shitty. Now I wasn’t going to write a rant about the pollution, but I wanted to share the ways how I have seen people adapt and become creative around this issue. A few anecdotes from my many visits:

  • There is a brewery in Beijing that offers a discount on one of their beers depending on how high the AQI level is (the more polluted, the higher the discount).
  • I have seen real estate agents offer air purifiers as a way to rent out their properties: “rent this unit and get a complementary XiaoMi air purifier!”
  • There are plenty of bars and restaurants that advertise with "we have clean and purified air!" on their internet listings as a way to attract costumers.
  • The company I work for recently launched a new line of merchandise products... among them a branded respiratory mask (apparently some restaurant chains sell branded masks too).
  • Our employee kitchens have respiratory masks stocked right among all the snacks and drinks (...Snickers, potato chips, respiratory masks....). Ours cost, but other companies offer them as free perks.
  • Just as you would expect, some beauty brands have released entire pollution-dedicated product lines like face masks or "Anti-Pollution Emulsion."

While I still don't know the answer to the question I asked my classmate back then, I remain naively optimistic about the regenerative capabilities of my lungs.

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China Musings #5: The Starbucks Success Story

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In a country in which so much feels foreign, Starbucks has surprisingly turned out to be one of the few places I feel … home. The look and feel is familiar, the menu is well-tested, and the music could be from my own Spotify – it’s my oasis amidst an ocean of uncertainty.

After hearing about the opening of the world’s largest Starbucks store in Shanghai, I put it high on my to-do list (see the pic below). It is a 29,000 square-foot temple staffed by 400 employees – it comes with its own bakery, roastery, augmented reality program, 100+ drink options (including nitrogen-infused tea) and to no surprise, crazy-long lines. This one store alone makes 15x the revenue of the average US store.

Now Starbucks’s story in China is truly one-of-a kind. While other brands had to often retreat (Google pulling its servers, Coke closing its bottling unit, McDonalds selling its business and licensing its brand), Starbucks is one of the few American companies that got China right – by understanding the importance of building long-term relationships, working with the government, and investing heavily.

To give you an idea, every 15 hours Starbucks is opening a new store in China. It has already 3,000 stores in 130+ cities and is planning to open another (!) 5,000 stores over the next four years – creating 10,000 jobs every year. In Shanghai alone there are 600 Starbucks stores, which is 2x of what New York has.

What is so remarkable is the long-term mindset that Starbucks applied to China. The journey started some 20 years ago and had the seemingly insurmountable task of bringing coffee culture to a country famous for its tea.

Over the years, Starbucks has invested heavily, paid significantly higher wages than competitors, offering housing allowances, health care benefits, extending its employee ownership benefits to Chinese workers, and offering critical illness injuries to the parents of their employees. Starbucks is further discussing with the Chinese government the prospect of turning coffee from the Yunnan province into a global coffee brand.

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China Musings #4: When a game takes over life

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Wherever I go in China, I see people playing the same game on their phones. Be it security guards, couples over lunch, or kids on the street. While I am zero into mobile gaming, the popularity of this game really blew my mind.

The game is called Honour of Kings and was released by Chinese internet giant Tencent (it’s the same company that runs the social messaging app WeChat which has a staggering 902M daily active users).

Now the game itself has pretty remarkable stats, too: there are 80M daily (!) active users (that’s about 6% of the Chinese population) who play the game an average of six hours a week – with $1.76B of revenue in Q1 of 2018, basically making it the world’s number one mobile game.

The game became so addictively popular, that a Chinese newspaper called it “poison for young people” – which triggered a market cap loss of $14B. Tencent later reacted to the criticism by 1) imposing a daily cap of one hour for kids under 12 and by 2) announcing a lineup of “serious” video games with “positive social value” (traditional culture, and engineering exercises, parent-child interaction, etc.).

Interestingly enough, Tencent recently overtook Facebook as the most valuable Social Networking Company with a market cap of $540B. The kicker in the comparison to Facebook however is the fact that only 18% of Tencent’s revenue comes from advertising, compared to 98% for Facebook. Tencent has plenty of profitable revenue streams, especially at the intersection of gaming and subscriptions. Which only means that there is a lot of revenue upside once it decides to tap more into advertising (WeChat currently shows only one single ad per day in your feed).

The scale of these tech trends in China and the way how they have shaped society is really fascinating.

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