4. uber in china.pdf

9B15A047

UBER: MANAGING A RIDE IN CHINA1

Xiaoke (Coco) Xu, Professors Xin (Shane) Wang and Neil Bendle wrote this case solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality.

This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) [email protected]; www.iveycases.com.

Copyright © 2015, Richard Ivey School of Business Foundation Version: 2016-02-29

On December 17, 2014, Chinese search engine giant Baidu confirmed a deal with Uber, which involved connecting its mapping services to the fast-growing, online ride-hailing app. Although by the time of the deal, Uber already existed in eight Chinese mainland cities, Travis Kalanick, Uber’s chief executive officer (CEO), understood that it would still not be an easy ride for Uber to crack the world’s largest transportation market.

The issues Uber faced in China were similar to the issues it faced as it expanded to other cities around the world. Uber found itself caught up in wars with local taxi drivers and facing severe challenges from local ride-hailing services. Uber was also facing questions from Chinese authorities with respect to a few legal issues. Indeed in May 2015, Uber’s Guangzhou and Chengdu offices were raided by local authorities as a part of a nationwide ban on drivers without a licence to carry passengers. Despite the backlash from local government and the taxi sector, Uber remained operational in 10 mainland Chinese cities. As long as Uber drivers continued to work as an ill-defined group and until a clear regulatory policy was implemented, Uber could reasonably expect to encounter additional barriers in China. How should Uber manage its expansion in China?

WHAT DOES UBER DO?

The idea of Uber was inspired by a bad experience of getting a cab in Paris. Travis Kalanick started to wonder whether it was possible to design an easy way for people to request a cab just by clicking a button on their mobile phone. The Uber service was officially launched in 2010 in the form of a mobile app for the iPhone and android phones. The app allowed a user to enter a pickup location on their phone and summon a car to take them where they want to go. Users could also choose whether they wanted a regular sedan, a luxury sedan or a sport utility vehicle for the trip. The matching of a driver to a rider was done automatically by the Uber system. The app used the Global Positioning System to locate the closest car to the rider’s location and assigned the order to that driver. The taxi fare was then billed directly to the passenger’s credit card, which was linked to the app when the passenger registered for the service.

Uber originally adopted a business model that used non-experienced drivers who operated their private cars to offer the service, as opposed to working with traditional cabs operated by licensed taxi drivers. Drivers without a license to carry passengers remained the majority of Uber’s current drivers, but Uber

Authorized for use by Sri Gunawan Marketing Management Course

9B15A047

had started to embrace greater variety in the vehicle options offered, such as working with licensed chauffeur drivers, car rental companies and even taxi drivers in an effort to expand the reach of its service.

One of Uber’s most interesting features, which made it stand out and garnered considerable attention, was its surge pricing. The patented technology was a built-in algorithm that automatically adjusted the rate for a journey based on the current supply-demand ratio. This process used price as a lever to allocate resources to achieve a higher level of efficiency. While the precise algorithm was a commercial secret, the idea was based on simple economics. When the supply within a certain area could not satisfy the demand for cars, the estimated fare automatically rose to encourage more drivers to enter the area until the relationship between supply and demand returned to a more acceptable level. The idea was twofold: that surge pricing improved the customer’s experience and that those who valued the service the most, or at least were willing to pay the most, were the individuals who were able to use it.

Although surge pricing was critical to Uber’s success, it also had the potential to raise ethical concerns. Price changes were triggered automatically by changes in the market conditions, regardless of the nature of the change. For example, during the 2014 hostage crisis in Sydney, Australia, the minimum fare for a ride in Sydney’s business district rose to more than AU$100,2 four times the regular price.3 Uber received fierce criticism, as the ride-sharing business had seemed to have benefitted from the hostage situation. The company apologized and promised to refund all who had paid for rides that had been subject to surge charging during the crisis.

AN EXCELLENT STEP FORWARD

Founded in San Francisco, Uber started its overseas expansion in Paris in 2011. From there, it expanded its global presence to numerous other countries. By early 2015, Uber had completed coverage of 58 countries/areas worldwide. As part of its expansion efforts, Uber attempted an entry into the Chinese mainland market in August 2013, under the name “Youbu,” meaning an excellent step forward in Chinese.

China was experiencing rapid development in online-to-offline (O2O) commerce, led by such online business leaders as Alibaba. As a result, China offered a perfect playground for businesses that relied on online or mobile engagement. The online and mobile commerce market, which covered all types of daily online and mobile activities, had experienced dramatic growth since 2010 (see Exhibit 1).

