Uber and Land Wars in Asia

You fell victim to one of the classic blunders! The most famous of which is “Never get involved in a land war in Asia,” but only slightly less well-known is this: “Never go against a Sicilian when death is on the line!” - Vizzini in The Princess Bride (1987)

Uber is selling it’s China business to Didi Chuxing, the ride sharing leader in China, after investing over $2B in a subsidy war over the last three years to gain marketshare. Pending regulatory approval, Didi will be acquiring Uber China in exchange for 20% equity in Didi (with Didi now valued at $35B). Before the acquisition, Uber China was valued at $7B, and Didi was valued at $28B. Note that Uber China was a standalone business and it’s investors included Uber and Baidu among others, so Uber specifically will receive 17.7% of Didi equity. In addition, Travis Kalanick of Uber and Cheng Wei of Didi will sit on each others boards.

This is a very interesting turn of events: Uber has now exited China, and in return for spending $2B it bought a 17.7% stake in a company now poised to take over the entire Chinese ride sharing market. What a masterful play. More interestingly, Uber has shown that is very profitable in its mature markets, so having dropped the costly subsidies in China, Uber is on a very fast path to profitability.

This budding partnership between Uber and Didi complicates the current status quo (more like old western style Mexican standoff) since Lyft (popular in US + Europe), Grab (popular in Southeast Asia), Ola (popular in India), and Didi (popular in China) had created an alliance where users could book riders from each other’s apps in the respective regions where the companies operate. Now that Didi’s interests are so closely aligned with Uber, it makes you wonder where the players stands now - it feels a lot like the shifting alliances of the european powers leading up to WW1.

My instinct tells me that while Uber gave up in China, it has no plans to cede territory in India (Ola), Southeast Asia (Grab), or US/Europe (Lyft). Also where does Brazil, Russia, or Africa fit into this?

On a broader note about tech in China, a good friend of mine had a very insightful thought:

It’s crazy that no one can seem to operate in China. Except Apple. Google gave up, Uber gave up - it must be such a different market that it just is really really hard… I just can’t fathom the cultural and governmental differences - it’s like a different planet

I believe the huge delta in performance maybe due to a couple factors:

  1. Apple makes hardware while everyone else makes software/services
  2. Software/services are inherently easier/cheaper to clone by local players and block via the great firewall
  3. Apple goods are manufactured in China so the government is a lot warmer to that kind of commerce compared to a few guys in Silicon Valley controlling all media / information consumption of over 1B people (e.g. FB / Google)
  4. Chinese consumers see Apple as an aspirational brand ala Louis Vuitton. Thus the very large (in absolute numbers) affluent portion of the Chinese market will not settle for clones or cheaper local versions (e.g. Xiamoi), giving Apple a real competitive edge.

Overall recent events have shown that 1) land wars in Asia are very expensive and 2) business in China is very interesting, very fluid, and not for the feint of heart.


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