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Didi Chuxing – How China’s ride-hailing leader aims to transform the future of mobility

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Zhongguancun. That is the name of the district in the north-west of Beijing, where more than a dozen billion-dollar “unicorn” startups set up their offices in the midst of a series of software parks. From here, Chinese entrepreneurs are seeking to revolutionize the way we communicate, exercise, shop and – get from A to B. The latter mission has been taken up by Jean Liu, President of Didi Chuxing, the world’s largest ride-hailing service. Originally founded in 2012 as “Didi Dache” and renamed to “Didi Chuxing” after a merger with “Kuaidi Dache” in 2015, the company is best known to many as the Chinese Uber.

Didi versus Uber

Yet, that comparison fails to capture both the scale of Didi’s success as well as the scope of its business. Even though it is (so far) little known outside of China, Didi is much more than just another ride-hailing company in the shadow of Uber. In fact, it is quite the opposite: Today, Didi surpasses Uber in various dimensions. While Uber has proven to be extremely competitive in many markets around the world, it struggled to keep pace with Didi in China. After an intense and costly battle for market share, Didi acquired Uber China for USD 35 billion in 2016 and Uber left the Chinese market. At present, Didi provides up to 30 million rides a day, roughly twice as many as Uber, across more than 400 cities. In Beijing and Chengdu alone, the total number of daily rides reached one million throughout 2017.

Figure 1: Comparison of Didi Chuxing and Uber World. Source: Based on data from Roland Berger, Recode, China Daily, Crunchbase.

Didi’s Product Portfolio

Didi began its journey in 2012 as a service for customers to reserve taxis on their smartphones. However, within just a few years, the company began to rapidly extend its product portfolio. As Jean Liu put it: “The opportunity is much bigger than just taxi-hailing. It’s really a world-class dilemma – how to move around 800 million urban Chinese”. Didi’s answers to this dilemma cover a broad range of mobility services, including, most notably, private car hailing, with the three options Luxe (higher-end vehicles and prices), Premier (middle-end) and Express (lower-end). Since 2015, Didi’s services also comprise Hitch, a social ride-sharing service, and Designated Driving, a service which enables customers to hire a driver for their own car, for instance after consuming alcohol as there is zero tolerance for drunk driving in China. In addition, the company has introduced Didi Bus, a bus-booking service which has become a popular alternative to crowded public buses, as well as Didi Enterprise Solutions, dedicated to offering business travel services. In 2016, Didi also began cooperating with car rental companies to rent out vehicles to customers and introduced its Minibus service, offering short rides to commuters on minibuses in Beijing and Chengdu. In January 2018, Didi most recently unveiled its bike-sharing platform, which integrates the services of the two Chinese bike-sharing companies ofo and Bluegogo and is open to other potential partners in the future. Didi also announced that it will roll out its own bike-sharing service, even though, as of yet, no timeframe has been confirmed.

Figure 2: Evolution of Didi’s Product Portfolio. Source: Based on information from Didi Chuxing.

Didi’s Investors

Didi’s growing number of services are made possible by the large amount of capital the company has been able to raise. Despite the fact that most analysts believe Didi remains loss making, the company has reached a valuation of USD 56 billion and has raised more than USD 20 billion since its inception. In 2017 alone, Didi received an astounding USD 9.5 billion in only two major funding rounds. Over the years, Didi has been backed by notable investors and companies such as China’s Tencent and Alibaba, Singapore’s Temasek, Japan’s Softbank, as well as Apple. With grand ambitions, the company may in the near future be planning to go public in an IPO that could raise its valuation even further to an estimated USD 80 billion.

Figure 3: Didi’s Most Recent Funding Rounds. Source: Based on data from Crunchbase.

Expansion of Didi’s Business Scope

Aided by these large sums of capital, Didi has assertively begun to dip its toes in new waters over the past years. Besides ever-expanding its platform for mobility services, Didi today is increasingly active in the often highly interconnected areas of artificial intelligence, big data, smart transportation and self-driving technology.

Figure 4: Overview of Didi’s Business Fields. Source: Based on information from Didi Chuxing.

Didi’s growing interest in these areas is best reflected by the gradual expansion of the company’s research network. Didi set up its first research facility, the Didi Research Institute in Beijing, in late 2015 to work on ways to use artificial intelligence (AI) for the optimization of its dispatch system and route planning. Only two years later, Didi opened a research center in Silicon Valley (Didi Labs) to accelerate the development of self-driving vehicle technology and computer vision. Located not far from Google’s headquarters, the facility marks Didi’s first physical presence outside of China and today houses around 100 researchers and AI specialists. Most recently, in January 2018, Didi announced the establishment of Didi AI Labs to facilitate AI research on intelligent traffic technology. With a team of over 200 scientists and engineers, DiDi AI Labs will work on natural language processing, computer vision, deep learning, and other innovative technologies.