The taxi market in China also offered business opportunities for new entrants such as Uber. Similar to Kalanick’s experience in Paris, getting a cab in large cities in China was not only expensive but could also be a distressing experience, especially during rush hours. Despite regulation and the links to government of some companies no company or government had a nationwide monopoly on the taxi market, and the number of taxis in operation was growing each year (see Exhibit 2). Such conditions might have been expected to drive down prices and to generally favor consumers; however, consumers still felt that it was a seller’s market. The basic problem was that the supply of taxis remained insufficient to meet the demands for taxis. It was not uncommon for a cab driver to refuse to transport a passenger if the trip was only for a short distance, which meant the driver would make only a minimal fare and tipping was not expected. The condition of the cars and quality of the service were also inconsistent. Furthermore, it didn’t help that the deteriorating traffic conditions in urban areas had been promoted in part by the popularity of private cars (see Exhibit 3). The roads were handling more cars than they were designed for, leading to congestion. Taxis usually added a time-based rate when they were idling or moving very slowly, but the rate was often too low to compensate the taxi drivers for their time. Because many drivers found that the time spent idling on the road was simply not worth it, many chose to take a break during rush hours — when they were most needed.


9B15A047

Uber started with a pilot program in Shanghai, the most populous city in China. This city was a natural target for Uber because Shanghai was not only the Chinese city with the highest gross domestic product but also its taxi services were more expensive than all other Chinese cities (see Exhibit 4).

Departing from its usual practice when entering other new markets, Uber tested Shanghai with UberBlack.4 This high-end version of Uber service promised luxury sedans for each trip. Uber later extended the test to Beijing and Shenzhen with UberX, a less expensive ride service that used regular sedans. By June 2015 Uber had covered 11 major Chinese mainland cities: Beijing, Changsha, Chengdu, Chongqing, Guangzhou, Hangzhou, Qingdao, Shanghai, Shenzhen and Wuhan.5 By June 2015, Uber was reported to have one million rides per day in the Chinese market, comparable to all the rides in Uber markets outside the United States, as reported in December 2014.6 Indeed, in an email to Uber’s investors, Kalanick revealed that China was now the largest market outside of the United States, and “at the current growth trajectory, will most likely surpass the United States before year-end.”7

The beginning of Uber’s trip in China was less remarkable than how it appears today. Uber entered Shanghai by positioning itself as a premium chauffeur services that provided an upscale travel experience for less than the price of a latte.8 It chose not to involve private car owners when it started in China, but rather to work with local car rental and chauffeur companies to avoid regulatory issues. The market’s reaction to the strategic entry of the high-tech start-up was not encouraging. The regular rate of UberBlack was much higher than a cab, which discouraged those who were merely looking for an affordable trip from A to B but didn’t care about the type of vehicle. Endeavouring to grow its customer base, Uber announced in January 2014 a dramatic price reduction in Shanghai. To be more competitive, Uber’s price was cut by 50 per cent on base and minimum fares and by 30 per cent for the per minute/per kilometre rate.9

“People’s Uber”

The price cut may have attracted more adopters to Uber but the volume of ridership remained modest. It was the introduction of “People’s Uber” in October 2014 that led to extraordinary growth. The new service, which existed solely in China, was believed to have been stimulated by a government document, issued by Beijing in early 2014, encouraging ride-sharing and proposing cost-splitting for passenger cars. This document aimed to make an official distinction between car-pooling and “black cabs.”10 People’s Uber was officially defined as a “non-profit ride-sharing” pilot program that promoted safer and greener rides for both car owners and riders.11 Passengers still needed to pay for the trip, and the fare was said to have been calculated on the basis of research on the cost of maintaining and operating a car. That said, for the People’s Uber drivers, the new program seemed little different from Uber’s other products; it was a way of making money. The not-for-profit aspect referred to Uber: the company did not take any portion of the drivers’ earnings. The intention behind People’s Uber was not to make a profit, but to engage more users and to prepare loyal customers for other for-profit products.12

Not only was Uber not making any profit, it was also spending tremendously to support the new project. In 2014, Uber raised $2.4 billion dedicated to development in the Asian Pacific market, mostly in China.13 First-time users received a ¥3014 coupon that they could use as part of their Uber payment. Drivers would also be subsidized if they logged in a certain number of rides per day or week. Taking Beijing as an example: drivers who logged in at least 40 rides per day would receive extra ¥400; drivers who reached the top 5 on Uber’s weekly log list would receive extra ¥800.15 Uber’s aggressive moves with People’s Uber led to an exponential growth of both its consumer base and its team of drivers. When Uber first started operating in Beijing, it was available only in the central business district and certain


9B15A047

populous areas. By May 2015, it covered the whole city and the estimated time of arrival of a car once requested (ETA) was down to only 4.8 minutes within the urban area.16

In March 2015, Uber slashed the “People’s Uber” price by 30 per cent (20 per cent in some cities) in China, making its already cheaper-than-taxi price even more competitive than the price of its local rivals. Drivers’ earnings were not affected by the price cut, as Uber made up the difference.17 When asked about the price adjustment, Benjamin Chiang, general manager of Uber Beijing, explained that the key indicator they looked into during a price cut was “efficiency.” Instead of monitoring financial metrics, Uber monitored such operational metrics as app use rate, ETA, completion rate of orders, rate of empty runs (unused capacity) and rides per hour. In Uber’s pricing system, passengers were responsible for the cost of empty runs. Chiang confirmed that the growing volume of drivers and passengers had led to much lower empty-run rates, which had, in turn, made the price cut possible.18 Chiang also expressed the hope that increasing the drivers’ hourly income would help Uber to lure new drivers without the need for subsidies.19

Uber’s spending was not stopping in terms of driving the popularity of the “People’s Uber.” Instead, Uber was looking to invest more than $1 billion into the Chinese market and to expand its territory to another 50 cities.

