Uber’s turf war for the streets of China came to an abrupt end on August 1 when the ride-hailing service announced a deal with domestic rival Didi Chuxing. Uber China will merge with Didi Chuxing in a move that signals the Silicon Valley-based company is finally throwing in the towel on its ambitions for China.
As part of the deal, Uber and its Chinese investors will get a 20% stake in the newly merged company valued at $35 billion. Meanwhile, Didi will invest $1 billion in Uber. They’ll further marry their two houses by putting Uber CEO Travis Kalanick on Didi’s board while Didi founder Cheng Wei will become a member of Uber’s.
According to Didi, Uber China will remain an independent brand with its own business operations. But Didi will “integrate the managerial and technological experience and expertise of the two teams.”
The surprising announcement ends a fierce and costly battle on both sides for domination of the ride-hailing market across dozens of cities in China. A bullish Kalanick once declared China to be Uber’s most important target market. And Uber China dumped $2 billion over the past two years for that cause. Much of the money went to subsidizing rides for drivers and bribing new customers with sign-up incentives.
In the end, it looks like prudence won over and Kalanick put a stop to the bleeding. “Being successful is about listening to your head as much as following your heart,” he said. “Sustainably serving China’s cities, and the riders and drivers who live in them, is only possible with profitability.”
The end of Uber’s fight in China is just the latest in a line of losses for Silicon Valley companies who played their hand in the lucrative but challenging East Asian market. Google, Facebook, and Amazon have all been stimied in their own efforts due to regulatory setbacks and hyper-aggressive competition from home-grown opponents. Kalanick said himself in his withdrawal letter, “U.S. technology companies struggle to crack the code.”
In the face of such challenges entering and maintaining a foothold in the Chinese market, Uber’s deal with Didi is most similar to the strategy adopted by Yahoo in 2005 when it sold its businesses in China to Alibaba in exchange for a $1 billion stake in the company. Meanwhile, Google has since left the China market and Facebook’s Mark Zuckerberg continues to try to woo the government with unabashed overtures to Chinese bureaucrats and a highly publicized jog in heavily polluted Beijing.
But the end of Uber’s battle in China probably signals it’ll get started elsewhere. Southeast Asian competitor, Grab, is getting ready for a fight to come now that Uber’s resources in China have been freed up. “With the deal in China, we expect Uber to turn more attention and divert resources to our region,” Grab CEO Anthony Tan wrote in an email to his employees.
Interestingly, Didi and Grab formed an alliance last year along with two other companies – Lyft in the US and Ola in India – in a move to better compete against Uber. This probably makes the merger with Uber China somewhat of an awkward conversation topic for the next anti-Uber alliance gathering.