The launch of Didi AI Labs came just one day after Didi introduced its Smart Transportation Brain, a solution that brings together data from government and other partners to develop a city traffic management system powered by AI and cloud technology. Prior to its launch, the project had been in development for around one year, piloting in over 20 Chinese cities. As a virtuous example of the interconnection between various technologies, Didi’s Smart Transportation Brain analyzes data of video cameras, sensors and GPS signals from Didi’s cars, as well as smart traffic lights. The system builds on Didi’s prior experience in the realm of big data operation that stems from the vast amount of information the company produces. Didi conducts 2 million rides daily driven by around three million drivers, which together result in more than 70 terabytes of daily data. That is around seven times the printed collection of the US Library of Congress. Didi analyzes this extensive quantity of data to identify traffic hot spots and predict when more cars are needed on the road – a usage of data that seems unimaginable in other countries, not least because of privacy concerns.

After the two major funding rounds in 2017, Didi is also increasingly looking to develop self-driving vehicle technology. At present, Didi’s plans are less advanced than those of Alphabet’s Waymo or Baidu, which is widely considered to be the leader of self-driving technology in China. However, the company is going to great lengths to catch up fast, with the opening of Didi Labs in California being one of the most visible signs. Moreover, just months after the launch of its research facility in the US, the company officially announced its self-driving car project and in the same year obtained the certificate for High-Definition (HD) mapping in China. These maps possess extremely high precision at centimeter-level, which is needed for automated vehicles to maneuver the complexity of real-world traffic. In February 2018, Didi subsequently began testing its vehicles in three cities in both the US and China. It has also struck partnerships with several companies, such as Germany’s Continental, to cooperate in developing connected vehicles tailor-made for Didi’s ride-hailing services. In a similar vein, Didi is seeking to form a joint venture together with Volkswagen to help develop purpose-built vehicles for its services.

Expansion of Didi’s Business Scale

Given its success in China, Didi is bulking up to expand internationally. Over the past several months, Didi has successfully extended its influence to six continents. Yet, it began its global expansion with a remarkably different approach than its American competitor Uber. When Uber began expanding its operations outside of the United States, its strategy was to swiftly identify new markets and enter independently, with (almost) no local partnerships. In stark contrast, Didi took a more cautious and much more collaborative approach. The key component of its initial global strategy was a combination of local partnerships and investments in domestic ride-hailing companies.

Figure 5: Overview of Didi’s Global Expansion. Source: Based on information from Didi Chuxing.

Didi’s efforts to expand overseas began in 2015, when the company first partnered with US ride-hailing company Lyft and Grab, Uber’s main competitor in South East Asia. Supported by both strong funding as well as organizational restructuring – Didi unveiled an international division in February 2017 – Didi began to further accelerate these efforts over the past year. In August 2017, Didi announced a strategic partnership with Taxify, a fast-growing ride-hailing company mainly active in (Eastern) Europe and Africa. In addition, Didi amplified its efforts in South East Asia. Together with one of its main financial investors, Japan’s SoftBank, in July 2017 it injected another USD 2 billion into its existing partner, Grab. In January 2018, as its first major move in Latin America, Didi also acquired 99, a Brazilian ride-hailing company.

Further into 2018, Didi for the first time departed from its original strategy and entered foreign markets with its own services. In April 2018, Mexico, which is Uber’s third largest market, became the first country outside of China where Didi launched its ride-hailing service. Soon after, Didi began serving customers in Melbourne, Australia at the end of June 2018. Yet, with the launch in Australia, China’s ride-hailing champion faces new challenges. Firstly, Didi again is entering into direct competition with Uber. Secondly, the move puts Didi up against Ola, an Indian ride-hailing company, which since 2015 counts Didi as one of its investors.

Didi Chuxing fares vs. Beijing Taxi fares.

Given its most recent actions, Didi’s international strategy is increasingly beginning to resemble Uber’s: Starting physical operations in markets where it feels it could win or there isn’t an obvious existing player to work with. However, a look at Uber’s experience shows how difficult it can be to successfully enter foreign markets. Expanding abroad often still means adapting to unfamiliar foreign customers and navigating complex regulatory systems. And these are only some of the challenges Didi faces as is continues to grow both in terms of scope (business areas) and scale (markets).