CUSTOMIZATION

By May 2015, People’s Uber remained active in 11 cities alongside Uber’s other for-profit services. Uber expended much effort to modify its product portfolio to appropriately target each city (see Exhibit 5).

For example, UberGreen was a green-energy taxi service that operated only in Wuhan, working jointly with the local rental company “Green New Energy Limousine Service.” The new service, which initially featured a fleet of 10 Trumpchi GA5 REVs, a hybrid-powered vehicle manufactured by Chinese automaker Guangzhou Automotive, was officially launched on May 25, 2015. This service was designed to promote eco-friendly travelling alternatives and sustainable growth.20

Xiaoyou, which could be translated as “Smaller Uber,” was an ultra-low price service featuring the two-seat electronic cars Skio E20s, manufactured by a Zhejiang province auto company. The service ran solely in Hangzhou. The small electronic car, which looked similar to a Smart car, could serve only one customer at a time. The pricing of the Xiaoyou service was typically the lowest in the market. A long-distance ride with Xiaoyou cost less than half the fare of a taxi.

HOLDING HANDS WITH LOCALS

To cater to the local consumers’ payment habits, Uber linked its service to Alipay, China’s most popular third-party payment solution, which was run by Alibaba. Alipay could be used as a payment method on the Uber app instead of a credit card. In December 2014, Uber partnered with Baidu Inc. for mapping support, which provided a more consumer-friendly interface for the Chinese service. Baidu, the Chinese web giant, reportedly had more than 500 million monthly active users for its search engine and 240 million users for its mapping services.21 With roughly $600 million worth of investment, Robin Li, the CEO of Baidu, had a vision of an extensive partnership between the two companies: “The goal of this agreement is not for the sake of investment alone, it is more for strategic cooperation and commercial cooperation.”22 Baidu had set its sights on the booming opportunities in O2O, and Uber offered the website company a shot at the online ride-booking market, which had been dominated by companies


9B15A047

backed by Alibaba. Moreover, the association with Baidu was the first step in building a good relationship with local government. Uber management hoped to gain better connections from partnering with a high-profile Chinese company. Baidu and Uber’s collaboration did not stop on the app level. In May 2015, Uber attempted a joint bid with Baidu for Nokia’s Here mapping business, a technology deemed by carmakers as vital to developing self-driving vehicles.23

UNEXPECTED ALLIES

Uber and other apps that provided chauffeur services had been confronted by protests from local taxi drivers. Indeed, the conflict between Uber and the taxi drivers had become a worldwide phenomenon. It didn’t help that Uber drivers sometimes made more money than the taxi drivers. With more riders turning to “People’s Uber” for its lower fares, licensed taxi drivers found themselves working longer hours and making less than they previously made. Taxi drivers were subject to a license fee, while People’s Uber drivers took home everything they made. Even Uber chauffeur drivers, who worked for UberX or UberBlack, took home a larger share of their earnings than drivers who worked for traditional taxi companies.

The entry of Uber into China and the response from its Chinese competitors meant that change was an urgent necessity for the local taxi industry. Taxi companies needed to alter their business models to retain not only their customers but also their drivers. Many taxi drivers did not conceal their desire to become Uber drivers once they had fulfilled their contract with the taxi companies. By the end of 2014, 4,000 cars had been registered on mobile chauffeur-booking apps in Hangzhou, representing 40 per cent of all the city’s taxis. Taxi companies lost between 5 per cent and 10 per cent of their drivers to chauffeur apps during 2014.24 If the past was any guide, many of the taxi drivers protesting Uber and its competitors today could end up being Uber drivers in the future.

COMPETITION

When taxi drivers were ready to switch their employer, Uber was not their only choice. Valued at $41.2 billion, Uber, the five-year-old Silicon Valley start-up had yet to secure, or even get close to securing, the majority of the taxi market in China. The impact of its first year in China was barely noticeable, as the ride-hailing app market was predominantly controlled by two local companies, Kuaidi and Didi, both of which had started as taxi-hailing apps and later expanded to cover the chauffeur business. Additionally, local-born apps, such as Yidao, Shenzhou and AA, focused exclusively on the chauffeur business.

