Survival

Uber’s deal with Didi Chuxing looks like defeat, but it may be a shrewd move

After combating its Chinese contender for driver and rider loyalty, it appears that Uber has lost but the deal are not too that simple

Uber has sold its Chinese operations to rival Didi Chuxing, the countrys biggest ride-hailing firm, signalling the end of a fierce price war waged between the two companies over the past two years.

Uber, last valued at around $68 bn, lost an estimated$ 2bn fighting Didi Chuxing in China, devoting out incentives for drivers and free rides in an attempt to compete for market share. Didi was doing the same, but had around 85% of the market share compared with Ubers 8 %.

Didi, by all accounts, had the edge, which led Ubers investors to push for a deal rather than waste money on a futile and costly rivalry that could have stood in the way of a much-anticipated initial public offering( IPO) in the US.

On the face of it, Uber appears to have lost the willy-waving competitor, conceded defeat and accepted a deal in order to save face and money. Yet the bargain is not quite that simple.

By fighting so aggressively for two years, Uber procured a strong negotiating position. The San Francisco company will not only gain$ 1bn in investment from Didi through the deal, but will also take a 17.7% stake in Didi while still maintaining its brand in China.

Perhaps most importantly, the bargain appears to trump the cosy relationship Didi has with Ubers competitors. Didi had been starting to form partnerships outside China, choosing to work with( and expend $100 m in) Lyft in the US. That deal meant that when Didis Chinese clients were travelling in the US, they could summon a automobile through Lyfts app, and vice-versa for Lyfts clients in China. We dont know whats going to happen to Lyft now that Uber is one of Didis biggest investors, but its unlikely to be positive. The Lyft spokeswoman Alexandra LaManna told CNBC: Over the next few weeks, we will evaluate our partnership with Didi.

Whatever happens, Uber can stop putting so muchcash in China, and instead focus on its battle with Ola in India and regulators in the US, Europe and, well, pretty much everywhere.

Uber meanwhile may be able to help Didi improve the algorithms it uses to match drivers with passengers, especially when it is necessary to carpooling, where multiple passengers with different destinations are grouped into the same journey. Didi has spoken about the challenges of recruiting data-science talent and launched a $100,000 prize for machine learning this year.

Tech firms including Google, Facebook and Amazon have all struggled to succeed in China, a tantalizingly large and lucrative marketplace. Partnering with the local incumbent relatively early on may be the smartest thing Uber could have done.

Now that the two companies are no longer fighting for driver and rider loyalty, theyll be able to charge customers slightly more more and pay drivers slightly less. And thats a good indication who the real losers in this bargain may turn out to be.

Read more: www.theguardian.com

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