Future Challenges

Firstly, Didi continues to deal with the fallout of the costly subsidy battle with Uber in China. After burning through such large amounts of cash, Didi had to cut its generous subsidies, which in turn meant a reduction of the income of drivers. Secondly, new and influential competitors have emerged in Didi’s domestic market – China. In March 2018, the Chinese delivery company Meituan received licenses to operate online ride-hailing services in Nanjing and Shanghai. The internet company, better known for its restaurant services, is hoping to gain an advantage from its sophisticated location-based technology, and lure drivers whose loyalty to Didi has suffered as pay has fallen. Also, whereas the competition between Didi and Uber was merely about ride-hailing, Meituan is a more powerful rival since it can combine ride-hailing with multiple online services to bring more user traffic. Third, there are signs that the regulatory framework in China gradually gets more conservative, as authorities seek to rein in some of Didi’s dominance. Amongst other reasons, strong pressure by the taxi lobby induced China’s Ministry of Transport (MOT) in July 2016 to pass new regulations which stipulate that all requirements that apply to taxis now also apply to Didi, with cities being free to individually regulate their usage. As a result, in December of 2016, Beijing and Shanghai issued new rules requiring all drivers of car-hailing companies to be permanent city residents and their cars to be registered locally. While authorities have taken this step to prevent extra traffic and streets from being clogged by cars and drivers from surrounding provinces, for Didi this makes it more difficult to recruit drivers.

Other cities such as Shenzhen also seek to impose more stringent requirements, with vehicles types and license plate registration coming into play. Ultimately, such regulations could make it easier for taxi services to compete with Didi. Didi would most likely be forced to raise its prices, which would mean losing one of its most strategic advantages in comparison to conventional taxis. After all, Didi and other ride-hailing services owe a great deal of their popularity to the fact that its services usually cost about 10 – 20 per cent less than regular taxis. For instance, in Beijing, a trip from the railway station to the Forbidden City costs around CNY 16 (EUR 2.00) using Didi’s Express service, while the price for the same distance is around CNY 20 (EUR 2.50) if a conventional taxi is hired.

Figure 7: Overview of Didi’s Challenges. Source: own construction.

In addition to these challenges, Didi is currently facing scrutiny after a female passenger was allegedly murdered in May 2018 by an unregistered driver who accessed the platform using his father’s account. Concerns about passenger safety have been particularly prominent concerning the use of Didi’s Hitch service, the social ride-sharing application. This forced Didi to overhaul its app, stop the use of Didi Hitch at night and record all conversations during the ride.

Lastly, on a very general level, even though basically all ride-hailing companies claim to cut back on traffic, ease air pollution, and complement public transit, recent studies have begun to question the alleged benefits of ride-hailing. For instance, several analyses on the effect of Uber and Lyft on traffic in San Francisco and New York conclude that ride-hailing, in fact, generates more, not less traffic congestion. Reverting to the question of how these problems could be addressed, a widely-cited study from Lisbon, Portugal found that ride-hailing would be most beneficial if it took place in the form of shuttle-like group commutes of autonomous vehicles. More precisely, the researchers at the International Transport Forum (ITF) showed that 9 out of 10 passenger cars could become obsolete, if all city trips would be conducted by fleets of autonomous vehicles. It is therefore little surprising that Didi is actively working on possibilities to offer its services through such autonomous taxi fleets in the future, as the envisioned cooperation with Volkswagen shows.

At present, Didi’s business model remains an interesting combination of artificial intelligence, big data and the services of millions of relatively low-skilled drivers. However, its investments in self-driving cars suggest a different future, with fewer humans, or perhaps none at all. The ambitions of Jean Liu, Didi’s President, are clear: while Didi today accounts for just two per cent of car journeys in China, it aspires to ten or more (Uber and Lyft together account for around 15 per cent of journeys in San Francisco). Nevertheless, faced with an array of challenges both at home and abroad, only the coming years will tell whether Didi can truly redefine mobility and at the same time be profitable – not only in China, but on a global scale.

Marcel Schlobach worked as a Junior Researcher in the project Mobility and Fuels Strategy as a Contribution to the Traffic Transition in China – Pilot Project in the Jing-Ji-ji Region. His research focuses on the future of mobility in China, in particular the policy and market developments surrounding Intelligent and Connected Vehicles (ICV).

Sandra Retzer serves as Head of “Sustainable Mobility, Urbanisation and Energy” of GIZ in China. She is responsible for Sino-German policy dialogues and technical cooperation projects in the fields of energy, electro-mobility, low carbon transport and sustainable urbanisation.

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