By April 2015, Didi Kuaidi chauffeur service, which included Didi Chauffeur and Chauffeur One, had cemented a 78.3 per cent share of China’s online chauffeur service market, as measured by number of rides. It was distantly followed by Yidao, which had a 10.9 per cent share, while Uber had managed only a 8.4 per cent share (see Exhibit 6). Didi Kuaidi also had the widest coverage among active users of the ride-hailing apps (see Exhibit 7). All services offered competitive prices, which meant that Uber often wasn’t the best option for riders (see Exhibit 8).

DIDI KUAIDI

Didi and Kuaidi, both founded in 2012 as hi-tech start-ups, had been fighting over the market ever since their births. As opposed to Uber’s business model of matching car owners to ride-seekers, both Didi and Kuaidi had started as taxi-hailing apps. Instead of automatically assigning a taxi to a rider, Didi and


9B15A047 Kuaidi asked users to enter both their pick-up location and destination when sending a request. (Users were also allowed to enter a time and location to book a reservation for a future ride.) All taxi drivers currently using the app received the request and decided whether to take the order. The process of responding to requests was referred to as “fighting for orders,” as several drivers could respond at the same time but only the quickest response would secure the ride. During peak hours, or when requesting an unfavourable trip (usually when the pick-up location was in a suburban area), passengers often chose to add a tip to encourage drivers to take the order. The driver’s account remained active even after accepting an order and when transporting a passenger to a destination, as opposed to Uber’s system, which shut the driver off from new orders until the current order was completed. Passengers sometimes complained about both the constant beeping when the app sent a new order and drivers who attempted to accept new orders while driving. From 2013 to 2014, the taxi-hailing apps went viral among drivers. As a result, many taxi drivers kept multiple smartphones on to monitor different apps in an effort to take more orders. The practice was later banned by government, citing safety concerns, as drivers were distracted because of their paying attention to multiple devices; taxi drivers were now allowed to keep only one app on while working. Kuaidi’s taxi-hailing app went online in August 2012. Kuaidi’s service received technical support from Baidu Map, a mapping solution offered by China’s search engine giant, and Alipay, a payment solution offered by Alibaba. The latter company was also a major investor in Kuaidi. In August 2013, Kuaidi hooked up its app with Alipay as a transaction option and later pushed forward to cover offline taxi transactions. In November 2013, Kuaidi announced its acquisition of Da Huang Feng (Bumble Bee), which was also a ride-hailing company mostly active in Shanghai. As a result of the acquisition, Kuaidi claimed more than 80 per cent of the market share in Shanghai and Guangzhou. In July 2014, Kuaidi launched Yihao Zhuanche (Chauffeur One) with a separate app to target the online chauffeur market. On the order page, the app let users choose the type of event they were using the ride for, such as meeting someone at the airport or catching a flight. By the end of the 2014, Kuaidi advanced Chauffeur One, allowing it to cater to corporate customers. The corporate version of the app dedicated its offerings to providing business travel solutions, such as the option of direct monthly payment from a corporate account, thereby eliminating the task of reporting and reimbursing each ride.25 Didi was officially launched in September 2012 after three months of off-line promotion among taxi drivers. One of Didi’s major investors, Tencent Holding Ltd., was China’s leading Internet company, which provided a variety of media, entertainment, advertising and online value-added services. Its online instant messenger, QQ, and its mobile chat app, Wechat, were, respectively, Chinese consumers’ most widely used instant messaging system and mobile chat app — even when they were overseas. In January 2014, Didi linked its app to WeChat Payment, a payment solution offered by Tencent and embedded in the WeChat app. As a result, WeChat users could access Didi within the WeChat app and travelers gained an alternative to cash transactions. More than 6,000 transactions were completed on that first day through WeChat Payment; as a result, WeChat Payment had become the app of the hour.26 A promotion war erupted between Kuaidi and Didi in January 2014. Both companies spent a huge amount of money distributing coupons to consumers and subsidies to drivers to win over a broader market base. The war escalated rapidly and lasted for about two months before cooling down. During its peak, riders could get an instant ¥10 discount per ride (for up to three rides per day), and drivers were rewarded by the same amount (¥10) for each completed order (for up to five orders per day).27 The price war had both enhanced the influence of both apps and further stimulated the market. However, financial concerns were raised by the reckless spending, especially as both companies had yet to identify a sustainable way to make profit. The war later continued in a less aggressive manner. By May 2015, Didi and Kuaidi had


