Apple’s new investment
We look into Apple’s decision to invest in a Chinese ride-share service.
Apple recently announced that it has invested $1 billion in Didi Chuxing, a Chinese ride-sharing service that is comparable to Uber in the United States. It’s an interesting move for Apple, which usually shies away from making large public announcements unless it’s a big acquisition – such as Beats – or a new product. The company does of course make investments, but generally on a much smaller scale.
The motivations behind the deal, which came together in a period of just a few weeks, are mostly unclear. Apple CEO Tim Cook told Reuters that the company is “making the investment for a number of strategic reasons” including a fresh look at China, which is one of Apple’s key markets, but saw a decline in iPhone sales last quarter of 20% – the largest drop in the world.
Whether the investment will provide insight to increase iPhone sales in China is up for debate, but Cook also said that the company expects to see a “strong return for our invested capital over time as well,” so the investment isn’t totally about the iPhone in China.
While the deal is different in size and circumstance, parallels could be drawn to Yahoo’s investment in Alibaba, the Chinese ecommerce conglomerate, which turned out to be fantastically lucrative. Apple likely didn’t base its decision on what Yahoo did or does, but it shows a deal can be profitable if done right.
The $1 billion investment is not for a known percentage of Didi, which is valued at about $20 billion, but it does open Apple up to millions of taxi customers. Didi is, for all intents and
purposes, the Chinese version of Uber. According to the company, its service is used for over 11 million rides a day, which is around 87% of the total market for private car hire in China.
Another motivation could be Apple’s increasing focus on “services,” which emphasizes the stuff on your iPhone over the actual device. Apple Music, Pay, iTunes, iCloud, and the App Store, among others, all generate revenue for the company after a purchase has been made, helping Apple get more from its customers. Even if the world has a limited number of iPhone buyers – which, ultimately, it does – Apple can still sell those buyers Apple Music, iCloud storage, apps and more. This, as analysts have pointed out, is a giant market – one that could amount to over $7.5 billion in revenue per month. Perhaps Apple is looking for expertise in new types of service.
Some have speculated that Apple’s fresh investment is a ploy to win favor with the Chinese government. For years, the iPhone was not on sale in China – which changed in 2013 – and, more recently, the iTunes Movies and the iBooks Store were shut down, without explanation. The path to getting these things back and investing a billion in a ride-hailing company isn’t exactly clear, but it does signal Apple’s interest in China, and the fact it chose Didi over Uber, which is itself spending an estimated $1 billion a year trying to break into China, is telling.
Tim Cook’s statement explicitly referenced “a chance to learn more about certain segments of the China market.” And this reason is, most likely, the explanation behind the bid. Other companies have been doing something similar. Microsoft, for example, has made a special version of Windows 10 for Chinese government employees, while Cisco and Qualcomm have made similar moves.
The final possible explanation is that Didi has information on, or about, the automotive industry that Apple could benefit from, especially as its car project is now considered an open secret. With any Apple car still likely several years away, Apple may believe the future of personal transportation is moving more towards apps like Uber and Didi and away from actual car ownership on an individual basis.
Whatever the reason, Apple has chosen to get into the Chinese ride-sharing game – and it’s likely to be an amalgamation of them all – it could signal a new path for Apple.