Wounded Uber targets India after China loss
CEO Travis Kalanick’s profit focus makes fight tougher in India
India will now become the next big battleground for Uber Technologies after it accepted defeat in China by opting to merge with local rival Didi Chuxing. The fight might have also taught Uber that throwing money without the likelihood of profits in sight can hurt its business.
“Uber and Didi Chuxing are investing billions of dollars in China and both companies have yet to turn a profit there. Getting to profitability is the only way to build a sustainable business that can best serve Chinese riders, drivers and cities over the long term,” Uber Chief Executive Officer (CEO) Travis Kalanick wrote in a blog post. Uber is estimated to have lost around $2 billion in China.
In India, it is fighting a pitched battle against Ola. Uber, armed with a substantial part of the $3.5 billion it raised from Saudi Arabia’s Public Investment Fund, has become aggressive in India, stepping up advertising spend and dropping fares to incredibly low rates, besides offering threefold incentives to drivers. Being no slouch, Ola too is said to be in talks to raise $1 billion, but has not finalised a deal yet. Didi, which has absorbed Uber in China, is a strategic investor in Ola.
However, Ola too is losing money in its fight against Uber. In the financial year 201415 (FY15), the last financial year for which data are available, Ola reported losses at ~796 crore, 20 times more than the previous year, on revenue of ~421 crore. Uber’s financials are not publicly available.
“In China, Uber realised they were not going anywhere in the long term. They were burning a lot of money, but that wasn’t the issue. The issue was that they were not progressing (in terms of growing market share). However, in India their market share is growing quite rapidly and they are giving Ola a good fight,” said Anil Kumar, the founder and managing director of Redseer Consulting.
While Uber launched both its India and China services in August 2013, it has been far more successful at grabbing market share in India. That’s partly because India is a nascent market compared to China, and Ola was a fairly small player when Uber arrived. Bhavish Aggarwal, the co-founder and CEO of Ola, had said the company was doing a mere 2,000 rides when Uber launched its service in the country.
Ola claims it has 450,000 cabs and 120,000 autorickshaws on its platform, while Uber claims to have 350,000 cars on its platform. While both claim market leadership, researcher Redseer says Ola has approximately two-thirds share.
Uber was seen as one of the few US technology firms making in-roads into the Chinese market, where even giants Google, Facebook and Amazon failed.
Didi Chuxing, the dominant ride-hailing service in China, said it will acquire Uber Technologies’ operations in the country, ending a battle that cost the two companies billions as they competed for customers and drivers.
Didi will buy Uber’s brand, business and data in the country, the Chinese company said in a statement. Uber Technologies and Uber China’s other shareholders, including search giant Baidu, will receive a 20 per cent economic stake in the combined company. Didi founder Cheng Wei and Uber Chief Executive Officer Travis Kalanick will join each other’s boards.
The truce brings to an end a bruising battle between the two companies for leadership in China’s fast-growing ride-hailing market. Uber has been spending at least $1 billion a year to gain ground in China, while Didi offered its own subsidies to drivers and riders to build its business.
“Didi Chuxing and Uber have learned a great deal from each other over the past two years,” said Cheng, who is also CEO, in the statement. “This agreement with Uber will set the mobile transportation industry on a healthier, more sustainable path of growth at a higher level.”
Didi’s valuation after the deal will be $35 billion, said people familiar with the matter, asking not to be named because the details aren’t public. Last year, China’s ride-hailing leaders Didi and Kuaidi joined forces, creating a homegrown juggernaut to fight off Uber. The merged company Didi Chuxing brought together backers Alibaba Group Holding and Tencent Holdings, the country’s most valuable internet businesses. Apple joined in this year with a $1 billion investment in Didi, in a round that valued the company at about $28 billion.