9B15A047 together spent more than ¥2.4 billion on subsidizing their services: Didi having spent about ¥1.4 billion and Kuaidi, ¥1 billion.28 On Valentine’s Day in 2015, Didi and Kuaidi made a joint announcement about the strategic merger of the two companies. The estimated value of the merged company had reached $8.8 billion. The merger did not affect the operational or management structure of either. The two companies remained mutually independent in terms of their brand and product development. The new company adopted a co-CEO system, retaining both CEOs from Didi and Kuaidi. Chuanwei Lv, the co-CEO from Kuaidi, revealed in an internal email that one of the driving factors for the merger was the money-squandering competition between two companies. He believed that the merger would help “avoid time cost and opportunity cost, thus the new combined company could invent more new services.”29 The merger also marked a shift for Didi Kuaidi, from a business focus on the taxi market to the chauffeur market. Wei Cheng, the co-CEO from Didi expressed the expectation that Didi Kuaidi would become a one-stop travelling platform that combined multiple transportation methods such as taxi, chauffeur, car-pool, sub driver and metro bus.30 One month after the merger, Didi Kuaidi published “Standards for Internet Chauffeur Service Management and Customers Security Assurance,”31 which offered a regulatory protocol for the industry. This document outlined the explicit requirements regarding the vehicles used for chauffeuring, drivers’ competency and the processing of customer complaints, etc. By June 2015, services offered under Kuaidi included the following: • Kuaidi Taxi: a taxi-hailing service. • Yihao Zhuanche (Chauffeur One): chauffeur services that offered different types of vehicle (regular,

premium, luxury, recreational vehicles). Drivers were recruited through licensed rental companies. Inspections were conducted to ensure that vehicles were from reliable resources and drivers were competent for the job. Riders were entitled to complimentary travel insurance. – Yihao Kuaiche (Fast-Ride One): a built-in option in Chauffeur One app. It was officially defined

as “non-profit ride-sharing program” just like People’s Uber. The rate was much lower than that of Chauffeur One. Launched in April 2015.

By June 2015, Didi had extended its product line to integrate the following additional services: • Didi Taxi: a taxi-hailing service. • Didi Kuaiche (Fast Ride): rides offered by private car owners who drove regular sedans. Launched in

May 2015. • Didi Zhuanche (Chauffeur): rides in premium sedans. Drivers were required to keep their cars clean

and tidy and to offer water, tissues and phone chargers to customers. Higher-end model even required drivers to open doors for customers when picking them up and dropping them off. Launched in August 2014.

• Didi Shunfengche (Carpool): carpooling services that required riders and drivers to have the same or nearby destinations. Launched in June 2015.

• Didi Daijia (Sub Driver): provided substitute drivers for special occasions or when private car drivers were unsafe to drive their own cars home, such as after drinking too much alcohol.

After the merger, Didi Kuaidi did not abandon its tactics of using subsidies. It continued to invest in growing the customer base for its new services. In May 2015, Didi Kuaidi launched in 12 major cities “Free Fast Ride,” which offered a ¥15 coupon to be applied to any Didi Fast Ride on Mondays within a


9B15A047 month starting from May 25. The new program was expected to cost Didi Kuaidi ¥1 billion.32 In June 2015, Didi Kuaidi revealed its plan to raise $1.5 billion to be used to fend off the competition from Uber.33 YIDAO Yidao was founded in Beijing in May 2010. Unlike Didi and Kuaidi, Yidao had maintained its focus on chauffeur-booking. Yidao’s app went online in September for Beijing users and, by June 2014, it had covered 75 cities. In July 2015, it extended its business to three overseas markets: San Francisco, New York City and Phoenix.34 In August 2014, in response to Beijing’s ban on rental companies offering illegal taxi services, Yidao clarified that, rather than being a rental company, it was “a platform offering information about traveling alternatives,” aiming to enhance the efficiency of rental companies’ services through mobile technology.35 Yidao underscored the customized experience it offered to users. Users started by choosing among “use a car right now,” “book a car for later” or “arrival/departure at airport.” When booking a future ride, users could reserve the car for an hour, half-a-day or a whole day. They then moved on to select their preferred vehicle type. After the request was submitted, users received information about all the drivers who responded to the order: a profile picture, vehicle details, ratings and prices. The user, not the system, decided which driver would fulfill the order. Yidao completed C round financing in 2015, adding more than ¥100 million to its capital. Hang Zhou, the CEO of Yidao, emphasized that the funds would be used, not to fuel a price war, but to be spent on projects related toproduct development, customer experience improvements, and/or technology upgrades. “Spending money is necessary, but a price war is stupid. . . . You cannot win the game through a price war.” Zhou’s comment was believed to have been addressing the main tactics adopted by Didi Kuaidi. Nevertheless, it was not obvious that Yidao had a better idea to grow market share than offering cash rewards. When asked about its strategy to blunt the competition from Didi Kuaidi and Uber on the World O2O Expo, Yidao responded that it would insist on the high-quality and premium price of customized chauffeur services.36 By June 2015, services offered on Yidao app included the following: • Yidao Zhuanche (Chauffeur): chauffeur service • Yidao Shijia (Test Drive): test driving of selected cars • Yidao Daijia (Sub Driver): substituting drivers for special occasions or to avoid driving under the

influence of alcohol. GOVERNMENT The Chinese government’s attitude toward ride-hailing apps could sometimes be difficult to judge. When the online chauffer business was first introduced to the market, it had been held responsible for offering illegal taxi services. The safety issues behind the online chauffeur services were widely raised and criticized. Private cars without a licence for offering taxi services were fined and, on some occasions, even confiscated. The authorities did not, however, impose a strict prohibition on operations on a national base. A common practice for chauffeur drivers was simply to avoid a road where checkpoints were spotted. Chauffeur drivers of all companies remained working in a legally ill-defined industry.


