INTERNET: Uber Gets New China Backer, Yidao Slips
Bottom line: Uber’s latest mega funding from a Chinese investor demonstrates its determination to stay in China, while Yidao’s marginalization could force it to sell itself to an Uber-Baidu alliance at a bargain price.
The race for supremacy in China’s hired car services market is taking several new twists, with reports that US giant Uber is close to landing a major new funding from a Chinese backer as it shows no signs of leaving the market. At the same time, intense competition could be close to claiming its first big victim, with separate reports saying Yidao Yongche has made major layoffs as it struggles to keep up with Uber and homegrown Chinese giant Didi Kuaidi.
The hired car services story in China has been a noisy one, upsetting a stodgy industry that was mostly dominated for years by traditional taxis. But a new generation of companies are taking advantage of global positioning technology to offer location based services (LBS) that allow customers to easily find and book hired private cars that are nearby and also cheaper than taxis. That potent combination has resulted in a “democratization” of hired car services, which were usually considered a semi-luxury but are now increasingly used by people as an affordable substitute for public transportation.
In China the hired car business was first pioneered by Didi and Kuaidi, 2 separate companies that began as taxi app operators but more recently have merged and expanded aggressively into the business of providing private hired cars. That particular private car business model was imported to China by Uber, which has also made big inroads in the market since launching its core services last year.
Despite a few setbacks, including raids of its offices in 2 Chinese cities, Uber said earlier this month it has no intention of leaving China and plans to spend $1 billion in the market this year alone. (previous post) Now we know where much of that funding is coming from, with the latest reports that Chinese fund manager Hillhouse Capital Group is preparing to make a major investment in Uber. (English article; Chinese article)
The investment could ultimately be as large as $1 billion, but is more likely to end up in the hundreds of millions of dollars, according to unnamed sources quoted in the reports. Hillhouse will make the investment via a bond that could be converted into Uber shares later, probably when it makes a future IPO. In addition to investing in Uber, Hillhouse is also an investor in Didi Kuaidi, demonstrating its confidence in the hired car sector.
Uber’s CEO Travis Kalanick previously said that he’s determined to stay in China, though he added the market is not an easy one. This latest funding seems to demonstrate his commitment to China, and so far the company is showing signs of gaining steady traction despite its occasional setbacks.
The same can’t be said for Yidao Yongche, which has reportedly laid off large numbers of staff as it struggles to compete with Uber and Didi Kuaidi. (Chinese article) Yidao has denied any major layoffs, and a report on the action only cites an employee who admits that most of the job cuts occurred 2 months ago and were made in units where the company had only recently expanded.
The theme in this particular story is that Uber and Didi Kuaidi have become such dominant forces that other companies like Yidao can’t compete. This particular story is also noteworthy because earlier reports had indicated that Yidao and Uber were actually in talks to form a partnership that was being guided by online search leader Baidu (Nasdaq: BIDU), which is an investor in Uber. (previous post)
Those earlier reports in May said an announcement of a 3-way tie-up was imminent, though nothing ever came. It’s quite possible the deal fell apart and we won’t hear anything more, as Uber feels it doesn’t need a second-tier partner like Yidao. But if Yidao really is feeling the pinch, it could try to restart the talks and sell itself to the Uber-Baidu alliance at a bargain simply to survive.
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