9B15A047 The Shanghai Committee of Transport was the first municipal authority to take a lead by directly addressing the issue. Shanghai Taxi Information Service Center, initiated by Shanghai Committee of Transport and co-sponsored by four major taxi companies and Didi Kuaidi, was an integrated online taxi-hailing service centre that linked information obtained on mobile devices to an official taxi database for managerial purpose. The platform was put into operation starting in June 2015. The next step, the committee revealed, was to work out a system with Didi Kuaidi to regulate the online chauffeur business sector. Jianping Sun, the director of the committee, made positive comments about the growing chauffeur business sector, saying it was a supplementary force that eased the tension of insufficient supply and satisfied the diverse needs of passengers.37 In March 2015, the Guangzhou Committee of Transport finished its bidding process for the government-endorsed chauffeur service platform Ruyue. Four companies bid on the platform, which would commit them to provide 2,950 cars for the program,38 but months of testing might be required before the official launch. Management of the platform drivers was similar to that of taxi companies, but the drivers planned to work mainly during rush hours. During the construction stage of the platform, authorities claimed to be open to online ride-hailing companies’ involvement, but signs of such collaboration had yet to be seen. WHAT’S NEXT? The online chauffeur business continued to be in an expansion mode. All players were striving for a broader customer base, and Uber had much work to do. Even for the market leaders, it was unclear how a growing market share could be turned into a profitable situation. Should Uber follow the steps of those leaders who were trying to effectively buy a greater market share through more generous spending, or should it instead seek another way to gain consumers and, most importantly, profit from its business? Uber needed to make a decision if it wanted to continue its wild ride in China.


9B15A047

EXHIBIT 1: ONLINE/MOBILE MARKET IN CHINA, 2010–2013, AND ESTIMATES FOR 2014–2017

Source: iResearch, “Online Chauffeur Industry Inspired by Mobile Internet,” August 11, 2014, www.iresearch.com.cn/View/235749.htm, accessed July 1, 2015.

EXHIBIT 2: TAXIS IN CHINA, 2005–2013

Source: National Bureau of Statistics of People’s Republic of China, http://data.stats.gov.cn/easyquery.htm?cn=C01, accessed July 1, 2015.

4.0%

77.3%

91.7%

81.2%

57.5% 50.6%

44.4%

34.9%

0

100

200

300

400

500

600

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013 2014e 2015e 2016e 2017e

billi

ons

Mobile Market Value (yuan) Growth Rate

860880900920940960980

1,0001,0201,0401,0601,080

2005 2006 2007 2008 2009 2010 2011 2012 2013

Thou

sand

s

Number of…


9B15A047

EXHIBIT 3: PRIVATE CAR OWNERSHIP IN CHINA, 2005–2014

Source: National Bureau of Statistics of People’s Republic of China, http://data.stats.gov.cn/easyquery.htm?cn=C01, accessed July 1, 2015.

EXHIBIT 4: TAXI PRICING IN THE TOP-10 GDP-PRODUCING CITIES IN CHINA (IN YUAN)

City Base Rate Rate per km after Shanghai 14 for first 3 km 2.4 Beijing 13 for first 3 km 2.3 Guangzhou 10 for first 2.5 km 2.6 Shenzhen 10 for first 2 km 2.4 Tianjin 8 for first 3 km 1.7 Suzhou 10 for first 3 km 1.8 Chongqing 8 for first 3 km 1.8 Chengdu 8 for first 2 km 1.9 Wuhan 8 for first 2 km 1.2 Hangzhou 11 for first 3 km 2.5

Note: GDP = gross domestic product; GDP are based on 2012 data; km = kilometre; taxi rates are based on 2013 data and account for only daytime running regular taxis.

Source: People.cn, “Taxi Rate of 31 Cities in China,” June 13, 2013, http://leaders.people.com.cn/n/2013/0613/c58278-21822824.html; Fawan.cn, “Taxi Pricing of Cities with Top 10 GDP,” http://news.ifeng.com/mainland/detail_2013_05/08/ 25068962_0.shtml, accessed July 1, 2015

3.4 4.3 6.1

8.8 10.9

13.1

18.6

21.5

0

20

40

60

80

100

120

140

0

5

10

15

20

25

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Mill

ions

Number of private-owned vehicles

Number of cars owned per hundred urban households


http://leaders.people.com.cn/n/2013/0613/c58278-21822824.html

http://leaders.people.com.cn/n/2013/0613/c58278-21822824.html

9B15A047

EXHIBIT 5: UBER SERVICES AVAILABLE IN CHINESE MAINLAND CITIES AND THEIR CORRESPONDING MINIMUM RATE (IN YUAN)

People’s

Uber UberX UberXL Black UberEXEC *Tesla *Green *Xiaoyou

Qingdao 8 23 Tianjin 8 12 Beijing 10 20 30 30 Shanghai 15 20 30 30 Guangzhou 9 15 21 17 28 Shenzhen 15 20 24 24 Wuhan 8 15 24 8 Chongqing 10 24 Chengdu 10 15 Hangzhou 10 15 24 8 Changsha 7 12 *Not readily available at any time due to limited offerings. Source: Case writer, data collected on Uber app.

EXHIBIT 6: CHINESE ONLINE CHAUFFEUR MARKET, FIRST QUARTER, 2015

Source: Analysys International, “Online Chauffeur Business Growing Rapidly in China in 2015 Q1,” May 12, 2015, www.analysys.cn/yjgd/8926.shtml, accessed July 1, 2015

Didi Kuaidi 78.3%

Yidao 10.9%

Uber 8.4%

Other 2.4%


9B15A047

EXHIBIT 7: COVERAGE OF ACTIVE USERS OF RIDE-HAILING APPS IN CHINA, BY APP, FIRST QUARTER, 2015 (IN PERCENTAGE)

Note: The coverage rate was measured by the percentage of users of ride-hailing apps among active users of mobile phone apps. The total combined is greater than 100 per cent because some users employ multiple apps.

Source: Analysys International, “Online Chauffeur Business Growing Rapidly in China in 2015 Q1,” May 12, 2015, www.analysys.cn/yjgd/8926.shtml, accessed July 1, 2015 accessed.

EXHIBIT 8: PRICING OF RIDE-HAILING APPS IN CHINA

Product Base Rate (in yuan)

Rate per KM (in yuan)

Rate per min (in yuan)

Didi Fast Ride 0 1.5 0.25 Kuaidi Fast Ride One 0 1.5 0.25 People’s Uber 0 2.17 0.35 Kuaidi Chauffeur One 15 2.9 0.5 Yidao 10 2.8 0.4 UberX 15 2.3 0.4 UberBlack 18 3.85 0.7

Note: The prices listed are the lowest offerings available in Beijing; km = kilometre.

Source: Case writer, data collected on the Uber official site, the Didi Kuaidi official site and the Yidao official site.

80.9

17.5

8.1

Didi Kuaidi

Yidao

Uber


9B15A047 ENDNOTES

1 This case has been written on the basis of published sources only. Consequently, the interpretation and perspectives presented in this case are not necessarily those of Uber or any of its employees. 2 All currency in U.S. dollars unless otherwise indicated. AU$ = Australian dollar. 3 Naina Bajekal, “Uber Charged 4 Times Its Usual Rate During Sydney Hostage Siege,” Time Inc., December 15, 2014, http://time.com/3633304/uber-sydney-hostage-surge-pricing/, accessed July 1, 2015. 4 Binghui Shui, “What Is Uncontrollable for People’s Uber in China?” Jiemian News, May 18, 2015, www.sxdaily.com.cn/n/ 2015/0506/c339-5676736.html, accessed July 1, 2015. 5 Uber Official Site, “60 Countries: Available Locally, Expanding Globally,” www.uber.com/cities, accessed July 1, 2015. 6 Josh Horwitz, “Uber Is Logging 1 Million Daily Rides in China — as Many as the Rest of the World, Combined,” Quartz, June 11, 2015, http://qz.com/426561/uber-is-logging-1-million-daily-rides-in-china-as-many-as-the-rest-of-the-world-combined/, accessed July 1, 2015. 7 Biz Carson, “Uber's Growth in China Is Stunning,” Business Insider, June 11, 2015, www.businessinsider.com/uber-china-growth-2015-6, accessed July 1, 2015. 8 Kaylene Hong, “Uber Slashes the Price of Its Private Car Hire Service in Shanghai, China by 30%,” TNW News, January 8, 2014, http://thenextweb.com/asia/2014/01/08/uber-cuts-the-price-of-its-private-car-hire-service-in-shanghai-china-by-30/, accessed July 1, 2015. 9 Ibid. 10 Chao Guo and Zhiming Shen, “Carpooling and Cost-splitting Are Allowed,” The Beijing News, December 31, 2013, http://epaper.bjnews.com.cn/html/2013-12/31/content_487566.htm?div=-1, accessed July 1, 2015. 11 Evanee Wu, “Introducing People's Uber: Moving More People With Fewer Cars,” Uber Newsroom, October 19, 2014, http://blog.uber.com/peoples-uber, accessed July 1, 2015. 12 “Behind the Price Cut,” Sohu News, March 24, 2015, http://auto.sohu.com/20150324/n410251796.shtml, accessed July 1, 2015. 13 Qiwen Cui and Junjie Huang, “How Does Uber Spend Money in China?” QDaily, December 5, 2014, http://qdaily.com/ display/articles/4144, accessed July 1, 2015. 14 ¥ = yuan, US$1 = ¥6.20. 15 Cui and Huang, op. cit. 16 Qiwen Cui, “People’s Uber at 10 Yuan: How Did Uber Decide on the Price?” QDaily, March 10, 2015, www.qdaily.com/ display/articles/7535.html, accessed July 1, 2015. 17 “Behind the Price Cut,” op. cit. 18 Ibid. 19 Cui, op. cit. 20 Tycho De Feijter, “Uber Signs Deal to Operate Green-Energy Taxi’s in China,” CarNewsChina, May 25, 2015, www.carnewschina.com/2015/05/25/uber-signs-deal-to-operate-green-energy-taxis-in-china/, accessed July 1, 2015. 21 “Baidu to Buy Uber Stake in Challenge to Alibaba in China,” Bloomberg, December 17, 2014, www.bloomberg.com/ news/articles/2014-12-17/baidu-to-buy-uber-stake-in-challenge-to-alibaba-for-car-booking, accessed July 1, 2015. 22 Ibid. 23 Liam Tung, “Uber and Baidu Looking to Buy Nokia's Here Unit Together,” ZDNet, May 19, 2015, www.zdnet.com/article/ uber-and-baidu-looking-to-buy-nokias-here-unit-together/, accessed July 1, 2015. 24 Feifei Luo, “People’s Uber Advances the Identity Debate of Chauffeur Drivers,” China Daily, April 5, 2015, www.zgrbwzj.com/ huanbao/jiaotong/yaowen/2015-04-05/37036.html, accessed July 1, 2015. 25 Jian Guan, “Kuaidi Chauffeur One Targets Corporate Market,” Yicai, December 26, 2014, http://tech.ifeng.com/a/ 20141226/40920793_0.shtml#_zbs_baidu_bk, accessed July 1, 2015. 26 “Didi Linked WeChat to Fight Alipay,” 163.com, January 6, 2014, http://tech.163.com/14/0106/15/9HTSEVDA000915 BF.html, accessed July 1, 2015. 27 “Price War of Taxi-hailing Apps in 2014,” Comnews, February 20, 2014, www.traveldaily.cn/article/78035, accessed July 1, 2015. 28 “Didi Kuaidi Controls 90% of the Market After Merger Raising Concerns About Monopoly,” Chinanews, February 15, 2015, http://finance.chinanews.com/it/2015/02-15/7064780.shtml, accessed July 1, 2015. 29 Ibid. 30 “Didi Kuaidi Investing 1 Billion Yuan to Promote Free Fast Ride in 12 Cities,” Yangcheng Night News, May 23, 2015, http://news.xinhuanet.com/finance/2015-05/23/c_127833772.htm, accessed July 1, 2015. 31 Xin Xiang, “Here Comes the Protocol for Online Chauffeur Business,” Tencent News, http://tech.qq.com/a/20150316/ 023483.htm, accessed July 1, 2015. 32 “Didi Kuaidi Investing 1 Billion Yuan To Promote Free Fast Ride In 12 Cities,” op. cit. 33 “Didi Kuaidi Raising $1.5 Billion Valued at $15 Billion,” ifeng, June 15, 2015, http://tech.ifeng.com/a/20150615/41111546_ 0.shtml#_zbs_baidu_bk, accessed July 1, 2015. 34 “Chronicle of Yidao,” Yidao official site, www.yongche.com/intro/chronicle.html, accessed July 1, 2015. 35 “Yidao Responded to Government's Notice: We Are a Rental Platform Not a Rental Company,” Beijing Business News, http://finance.chinanews.com/auto/2014/08-14/6490735.shtml, accessed July 1, 2015. 36 Hongxuan Yu, “Yidao Hurts Having No Money for Price War,” TMTPost, June 24, 2015, www.tmtpost.com/1032672.html, accessed July 1, 2015. 37 Qing Zhong, “Policies Regulating Online Chauffeur Business Are Expected to Be Made,” Chinanews, www.chinanews.com/cj/2015/06-04/7320641.shtml, accessed July 1, 2015. 38 Ranran Liu, “Ruyue’s Coming, Are You Ready?” Guangzhou Daily, March 4, 2015, http://gzdaily.dayoo.com/html/2015-03/04/content_2874817.htm, accessed July 1, 2015.


http://epaper.bjnews.com.cn/html/2013-12/31/content_487566.htm?div=-1

http://blog.uber.com/peoples-uber

http://auto.sohu.com/20150324/n410251796.shtml

http://finance.chinanews.com/it/2015/02-15/7064780.shtml

http://news.xinhuanet.com/finance/2015-05/23/c_127833772.htm

http://finance.chinanews.com/auto/2014/08-14/6490735.shtml

http://gzdaily.dayoo.com/html/2015-03/04/content_2874817.htm

http://gzdaily.dayoo.com/html/2015-03/04/content_2874817.htm

4. uber in china.pdf

Documents

Transcript of 4. uber in china.pdf